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Case StudyThe Tussle over Corporate Governance at Reliance

(Th.is crise is based on reports in the ptint and electronic media. The case is meant for academic purpose only. Thewiter has no intention to sully the reputations of corporates or executives involved.)

A Brief Note on Ambani's Entry intolndian lndustrial Scenario

Dhirubhai Ambani was the seccnd son of a poorschool teacher from Chorward village in Gujarat.He studied up to 10th standard and aecidea toioin his elder brother, Ramniklal, who was thenworking in Aden. The first job Dhirubhai held wasthat of an attendant in a gas station. 'Half a centurylater, he would become chairman of ReliancePetroleum Limited, a company that owned thelargest oil refinery in India. When he died inBombay after a stroke on 6 July 2002 aged 69, theReliance group of companies that Dhirubhaiestablished had a gross annual turnover ofRs. 75,00C crore or close to US$ 15 billion. Thegroup's interests include the manufacture ofsynthetic iib..rES, - iex iile s and petrochemicalproducts, oil and gas exploration, petroleumrefining, tele-communications and financialservices. Before the split took place behveen hisprogenies, Mukesh and Anil, the Reliance $ouphad total revenues of over Rs. 99,000 crore(US $22.6 billion) and net profit of Rs. 5,200 crore(US $1.4 billion). Its revenue was equivalent to3.5 per cent of the country's GDP. It contributed10 per cent of India's indirect tax revenues. Itsexports to more than L00 countries constituted over6 per cent of the country's exports. The RelianceGroup has also India's largest number of investorsin the country at 3.L million that constitutes aboutone-fourth of the country's total investing public.

Reliance lndustries Ltd:AMammoth Corporate

ln rts websrrg, l\clrtncc r-lluuDlrrcp -..,-.-* \;,--;asserts that it is India's largest private sectorcompany on all major finaneial pJrameters witha gross tumover ofRs.74A\g crore (U€ $12 billion),cash profit of Rs.9,197 crore (US $2.L billion), netprofit of R9. 5,L50 crore (US $1.2 biUion), net worthof Rs. 34,452 crore (US $7.9 billion) and total assetsofRs.7'J.,157 crore (US $16.3 billion). RIL emergedas the only Indian company in the list of globalcompanies that create most value for theirshareholders, published by F inancial Times bav.:d

on a global s'-rrvey and research conducted by PriceWaterhouse Coopers in 2004. RIL features in theF orbes GIobaI list of world's 400 best big companiesand in FT Glcbal 500 list of world's largestcompanies.

RIL was adjudged the "Best ManagedCompany" in India in a study by Business Todayand AT Keamey in 2003. The company also baggeCthe credit for being "India ' s biggest weai m creator'in the private sector over a S-year period in a studyby Business Today -SternStewart in 20M. I{IL aloneaccounts for:

t 17 per cent of the total profits of the privatesector in India.

r 7 per cent of the profits of the entire co{poraresector in India.6 per cent of the total market capitalisationin India.Weightage of 13 per cent in the Bslisenslx.Weightage of 10 per ce4t in the Nifty Lrdex.

Reliance Was Mired inControversies Since lts lnception

The textile tycoon's meteoric rise was notwithoutits fair share of controversy. In the days of thelicence control raj, Dhirubhai, more than any ofhis fellow industrialists; understood andappreciated the importance of "managing theenvironment " a euphemism for keeping politiciansand bureaucrats happy. However, no one can denythe fact that he was more than a legend in his ownlifetime. He successfully convinced more than threemillion investors - most of whom, belonged to themiddle class - to invest their hard-earned moneyin his group companies. Much of the credit for+he soread of the so-called "equity cult" in lndiain recent years should nghttuuy go ro i-rhrfubrrar,even if the Reliance group was often accused ofmanipulating share prices.

In L958, after trading in a range cf products,primarily spices and fabrics, for about 8 years,Dhirubhai achieved the first of the many goalshe had set for himself when he became the ownerof a small spinning mill at Naroda, nearAhmedabad. In1977, Reliance Industries wentpublic and raised equity capital from tens of

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