Decoding Mukesh Ambani's Succession Plan And How It Avoids Dhirubhai's Mistakes

A few things are noteworthy about Mukesh Ambani’s Family Day speech yesterday (28 December), the day which marks the eighty-ninth birth anniversary of Reliance Industries’ legendary founder, Dhirubhai Ambani.

First, he indirectly indicated that he will not repeat the folly of his father by not making specific and clear provisions for the transfer of power (and ownership) to his two sons and daughter, Akash, Anant and Isha. The schism in the Reliance Group, which pitted Mukesh against his brother Anil in 2005, resulted in a bifurcation of the empire that Dhirubhai built. A man with such business foresight and entrepreneurship did not think it important to leave a clear line of succession and transfer of ownership. It needed the subsequent failure of Anil Ambani’s many businesses to make the brothers shed their rivalry and come together again, at least at the family level.

By signalling that the leadership transition will begin shortly, when he is still around, Mukesh will be avoiding the mistake of his father in not making his intentions clear when he had the time to oversee its implementation.

This is what Mukesh Ambani said: “From seniors belonging to my generation to the next generation of young leaders, I would like this process to be accelerated. All seniors — myself included — should now yield to the highly competent, extremely committed and incredibly promising young leadership talent at Reliance. We should guide them, enable them, encourage them and empower them……and sit back and applaud as they perform better than us. Let me summarise it this way. At Reliance we must build an organisational culture that outlasts its leaders.” (Read the full text of Ambani’s speech here)

Second, Family Day was the right occasion to not only emphasise that Reliance Group employees, shareholders and business partners were family, but that the future leadership too will come from the family. Mukesh Ambani said: “I have no doubt that Akash, Isha and Anant as the next-gen leaders will lead Reliance to even greater heights. I can see and feel their passion, commitment, and devotion to the cause of Reliance every day. I see in them the same spark and potential that my father had for making a difference to millions of lives and contributing to India’s growth. Let us all wish them good luck in their mission to make Reliance ever more successful with even more transformative initiatives and achieving even greater accolades for our Reliance.”

Clearly, the entrepreneurial drive will remain with family members, even as day-to-day operations will be run by professionals.

Fourth, it is interesting that Mukesh Ambani mentioned all his three children – including daughter Isha – as his inheritors. This contrasts with his father Dhirubhai’s effort to only get his sons into his businesses. This is good.

Fifth, preparatory to the effective transfer of power to the next generation, the group – according to a Times of India report – seems to be planning for Walmart-type succession plan, with the shares of the holding company being put into a trust where all five family members – Mukesh, wife Nita, and their three children – will own shares. Long-time confidants and executives of the company may also be on this trust’s board. The actual operating companies will be run by professionals, probably with one inheritor taking a leadership role in each key company.

The plans for a separate listing of Reliance Jio and Reliance Retail, and the retention of the O2C (oil-to-petrochemicals) within the mother company (it was earlier proposed to be hived off with Saudi Aramco as a significant shareholder), are pointers to the future. It implies that the mother ship’s huge cash flows from O2C will be used to bankroll other ventures, including the new renewable and green energy businesses. The mother ship will be the capital allocator to the offspring businesses like Jio, Reliance Retail and Green Energy initiative.

The idea is probably to give each son or daughter the right to run at least one big company each, enabling all to coexist as family without conflicting business interests and inheritance claims.

That Mukesh Ambani is doing this at age 64, when he is in a position to resolve any disputes in the family and among his executives, shows that he was the right man to run the flagship after his father’s passing. Dhirubhai passed away in 2002, before he attained the age of 70.