HealthSouth Corporation

1.The business scandal that I’ve selected is the one involving HealthSouth Corporation. HealthSouth Corp.is one of the largest healthcare services provider in the United States. It has state-of-the-art rehabilitation services with more than a thousand facilities across the United States and Puerto Rico. Each facility is equipped with both inpatient and outpatient rehabilitation equipment and personnel. It also has outpatient surgery centers that include more than 330 hospitals.

At the prime of its existence, HealthSouth was able to make $4.4 billion in annual revenue, and stood alone in its class in the field of rehabilitation services. It had over 50,000 people in its employ manning 2,000 facilities spread across each state in the U.S. and all over the world.

On March 20, 2003, the Security Exchange Commission accused HealthSouth and  founder-CEO Richard M. Scrushy of accounting scandal. The SEC was able to obtain evidence against Scrushy after CFO William Owens agreed to wear a wire for the FBI in order to get Scrushy to talk about the crime. Scrushy allegedly falsely inflated the company’s earnings by $1.4 billion, and instructed the company’s senior officers and accountants to submit false earnings reports so as to maintain investor expectations thereby controlling stock prices.

Company income was allegedly overstated by as much as 4700%. Although Scrushy was later acquitted of the crime, he was nonetheless terminated from his own company, which later recovered from its incurred losses without him. Scrushy was also later convicted on bribery charges, two years after the HealthSouth scandal. Several specialists criticized the jury’s decision as formed from “unqualified” contemplation about concepts that were ‘beyond their understanding”.

The decision made was to lie to both the investors and the financial market regarding the current financial strength of the company. Scrushy was primarily responsible since he was the one who order the action, although the accountants and officers were the ones who acted upon the decision. It was later proven that they were merely acting under duress from their boss.

3. Evaluating the decision in a deontological point of view, it can be argued that while the CEO of the company (Scrushy) has the prerogative to give orders to his subordinates regarding his company, this prerogative is limited by several constraints which Scrushy did not consider. One constraint is the company’s responsibility to its stock holders who deserved the right to know the true state of the company as it would affect their decisions regarding their financial stakes in HealthSouth. Another constraint are the regulations set by the government regarding accounting dynamics for corporations like HealthSouth which Scrushy’s decision neglected. Since the prerogatives of Scrushy’s decision overruled the constraints that they were supposed to be governed under, the decision was wrong.

4. What should have been done was that Scrushy should have stayed within the constraints defined by government regulations and responsibility to investors. He should have been content with reporting whatever progress his company was actually makin, especially since it was reported that the company at the time was not losing money in the first place. It was ultimately greed that brought HealthSouth’s former CEO to his downfall.

 References:

Indictment of Richard M. Scrushy. Retrieved July 5, 2007 from: http://www.usdoj.gov/dag/cftf/chargingdocs/scrushyindictment.pdf

 SEC Charges HealthSouth Corp., CEO Richard Scrushy With $1.4 Billion Accounting Fraud. Retrieved July 5, 2007 from: http://www.sec.gov/litigation/litreleases/lr18044.htm

Special Report: Richard Scrushy Trial. Retrieved July 5, 2007 from: http://www.al.com/specialreport/birminghamnews/healthsouth/