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Companies often mix business with family

The corporate version of “All In The Family" is not rare. But the more familial arrangements you see at a firm, the more it may start to look like shareholder wealth is being misappropriated.
/ Source: The Associated Press

Clarence L. Werner’s unmistakable imprint can be seen all around Werner Enterprises Inc., as one might expect of any business named for its founder and chief executive.

His brother, Vern Werner, serves as “manager of owner-operator conversions” for the Omaha-based freight company and owns two outside truck leasing businesses that were paid nearly $7 million by Werner Enterprises last year. Clint Werner, assistant director of the Omaha body shop, is a grandson to Clarence, nephew to Vice Chairman Gary L. Werner, and son of President Gregory L. Werner.

Scott Robertson, a son-in-law to Clarence, is employed as aviation director. Brother-in-law Eric Downing and his wife, Julie Downing, work as “director of specialized services” and “assistant director of corporate services,” respectively. Gary Werner’s brother-in-law, Daniel Matthew, is employed with fleet truck sales. In total, seven family members of Werner’s top executives were paid about $650,000 in compensation during 2005.

This corporate version of “All In The Family,” though notably extensive in the case of Werner Enterprises, is not rare. It’s annual meeting season, which means that public companies are required to reveal all kinds of details in proxy statements about how shareholder money is being spent. And not unlike children, corporate disclosures say the darndest things when it comes to mixing business and family.

A search of proxies filed with the Securities and Exchange Commission so far in 2006 by the Standard & Poor’s 500 shows about 140 in which at least one of the words “son,” “daughter,” “brother” or “sister” appears, though some include companies where a relative holds stock controlled or owned jointly with an executive.

At Electronic Data Systems Corp., two sons of Executive Vice President Charles S. Feld reaped sizable financial rewards in 2005 from the Plano, Texas-based provider of information technology services. Kenny Feld, described solely as “an employee,” was paid $424,000 in cash during the year and received 10,000 restricted stock units.

The other son, Jon Feld isn’t an employee. He was CEO and 20 percent owner of Navigator Systems Inc., a company that EDS paid $3.8 million “to provide staff augmentation services related to EDS’ development of a Business Intelligence team to support its corporate initiatives of corporate metrics, analytics and dashboards.”

It wasn’t until November that oversight of Navigator’s work was removed from father Charles’ purview, EDS said in its proxy statement. The filing said Navigator submitted the best proposal in a competitive bid conducted by the company’s purchasing organization.

The familial ties are so extensive at some companies that the disclosures should come with visual aids to help investors follow along at home.

EMC Corp., a data storage technology company based in Hopkinton, Mass., employs numerous relatives of its executive officers and contracts with several outside businesses owned by present and former executives and their family.

For example, the company paid $3.8 million in 2005 to lease real estate from a business beneficially owned by EMC director John R. Egan and his siblings. EMC also licensed software for $3.5 million from a company whose shareholders include a partnership managed and part-owned by Egan. EMC also paid $590,000 for the use of aircraft from a company beneficially owned by Michael C. Ruettgers, an EMC employee and a former executive officer and director.

EMC also employs a son-in-law of executive Joseph M. Tucci, a brother of executive David G. DeWalt, and the husband of executive Diane Greene. Also working for the company are a brother, son, daughter and son-in-law of W. Paul Fitzgerald, an EMC director who also happens to be John Egan’s uncle. EMC doesn’t disclose their salaries except to say they were paid at least $60,000.

Back at Werner Enterprises, the company also has entered into numerous real estate deals with CEO Werner. About $6.1 million has been spent on improvements to land leased from the Clarence L. Werner Revocable Trust where there’s lodging and a shooting range for “business meetings and customer promotion.”

The Werner proxy also details a highly complicated series of transactions involving a motel near the company’s Dallas terminal. The CEO recently transferred to the company one-third ownership in the motel, which sits on land sold by the company to the CEO. One related deal requires the company to rent an average of 40 rooms a day at the hotel, an arrangement that cost nearly $1 million in 2005.

Good or bad for investors?
Such arrangements needn’t equate with poor performance — shares of Werner have doubled over five years and EDS has risen 40 percent in two years after losing nearly three-quarters of its value during 2002 — but even a strong showing doesn’t excuse what might be seen as a sense of entitlement with a company’s resources. Werner did not immediately respond to a request for comment.

“When you need an Excel spreadsheet to keep track of related-party transactions, that’s never a good thing for investors,” Michelle Leder wrote in her Web log,

Leder, who mines filings for such tidbits, recently found an intriguing disclosure by Aaron Rents Inc. involving the furniture and electronics rental company’s sponsorship of race car driver Michael Waltrip. Two sons of executive and director William K. Butler Jr., both in their twenties, are participating in a “driver development program” created by Waltrip’s business with funding from Aaron Rents totaling nearly $900,000 in 2005 and $1 million in 2006.

It’s only natural to want to help out family, and such relationships aren’t automatically improper. But the more familial arrangements you see at a company, the more it starts to look like shareholder wealth is being misappropriated.