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'Atrocious' Morale

As former AT&T Broadband CEO Bill Schleyer mulls the pros and cons of accepting the CEO position at troubled Adelphia Communications Corp., here's another factor to consider — former employees say morale at the company has hit bottom.

Sources said Schleyer has been meeting with Adelphia managers in New York over the past few weeks. The trip was made mostly as a fact-finding mission, and not to interview prospective colleagues.

If he takes the job, Schleyer faces the uphill task of restoring Adelphia to financial health. An even bigger challenge might be reinvigorating a work force frustrated by what several sources call the inefficiency of the company's interim managers and an atmosphere of mistrust permeating the MSO since its bankruptcy filing in June.

"The morale of the group is atrocious at every level," said one former Adelphia director of residential data, who asked not to be identified by name.

Schleyer and top lieutenant Ron Cooper are said to be close to making a decision on whether to join Adelphia. Cooper, former chief operating officer of AT&T Broadband, would have the same role at Adelphia. (The two executives are out of work because Comcast Corp. has completed its acquisition of Broadband).

Schleyer and Cooper could ultimately back out, but sources say the jobs are theirs for the asking.

They're apparently being asked to decide quickly. Adelphia would not comment on its CEO search, but a spokesman said it's hoped the job will be filled by the end of this rough year.

Annus horribilus

Adelphia's downward spiral began in March, when it was disclosed that the company was responsible for about $2.7 billion in off-balance sheet debt owed by entities controlled by its top officers — chairman John Rigas, chief financial officer Timothy Rigas and executive vice president of operations Michael Rigas. That number later ballooned to $3.1 billion.

Subsequent investigations by the Securities and Exchange Commission and the U.S. Attorneys Office revealed that the Rigases had engaged in a number of self-dealing transactions, including using company planes and finances for personal matters and building a championship golf course using company funds.

In September, the Rigases, former vice president of finance James R. Brown and former assistant treasurer Michael Mulcahey were indicted on 24 counts of conspiracy, bank fraud, securities fraud and wire fraud. At the time of their arraignment on the charges (Oct. 2), all five of the executives pleaded innocent.

Then on Nov. 14, Brown pleaded guilty to three counts of bank fraud, conspiracy and securities fraud in return for his testimony against the Rigases.

Chief restructurers

Adelphia is currently being run by chairman Erland Kailbourne, but several former employees said the real operational decisions are being made by Ron Stengel, Adelphia's chief restructuring officer and a partner in the consulting firm Conway, Del Genio & Gries, a New York financial advisory firm that specializes in troubled turnarounds.

Adelphia hired CDG around the time it filed for Chapter 11 bankruptcy protection in June.

According to those former employees, Kailbourne, Stengel and other Adelphia independent directors have not inspired much employee confidence.

"It scared me when CDG first came in to talk to me about the cable-modem business and said they were familiar with it, because they worked on the Excite@Home [Corp.] restructuring," said one former manager. "That didn't give me a lot of comfort."

Excite@Home filed for bankruptcy protection in September 2001. In May the company liquidated most of its assets.

'We've Rebuilt Nothing'

The former director of residential data said that adding to the employee confusion is that nothing seems to be able to get done.

"We've been doing budget drills for six or seven months, and we've rebuilt nothing," the former director said.

While Adelphia has said in public filings that it has put most of its capital expenditures on hold, the former director of residential data said Adelphia management had restarted some upgrade projects necessary to grow the business.

Almost as soon as they restarted, the projects were canceled.

"It's analysis to paralysis, meanwhile burning up huge amounts of money on this CDG group, not to mention the attorneys," said one former manager.

Adelphia spokesman Eric Andrus said the MSO is trying its best to manage the business through the bankruptcy, but has to make sure money is spent efficiently.

"Certainly, the company is looking to not only generate additional revenue, it's looking to run the business as efficiently as possible and focus on its core assets," Andrus said.

While some rebuilds have been put on hold, he added, others are continuing.

"To the best of my knowledge, rebuilds are continuing in specific areas, but not everywhere," Andrus said. "We're in a Chapter 11 situation. Dollars have to be managed more closely."

Several sources pointed to high salaries paid to consultants, some of whom are receiving as much as $650,000, from a company that's trying to cut its costs as it works to revitalize its operations.

Andrus defended the compensation of consultants, but would not confirm individual compensation.

According to monthly operating reports filed with the bankruptcy court, Adelphia incurred about $22.4 million in professional fees in the four months ended Oct. 31. Adelphia defines professional expenses as fees for re-audit, legal, special investigation and forensic consultancy of the company, as well as the special committee of the board of directors.

"Some of these people are specialists that come in and literally work night and day," Andrus said. "There's lawyers, there's accountants, there's construction people."

Fear of firings

Adding to the frustration is the fear of further layoffs. Adelphia's last round of staff reductions at its corporate headquarters amounted to about 57 employees. While hundreds have been let go in the field, employees in Coudersport, Pa., are expecting further cuts at the beginning of the year.

"Everybody is basically petrified," the former manager said. "They know the ax is going to swing in January."

Adding to that fear is the callousness with which some employees were let go, former workers said. According to those people, lower-level employees are given 10 minutes to gather belongings and leave the premises.

Others are being treated better, those sources said.

According to one employee, Adelphia vice president of marketing Jim Matusoff sold his Coudersport home to the company for about $345,000, or about $5,000 more than he paid for it.

Another employee, vice president of business operations Mike Brady, sold his home to the company for between $220,000 and $240,000.

These transactions were made in a rural Pennsylvania region hundreds of miles from a large city, whose major employer in bankruptcy.

But while these two former company officers were able to sell their homes, the former workers said Adelphia has told employee tenants of about 45 houses it owns that their properties are for sale.

Andrus said Adelphia owns 45 homes in Coudersport, many of which were leased or rented to employees for recruitment and retention purposes. The company has notified occupants those homes would be for sale, offering them the opportunity to buy the properties themselves, he said.

See a Rigas? File a report

Former employees said buying those homes would be difficult, given that workers live in constant fear of losing their jobs.

Other employees spoke of Kailbourne's virtual invisibility in the halls of the Coudersport headquarters.

They also spoke of an atmosphere of mistrust surrounding the company's management, culminating in a directive on Oct. 14 that employees must file detailed memos with Adelphia's legal department if they have any contact with Adelphia's disgraced founding family, the Rigas clan, Brown or Mulcahey.

According to a memo issued by Adelphia counsel Randall Fisher, employees were instructed not to talk about the business with the Rigases, Brown or Mulcahey. They were told to file a detailed memo after any encounter with the former executives, be it social or business.

In the memo, Fisher said it had come to the company's attention that the Rigases were attempting to contact Adelphia employees to obtain financial information about the company.

According to one source familiar with the matter, John Rigas had left a message with an employee at one of the family's partnership companies, asking for financial documents. The source said the employee never responded to Rigas and contacted Adelphia's legal department.

What Rigas was attempting to obtain could not be determined.

Andrus acknowledged the policy, but said Adelphia itself has a pending lawsuit against the Rigas family and that three family members are under federal indictment.

Unhappy birthday

The Rigas paranoia also extended to a birthday party for John Rigas on Nov. 14, at a barn on the family's property.

In a strange coincidence, the party was held the same day that Brown pleaded guilty and implicated the Rigases in the alleged fraud against Adelphia. Sources said about 100 to 120 people showed up.

One attendee said that while Rigas was in generally good spirits, employees at the party were afraid that Adelphia's current executives might retaliate.

"The party meant a lot to him [Rigas]," said one former manager who asked not to be named. "He said that this was a great ending to a terrible day."

It wasn't such a good day for that manager, either. After submitting his required report to Adelphia's legal department about his contact with the Rigases, the manager said his unit was earmarked for layoffs, and he later lost his own job.