Let the lines not get blurred

Lots has been written about the rift between the Ambani brothers and the Reliance group over the past several days. The July 27 board meeting, the re-stating of the powers of the Reliance Industries Ltd (RIL) chairman and managing director?and ?Item 17? of the agenda which did that?have been part of animated debate in corporate and market circles for several days now. But to me, one of the most important issues the Reliance fracas has thrown up is one concerning not just the group, but also the future of Indian corporations as they grow bigger, bolder and more ambitious.

As the face-off between Mukesh and Anil Ambani was intensifying, all of a sudden news broke that six directors of Reliance Energy Ltd (REL), the power utility run by younger brother Anil, had resigned. A terse notice to the stock exchange was all that was available by way of public information, and there was no reason given why these directors had chosen to take this action en masse. More important than the fact that as many as six directors had chosen to quit at one go, was that five out of the six are professional managers involved in day-to-day operations at the company and the group. The executive vice-chairman apart, the others who had quit handle finance, operations and business development, while another is a professional representing RIL, which has a stake of over 50% in REL.

A subsequent board meeting saw them being requested to stay on. But till date, shareholders of REL or RIL have no formal information about why these professional managers had quit at a time when a public spat had broken out between the Ambani brothers. The issue that this raises is simple: have professional managers at Indian business houses begun to get drawn into issues which need to be resolved strictly between the members of promoter-families? The resignations of the five professionals on the REL board seem to suggest so. Willy-nilly, whether of their own volition or otherwise, it?s clear that promoter issues have begun affecting these professionals.

Unfortunately, the spat at the promoter level in Reliance has seen the creation of ?camps.? And it?s no secret that professionals in the group are very much part of the strategisation which is taking place on both sides. The question is: why should managers get into matters which are not in their domain? It is well known, and now part of corporate folklore, that Dhirubhai Ambani?s vision created the Rs 1 lakh crore empire that is now Reliance. But it?s also equally true that in creating that empire, each one of Reliance Group?s employees have had a significant role to play. Whether it is RIL?s refinery, or Reliance Infocomm?s network, or Reliance Energy?s power distribution systems, it is these professionals?some of the best brains in the corporate sector?who have executed the vision of Dhirubhai and his two sons. The lakhs of shareholders of the Reliance Group cannot afford to see these professionals get drawn into a battle within the promoter family.

Now, let?s look a little beyond Reliance. As Indian corporations get into the next level of growth and globalisation, setting up operations overseas, entering new global markets and buying foreign companies, it is the quality and independence of professional management at these companies which will hold the key to their future. Every large family-owned business group in India also depends heavily on its own line-up of senior professionals to give shape to their strategies. Whether it is the Tata or Birla group or others, it is these professional managers who?re critical to the future course these groups will take. It may be argued that in many cases, promoters also hold executive functions and are also involved in day-to-day matters of the companies they own. There is, therefore, bound to be a close working relationship between them and their senior managers. Hence, loyalties are bound to develop. But a line between professional management and ownership needs to be maintained at all times, particularly when issues crop up at the promoter level.

Rifts in business families aren?t new. They have happened and will continue to happen, with varying results. But the people who actually run the companies at the operational levels need to be protected from such ownership issues. The onus of doing that should be on the promoters themselves. Simply because if the professional management is independent, it will go a long way in protecting shareholder value. After all, promoters are shareholders too.