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Business Ethics Essay

3248 words - 13 pages


Business Ethics
HealthSouth: The Scrushy way—Activity 8
Melinda S. Whitman
Dr. Jennifer Scott
Northcentral University
May 19, 2013

Table of Contents
Introduction…………………………………………………………………………….. 3
Richard Scrushy Represented the American Dream…………………………………… 3
The Sarbanes-Oxley Act was enacted in 2002…………………………………………. 4
What caused the demise of HealthSouth?...……………………………………. 5
Characteristics of Unethical CEOs……………………………………………………… 6
Was ...view middle of the document...

HealthSouth went public in 1986 with an initial public offering (IPO) of one dollar per share (Jennings, 2012). He courted celebrity endorsements and the trappings of success (Jennings, 2012). In less than two years, HealthSouth’s stock rose to $31 per share and continued to rise thirty-one percent per year over the next decade (Jennings, 2012). Scrushy boasted to industry analysts that HealthSouth had exceeded earnings estimates for 47 quarters in a row and through business acquisitions it became a billion dollar company (Jennings, 2012). HealthSouth became the largest provider of inpatient rehabilitative facilities by creating a network of inpatient and outpatient facilities, outpatient surgery centers, and other healthcare facilities that provided medical services at lower cost than traditional inpatient hospital facilities (Carlson, Coulter & Vogel, 2009). By 2001, HealthSouth operated 1,900 facilities worldwide (Carlson, et al., 2009).

As the corporate executive officer and founder, Scrushy personally benefited from the success of HealthSouth. He owned nineteen cars, and art including original works by Renoir and Picasso (Robertson, 2011, March 20). One of the highest paid CEOs at the time, Scrushy earned a salary of $4 million and received a $6.5 million bonus in 2001 alone.
The Sarbanes-Oxley Act was enacted in 2002.
To address concerns about corporate accountability and accounting practices, Congress passed the Sarbanes-Oxley Act (SOX) in 2002. The country had already experienced a market crisis as many technology companies formulated in the 1990s started to lose value precipitously (Carlson, et al., 2009). In addition, in the previous year a number of significant corporate frauds had been discovered, from Enron to Worldcom and others (Carlson, et al., 2009). To comply with SOX requirements that all financial statements be certified, Richard Scrushy, as HealthSouth’s corporate executive officer (CEO) and its corporate financial officer (CFO) William Owens certified to the accuracy of HealthSouth’s 2001 financial statements which were filed with the Securities and Exchange Commission (SEC) in 2002 (Carlson, et al., 2009). Within a matter of months, questions about the accuracy of the financial stability of HealthSouth surfaced and by February of 2003, the SEC had begun a formal investigation into HealthSouth’s accounting practices (Carlson, et al., 2009).
In March 2003, HealthSouth became the first corporation accused of accounting fraud under the SOX law (Carlson, et al., 2009). Several corporate executives freely admitted to authorities that they knew the financial statements were a sham but that they had been directed by Scrushy to make the numbers match Wall Street expectations of HealthSouth’s performance (Solomon, Carrns, & Terhune, 2003, March 20). Additionally, the SEC alleged that...

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