Adelphia Case

Adelphia Communications Corp.’s Bankruptcy

Adelphia was run by the Rigas family who created it, like many other US cable companies. The company was incorporated in 1972 and the Rigas family grew the company slowly but steadily at first. The family’s emotional attachment to their company was reinforced by the discretion in strategic decision making, afforded to them by their controlling position. This made them keen on acquiring new companies, and the most reluctant to sell their own. The family had everything to gain, but they also had everything to lose. The Rigas family’s high level of involvement in the company led it to several conflicts of interest and management issues that overwhelmed the company. These issues, as well as the flaws with its business structure, laid the groundwork for the company’s imminent bankruptcy due to a massive accounting fraud. Fraud was not the company’s biggest problem, but the underlying issues within the company and its structure that led it to occur.

The first conflict of interest the company faced was how the company chose to staff its Board of Directors with family members and close family friends. John Rigas and his three sons all held places on the board from the outset; a brother-in-law as well as other family friends joined them. Although there are no restrictions prohibiting family members from being on the board of directors, this is generally not advised. Those that include family members tend to be viewed as suspicious because family members are not independent. Family members typically put the family’s interests ahead of the company’s. The board was willing to sign off on anything that would benefit the Rigas family, because they were all family or close family friends. The next conflict was derived from the company’s location. Adelphia remained in Cloudersport, Pennsylvania, which was a very small low income town. The company employed 1,200 people in a town that had a population of less than 2,700. It brought...