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Saturday, December 18, 2004
The blind faith that drove Reliance
Reliance may be thriving in the post-liberalisation era, but at their core, they belong to the era of Indira Gandhi. Indian companies that have modernised themselves, like Infosys, Wipro, even the Tata Group, are transparent with their shareholders, and their business dealings are clean and above-board. Reliance, on the other hand, owe their success to the Machiavellian genius of Dhirubhai Ambani, to his ability to garner patronage in the corridors of power, and to the unarticulated slogan: means be damned.
Ambani is a hero to many in my generation. We grew up in the 80s and early 90s, when Reliance was on the rise, and we admired the manner in which Ambani had built his empire despite the dysfunctional corrupt system, which would never allow honest businessmen to thrive. It was understandable to admire him, and his methods, then; but now, it is not. The system has liberalised substantially, political patronage is a far less important factor, and one would have thought that Reliance would have modernised itself as the times changed. Especially, considering that it is a company that devotes so much rhetoric to caring for its shareholders, on the issue of transparency.
Enlightened shareholders want not only to make money off the stocks they own, but also to understand how the company functions. Reliance’s shareholders have lost thousands of crores in stock market value since the Ambani brothers began fighting, and they deserve it. They have never known the exact ownership structure of the Reliance group, a tangled web of deceitful dealing that is only now beginning to emerge. They have never cared to wonder about the strangeness of how Reliance conducted its financial dealings, such as when Reliance Industries Limited, the flagship company, provided 90 percent of the funds to set up Reliance Infocomm, and yet got just minority shareholding of that company in return. They have never asked questions.
In other words, Reliance shareholders held that stock not out of rational reasoning, but out of blind faith. If things unravel, they will have no one to blame but themselves.
While on that subject, read Alam Srinivas’s cover story in the latest issue of Outlook, “The Loser Is You”. Also read the little side story that accompanies it, about the dirty financial dealings of the company. Also, here’s Prabhu Chawla’s cover story in India Today on the same subject.
Ambani is a hero to many in my generation. We grew up in the 80s and early 90s, when Reliance was on the rise, and we admired the manner in which Ambani had built his empire despite the dysfunctional corrupt system, which would never allow honest businessmen to thrive. It was understandable to admire him, and his methods, then; but now, it is not. The system has liberalised substantially, political patronage is a far less important factor, and one would have thought that Reliance would have modernised itself as the times changed. Especially, considering that it is a company that devotes so much rhetoric to caring for its shareholders, on the issue of transparency.
Enlightened shareholders want not only to make money off the stocks they own, but also to understand how the company functions. Reliance’s shareholders have lost thousands of crores in stock market value since the Ambani brothers began fighting, and they deserve it. They have never known the exact ownership structure of the Reliance group, a tangled web of deceitful dealing that is only now beginning to emerge. They have never cared to wonder about the strangeness of how Reliance conducted its financial dealings, such as when Reliance Industries Limited, the flagship company, provided 90 percent of the funds to set up Reliance Infocomm, and yet got just minority shareholding of that company in return. They have never asked questions.
In other words, Reliance shareholders held that stock not out of rational reasoning, but out of blind faith. If things unravel, they will have no one to blame but themselves.
While on that subject, read Alam Srinivas’s cover story in the latest issue of Outlook, “The Loser Is You”. Also read the little side story that accompanies it, about the dirty financial dealings of the company. Also, here’s Prabhu Chawla’s cover story in India Today on the same subject.
