Splitsville and after

The story of the Ambani brothers has raised important questions of corporate governance. It is clear that in India today there needs to be greater policy attention paid to this issue. India8217;s legacy of family-run companies continues and, even today, most of the biggest private companies in the country are family-run businesses. Indian industry is therefore dominated, on the one hand, by large public sector enterprises which are owned by one single owner 8212; the government 8212; and which do not operate in a transparent manner and, on the other, by family-run private sector companies. This is in contrast to Britain, where nearly 100 per cent of the big companies are widely held by the public and run by professional managers; and to the US, where only 20 per cent of the big companies continue to be family-run businesses. Along with professional management and wide public holdings, have come an improved corporate governance structure where the interests of the shareholders are much better looked after. The checks and balances on the management are much greater and their attempts at theft and pilferage from the company are better curbed. India8217;s weak corporate governance has often been talked about in the past, but the story of Reliance should put it on the top of the agenda today.

Therefore, despite the anxiety, uncertainty and tension caused by this dispute, the good news is that this break up may accelerate India8217;s move towards professionally-managed companies, which should then result in more efficient outcomes, both for the economy and for the shareholders of the company. Specifically, with the breaking up of a large monopoly, the Reliance settlement may just help create greater competition in Indian industry. There may well come a time when it can be said that India was better off having two Reliances, rather than just one.