All in the family

Succession planning in India Inc remains a clannish exercise

With the promotion of Mukesh Ambani’s first-born son to the chairmanship of Reliance Jio, the group’s telecom business, and his daughter expected to assume a similar position in Reliance Retail, commentators have been praising the group for early succession planning. This exercise is expected to preclude the embarrassing and public clash between Mukesh Ambani and his younger brother, Anil, after the death of their father, Dhirubhai Ambani. This pattern had been the norm in older business groups with the Modis, Shrirams, and Singhanias all suffering messy and acrimonious disputes over control of business assets in the 1980s and 1990s. Bajaj and the K K Birla group stood out as traditional business groups that clarified succession plans decades before the death of the founder, ensuring a frictionless transition. With the Reliance fiasco of the mid-2000s being a cautionary tale, many other groups such as Godrej, TVS, and Emami have made similar early moves to put successors in place since then.

Though the decision to secure the succession and groom successors from an early age — the Ambani children are in their thirties — is sensible from the point of view of the principal shareholder, it would be a stretch to describe it as a beacon of good corporate governance. More than anything else, the Ambani succession offers a reminder of the fact that three decades after economic liberalisation, Indian business remains firmly in the control of founder families. Prima facie there is nothing wrong with appointing a son or daughter to succeed a founder. Plenty of Asian groups have become behemoths as family-controlled enterprises. The question, however, is whether the decision can be described as best practice. For one, selective succession eliminates at one stroke access to the corner room for all the professional talent available within an organisation.

Some non-family professionals may well be more capable and talented than the designated successor. It is possible that the successor too may be extremely competent, especially given the high-level exposure and grooming she or he may receive. But since inheritors do not have to face the pressure of proving their worth in a level playing field, it is difficult to gauge their true talent against competing peers. Besides, privileging family in a business enterprise is a serendipitous exercise that does little to enhance shareholder value. The Reliance group is a good example of this. Mukesh Ambani’s undoubted flair for entrepreneurship has transformed the old-school oil and petrochemicals business he received in the family split into a futuristic racehorse and it remains a stock-market favourite. In contrast, the performance of his younger brother’s high-potential power and telecom businesses has been different.

To be sure, appointing sons and daughters to leadership positions early does offer shareholders sufficient visibility about the future to decide whether to stay invested. In India, where competition from global business is limited for a variety of reasons, this increasingly quaint managerial practice may endure. In this respect, it is interesting that the bulk of the large Indian groups remain inwardly focused rather than competing on the global stage. But whether India Inc can become truly globally competitive going forward if its largest businesses remain staunchly under family-oriented management remains an open question.