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"Piggy Bank"

Members of the Rigas family were arrested this year for securities fraud described as using their family controlled company, Adelphia Communications Corp., as their "personal piggy bank." As Adelphia was a publicly traded company their actions drew extra attention and seemed especially egregious. But their activities reminded us of practices we've seen often in private family firms. Consider the offenses of the Rigas family members and let's compare them to relatively smaller, all private, family firm---the fictional "Private Company, Ltd."


Adelphia Communications Co. Private Company, Ltd.
Company purchased $12 million of office equipment froma store owned by family members. Company uses daughter-in-law's travel agency to purchase air tickets and hotel reservations for company's sales force.
Company funds borrowed to purchase Buffalo Sabres hockey team. Company lends money to finance home remodeling for CEO.
Company invested money in a venture capital fund being established by son-in-law. Company invests money through a son-in-kaw as its stockbroker.
Family flew free on corporate jet. Family flies free on corporate jet-or uses corporate paid service for airport limousine service.
Company lent money to founder's daughter to start film company. Company lends money to stepson to finish his education.
Company used CEO's wife's business for corporate interior design. Company hires young nieces and nephews as independent contractors to provide summer lawn maintenance at the business.
The chairman drew salary advances of $67 million. Company provides a loan to a family member for a down payment on a new house.
Adelphia employees regularly performed work for other companies owned by the Rigas family. Company pays for company cars for non-employed spouses of employed family members.


Are there differences?


Yes No
Adelphia is publicly traded. Family decisions affected the interests of other shareholders. Don't the interests of other stakeholders---employees, distributors, bankers, etc.---matter as much?
It's all "one pot" or "one pocket" that the family has. Besides, the family has sacrificed so much through the years for the benefit of the business. Perception is important. Besides, it's more important for the family to feel privileged and responsible than burdened and unappreciated.
To assure long-term business survival, continuity and family shareholder unity it's important to meet the needs and interests of family members. Family unity and commitment should be more a function of the opportunity to set an example of values and to make a difference in society.


Without wanting to sound like a moralist, I do hope this Two Hats does encourage business families to establish policies on Conflicts of Interest and to establish independent eyes such as its board of directors to look at family activies and rationales.

The Rigas family lawyer offers, "It's a very complex and complicated situation. This characterization as looting is very unfair. John Rigas started this company in 1952 and built it. All his net worth is tied up in Adelphia stock. He never sold a share."




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