Succession in Family-Owned Businesses: A Case Study of Reliance Industries-India

Abstract

The split that followed the failed succession plan for Reliance Industries Limited is one of the most significant and publicized narrative in the Indian corporate sector. The long family feud that followed the death of the founding patriarch Dhirubhai Ambani highlights the critical role of succession planning in large family businesses. Succession planning becomes extremely critical in the emerging markets where the legal and institutional arrangements regulating the corporate entities and the corporate governance practices are still being developed. The absence of a solid succession plan observed in the case of Reliance Industries is not uncommon among large business houses in India. However, given its size (market capitalization of over Rs. 1.2 Lakh Crores) the Reliance saga has implications beyond just souring of personal relationships among family members. Given the fact that it is one of the largest and most successful exchange traded conglomerates, the economic implications in terms of corporate value erosion and shareholder wealth destruction are immense. The uncertain environment since the death of Dhirubhai in 2002 has had negative implication for firm's stock performance. In addition, the recently unveiled plan of de-merger and split of the empire among the two brothers most likely is not the best way to spin-off business units from a conglomerate. There may be value erosion due to lost diversification benefits, synergies, economies of scale and scope, and complementarities. This case deals with the implications of the dispute for corporate value and continuation of efficient business practices. It also concerns the regulatory environment and how to ensure effective corporate governance mechanisms to ensure that various stakeholder interests are protected.

Keywords: Family Business, Corporate Governance, India, Succession, Shareholder Protection

JEL Classification: G32, G34, G38