How Dhirubhai Ambani flunked his biggest test

When Dhirubhai Ambani died in mid-2002, he had already created India’s most successful business empire: Reliance Industries. In less than 30 years, he made Reliance the biggest Indian private sector company after almost single-handedly creating the equity cult and cultivating the most powerful business lobby in the country. Vibrant equity markets and strong lobbying powers were critical to his success. 

While Dhirubhai had many critics who disdained his methods, there is no doubt he was the most far-sighted businessman we have ever had. He started business when capital costs were so high as to make most companies unprofitable without super-high tariffs.

He vaulted over that hurdle by raising equity at huge premiums, effectively reducing the real capital cost of his mega projects. To do this, he needed a huge investor base and a favourable political environment, and he proceeded to create both. 

But this is merely the backdrop for explaining his biggest failure: his farsightedness ended with his business. When it came to family, he was short-sighted. Given the size of the inheritance he was leaving behind, the least he could have done was leave a will.

But he didn’t. Perhaps it was the tangled nature of his shareholdings that prevented a clean division of assets between two ambitious sons, neither of whom was willing to kowtow to the other. Perhaps, he thought—as other fond parents do—that his sons would work out brotherly arrangements. 

Whatever the reason, Dhirubhai flunked the most important of a leader—ensuring the continuity of business by finding someone to run it after him. He had all the time in the world to ensure a clean succession, or even two successions. But he didn’t do it.

Whether you are running a political party or a company or a social service organisation, success cannot endure without succession planning. We can see this in the BJP today.

Despite being widely touted as Vajpayee’s successor, the latter did not ensure a smooth transition to Advani till it was too late. The right time to hand over the party to a chosen successor is when you are still in saddle, not when you are on life support. If Advani had the grace to hand over the party’s leadership to Vajpayee after building it up in the late 1980s and 1990s, Vajpayee did not return the favour to help Advani establish his leadership when he was still powerful. Vajpayee too failed the succession test.

Succession usually happens in one of three ways: one is the corporate style, where a successful CEO creates a raft of choices for his board to select the best man for the job. The second is the dynastic way, where leadership passes from father to son (sometimes daughter). This is what happens in Indian politics and family-owned businesses. This is a hit-or-miss affair. Your son may be competent or incompetent.

Which is why some leaders opt to do nothing. They leave it to the Aurangzebs to establish control after eliminating the Dara Shikohs. This is essentially a Darwinist approach, where success goes to the fittest. Its downside is that it is usually preceded by struggle and bloodletting. 

Dhirubhai’s failure to leave a will has resulted in the biggest corporate fight in Indian history—a fight that hasn’t ended even after the two brothers signed a deal brokered by mother Kokilaben in 2005. But deal, we now know, was merely the end of the beginning. Sibling wars, especially those that are born of mistrust, never end unless the break is clean.

Unfortunately, the Ambani agreement left so many loose ends, that it enabled one sibling to beat the spirit of the deal. Which is why the matter has ended up in court. If newspaper reports are to be believed, the bitterness has reached such levels that even the prime minister’s office is worried. When businessmen fight, ministers and bureaucrats in government have to take sides, and when that happens you can be sure that the business of government itself will be impacted negatively. 

Around the time Dhirubhai was making his mark, India Inc saw both messy and clean family breakups. Everyone, from the Birlas to the Piramals, Mafatlals, Walchands, Goenkas and Singhanias, was splitting, and many managed to do it without washing too much dirty linen in public.

Of course, there was no 24x7 TV and the business media was quite tame, so this could have helped keep things under control. But the lessons could not have been lost on Dhirubhai. 

As one of the most ambitious men India has ever produced, Dhirubhai could not have expected his sons to be docile me-toos. In fact, he should have known that he was leaving behind two Dhirubhais. Why didn’t he do something about it when he could?

One explanation for Dhirubhai’s failure to make his succession plan clear is that, as a fighter himself, he wanted one of his sons to establish his ascendancy through the Darwinian route.

But the more likely explanation is that he was victim to the usual parental reluctance to anoint one son as heir, or, in the alternative, to break up his life’s work into two. He didn’t want to choose either of the heartbreaking alternatives. This was his real failure: his failure to choose