Dhirubhai Ambani’s passing away in 2002 resulted in a year long chaos amongst the brothers Mukesh and Anil regarding who’d ascend to take control of the throne left behind.
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From the Waltons to the Kochs, Mukesh Ambani has had a close look and studied into how these billionaire families passed on their empire to the next generation. But lately, the process has gained even more momentum as Asia’s richest man has set out to create an outline for his fortune worth $208 billion trying to avoid any warfare that has split up so many families with his own falling prey to it once.
One could draw parallels to the 64 year old Indian tycoon’s preferred plan with that of the Walton family who are more widely known as the family behind Walmart Inc. Sources close to the matter say that these shared elements could very well provide framework for one of the biggest wealth transfers in contemporary history, reported The Print.
A trust-like structure that controls the Mumbai-listed flagship Reliance Industries Ltd is what Ambani has reportedly decided to move his family’s holdings into, the source claims, requesting to remain anonymous on a topic that they weren’t authorised to discuss in public.
The board of the new entity overseeing Reliance is set to consist of Ambani, his spouse Nita, and his three children with a few of Ambani’s long-term confidantes set to be added to the roster as advisers.
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However, Management is largely going to be entrusted to outside capable hands who are set to handle the daily operations of India’s most influential cooperation whose business ranges from oil refining and petrochemicals to telecommunications, e-commerce and green energy.
Ambani doesn’t stand alone in his desire to manage the next stage. An entire generation of power tycoons are currently dealing with the difficult transition from procuring wealth to passing it on as they age. Data provided by Credit Suisse Group AG revealed that over the next decade, approximately $1.3 trillion is set to change hands between the first generation founders and their heirs.
Winnie Qian Peng, director of the Tanoto Center for Asian Family Business and Entrepreneurship Studies had the following to say about the matter at the Hong Kong University of Science and Technology, “The Ambanis are the richest family in Asia — people will definitely look to them”.
Ambani, who has an estimated net worth of $94 billion to his name, is still exploring his options and is yet to come to a decision, sources claim. Representatives for Reliance and Ambani close to the situation are yet to respond to a detailed email requesting for comments.
The current batch of Asian tycoons are very well aware of the risks that succession poses, considering the rather laborious efforts of their peers from other parts of the world, commented Jan Boes, the Singapore-based head of a UBS Global Wealth Management division that oversees engagement strategies in the Asia-Pacific region.
“They want to avoid that,” Boes said. “On top of that you have the pandemic, which has made people really start thinking about what it is they really want.”
Boes also went onto add that client inquires on family succession and governance matters in the Asia-Pacific have almost doubled from what it was prior to Covid-19.
“Culturally, it’s not something that people are comfortable talking about,” Boes said. “The younger generation doesn’t want to bring it up. Now, people are getting prepared and ready.”
Ambani, yet to publicly disclose any of his plans to be hands off with his responsibilities as Reliance chairman and managing director, has his children enter the limelight more nowadays. Twins Akash and Isha, and Anant 26, were indicated to have significant roles in the future at Reliance in a shareholders meeting back in June.
The business tycoon stated “I have no doubt whatsoever that the next generation of leaders at Reliance, led by Isha, Akash and Anant, will further enrich this precious legacy”.
There has been a tendency amongst the wealthy dynasties like the Dumas family’s Hermes fashion empire and S. C. Johnson & Son Inc to keep their relatives in control of their businesses and it’s management.
Yet, the world’s richest family of the Waltons have only maintained a board level watchful eye, as they outsource the operation of the U.S retail behemoth to managers since 1988, when David Glass filled the CEO position Sam Walton left behind.
The eldest of Sam’s sons, Rob Walton and his nephew Steuart Walton retained positions on Walmart’s board while Greg Penner, Sam’s grandson-in-law, became the chairman of Bentonville, Arkansas-based company in 2015.
Criticisms of the clan being prioritised over the stakeholders were plenty, yet, most of the extended family find themselves focusing their time and energy outside of Walmart in areas like business, investment and philanthropy.
The renowned Walton family model reflects the remarkable foresight of the founder Sam who built the empire to what it is today. Preparing for succession from as early on as 1953 which was almost 40 years before he’d pass away, he passed on 80% of the family business amongst his four children: Alice, Rob, Jim and John resulting in minimal estate taxes and helped the family retain control while the company grew into world’s largest retail business.
Statistics provided by Bloomberg reveal that the Waltons own around 47% of Walmart via Walton Enterprises LLC and related family owned trusts. This implies that they still to this day maintain the sway, according to Nelson Lichtenstein, author of “The Retail Revolution: How Wal-Mart Created a Brave New World of Business” and director of the Center for the Study of Work, Labor and Democracy at the University of California, Santa Barbara.
“The fact that the family owns close to 50% of the company means that the managers they hire know where the real power lies,” added Lichtenstein.
A spokesperson for Walmart disagreed with Lichtenstein’s interpretation, claiming the retailer is committed to maintaining a majority independent board. It “believes that this independence ensures robust oversight, independent viewpoints, and promotes the board’s overall effectiveness,” the person added.
A model like this one which keeps the family at the core, but still outsources management would sound tempting to someone like Ambani considering his history.
The Reliance empire established in 1973 as a trading house by Mukesh’s father Dhirajlal Hirachand Ambani was thrown into chaos when the year 2002 saw the death of the patriarch without a will. This ultimately lead to a long drawn out conflict for the control of the throne between Mukesh and his younger brother Anil, 62, both involved in the business at the time.
Initially, everything was smooth sailing as the brothers worked together with Mukesh at the top as the Chairman and Anil as the Vice Chairman of Reliance. But relations took a turn for the worst as both started to believe that the other was making decisions without consulting them.
On one occasion, Anil refused to sign Reliance ‘s financial statements, stating what he believed to be inadequate disclosure, and the directors of the underlying company he was running showed their loyalty by resigning.
Underlying all of it became a dispute about the fundamental nature of the brothers’ relationship. As the elder, Mukesh thought of himself as the natural boss, while Anil taken into consideration himself an equal partner. This tussle subsequently snowballed into a form of Ambani civil warfare and 3 years after Dhirubhai’s passing, their mom, Kokilaben, was pressured to interfere.
In a 2005 agreement brokered by Kokilaben, the brothers split up Reliance’s assets. Anil took the telecommunications, asset-management, entertainment and power-generation organizations while Mukesh retained management over the refining, petrochemicals, oil and fuel, and textiles operations.
It’s a “classic case of poor succession management,” said Kavil Ramachandran, head of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business. “Having gone though a bitter process with his brother, Mukesh Ambani definitely wouldn’t like to have the play re-enacted in his family branch.”
Ambani’s heirs could be taking over an empire very distinct from what their father inherited as part of the circle of relatives detente.
In his two decades at the helm, Ambani has converted Reliance. proprietor of the world’s biggest crude refining complex, the conglomerate’s diversification has kicked into overdrive during the last 5 years, upending India’s mobile communications landscape and integrating Amazon.com Inc. — and Walmart — inside the United States’s budding e-retailing space. Ever since 2016, Reliance’s market value has more than quadrupled, making it India’s most valuable enterprise.
This year, the focus was on building a green energy group, which is a significant transformation of one of the world’s largest billionaires in the field of fossil fuels. With the traditional energy industry facing criticism and anxiety over climate change priorities for investors, it looks like another move that future proofs Ambani, which became grandpa in December.
Ambani recently abolished a two-year plan to sell a 20% stake in his oil and chemical unit to Saudi Arabian Oil Co., which is a sign of a change in priorities for him.
He also reorganized the business to consolidate family control, said one of the people familiar with Ambani’s planning. The family share in the Reliance index rose to 50.6% from 47.27% in March 2019, according to company data.
Reliance could over time become a company that owns three sub-businesses – energy, retail and digital – which could be listed separately in the future, people say. The kids and Nita will have equal shares in the holding company, which gives them the same level of control over the listed organizations, according to some people.
Such a setting may prevent any regulatory uncertainties that could lead to a dispute. And the family may have more say in the operation of Reliance than at Walton in Walmart, some say.
“In Indian companies, the controlling shareholders hold considerable voting powers which can be used to appoint or remove members of the director board,” said V. K. Unni, a professor at the Indian Institute of Management in Calcutta.
As it seeks to accelerate the Reliance transformation, Ambani’s approach to the delivery of effective directives and strategies will be closely monitored – not just in India.
More than a third of Asian family empires are owned by first-generation founders, according to Credit Suisse, and over the next decade nearly 100 of these companies will be looking to transfer control and wealth, often to potential heirs who were educated abroad and exposed to Western business models.
The tycoons who have already handed over the reins have taken many paths, from the common – the Li and Cheng family in Hong Kong transferred control to the older sons – to rare, with Teresita Sy-Coson, the eldest child and daughter of the deceased.
Philippine millionaire Henry Sy, who heads the family council that runs the largest Southeast Asian country company, is listed publicly for market value, which includes homes and land to banks.
Hong Kong millionaire Lee Man Tat came to prominence when he formed a family council that gave his wife and five children a say in the reign of Lee Kum Kee’s 100-year-old empire, which includes real estate. Lee passed away in July, leaving his children to attend to the conglomerate with the existing family constitution.
It is clear that Ambani’s children are being prepared for greater prominence.
The twins played a key role in the company’s transformation of sales and technology, including negotiations with Facebook Inc., now Meta Platforms Inc., which received $5.7 billion in investment from Reliance’s Jio Platforms Ltd., the ship that contains Ambani’s e-commerce hopes. Anant is a director at Jio Platforms Ltd., an oil and chemical business, and Reliance renewable energy units.
“What Ambani is doing is quite rare,” said Peng at the Tanoto Center in Hong Kong, referring to his forward planning. “Normally these patriarchs hold onto it all until the last minute. He’s become wise because he’s learned from his family’s past mistakes that they don’t want to repeat.” – Bloomberg