A fresh start

The Ambani brothers may have decided to put months of acrimony behind them and agreed on how to split their father's business empire, but controversy continues to dog their footsteps.

This time, Anil Ambani disclosed the details of the restructuring of the Reliance group within hours of his brothers announcing, at the Reliance Industries Ltd (RIL) annual general meeting, that the company's board of directors had yet to approve the plan.

Indeed, he said that a team of lawyers, merchant bankers and accountants had been appointed to finalise the details. Since the announcement related to how the shareholdings of Reliance Industries in group companies would be restructured, it was up to the RIL board to make it public.

It was, however, Anil Ambani, who is not even a director on the RIL board, who divulged the details. Naturally, the implication is that the board is a rubber stamp, and the family owners call the shots.

However, while such an assertion may be fodder for tirades on the quality of corporate governance, it's very obvious that a settlement between the brothers could have been reached only after the details of the restructuring had been thrashed out. All that remained was for the brothers and the Reliance Industries board to go through the motions and feign that the board, instead of the family, was the ultimate decision-maker in the matter.

It was this charade that was shown up by Anil Ambani's decision to jump the gun. The whole episode has underlined the reality of what passes for corporate governance at family-controlled firms.

It also underscores the fact that, in the Indian environment, where families have very large holdings in their companies, it is futile to enforce corporate governance through stringent rules. All that will happen is that while the letter of the law will be complied with, the spirit will be conspicuous by its absence. The entire Reliance imbroglio offers plenty of examples.

From a practical point of view, however, what is important for investors is that the uncertainty surrounding the split has been dissipated and the details of the restructuring are clear. These details had been leaking to the market in dribs and drabs earlier and have been more or less factored into valuations.

The big improvement is that not only has there been an increase in transparency, but the RIL shareholder can now, if he so wants, exit from businesses such as power in which he may not be interested. To that extent, his choice of options has increased.

It's also important to understand that all that has happened through the restructuring of RIL's holdings in Reliance Energy, Reliance Capital and Reliance Infocomm is that RIL shareholders now hold shares in these companies directly, rather than through RIL.

That's a fair, transparent and non-controversial way of untangling the cross-holdings. More importantly, the best news for shareholders is that the Ambani brothers have been quick to put the split behind them, and both of them have announced plans to increase the scale of their businesses.

The younger Ambani was the first off the mark, announcing big plans for Reliance Capital and following that up with buying out AMP's stake in AMP Sanmar. At Wednesday's AGM, Mukesh Ambani too announced major increases in capacity, and plans to acquire companies abroad and take the company global. All this augurs well for the Reliance shareholders, and has already led to a re-rating of the Reliance stocks.