A FAMILY MATTER

The half-hearted attempt last week by John Rigas to divorce himself from the company he founded 50 years ago is a clear indication that corporate governance reform is long overdue.

Like many family-run companies, Adelphia Communications is packed with the founder's offspring. In Rigas' current battle with Citizens Communications Chairman Leonard Tow over the right to appoint members to Adelphia's board of directors, Rigas clearly has had the upper hand with three sons and one son-in-law on the board.

Even with the resignation of Tim Rigas as CFO of the company and the suspension of its audit by Deloitte & Touche, the board makeup does not change. The Rigas family firmly retains the ultimate authority. Tow's attempt to place three more directors on the board, including himself, presumably would give him at least a fighting chance at bringing an ugly episode under some semblance of control.

Tow's beef with Adelphia stems in part from questionable loans made to Rigas family members. That the Rigas family apparently partially used the funds for their own private partnerships isn't a shock — it happens all the time in small, family-run businesses. Show me a pizza parlor owner who doesn't skim a little off the top for his own personal use (and away from the eyes of the IRS) and I'll show you a soon-to-be former proprietor.

Even in the telco market, family-run businesses aren't uncommon, with Alltel and CenturyTel being two of the largest examples. The difference, though, is the makeup of those companies' boards. While Alltel and CenturyTel have a smattering of offspring in their leaderships, their boards, which ultimately are responsible for representing the shareholder, are filled with outsiders who presumably don't have the familial obligation to protect their own blood relatives.

At smaller, independent telcos, it isn't uncommon to have one family dominate a board with grandsons, granddaughters and wives acting on behalf of shareholders. But more often than not, they are privately held entities.

Tow is right in asserting his power to add three Adelphia board members, but more is needed. While some will argue that family members may be the most qualified to act as directors of a company they grew up in, the strength of the relationships formed by biology sets up an inevitable conflict of interest.

With investor confidence at an all-time low, now is an opportune time for regulators, industry leaders and Wall Street to step in with real reform that would prevent such conflicts and assure the investing public that boards are actually in place to represent them and give them a voice.