The Scrushy Way

10 October 2016

The lies of the multi-year fraud have been revealed and exposed, accusing Mr. Schushy by the Securities Exchange Commission (SEC) in falsely exaggerating HealthSouth earnings. In this paper, I will analyze organizational culture of that Richard Scrushy has created, and the consequences of the financial fraud that has occurred at HealthSouth. Scrushy’s background Scrushy’s story of climbing the ladder is quite impressive. Richard Scrushy was a High school dropout. He got married at a young age to his first wife with whom he had two hildren. Scrushy was a diligent provider in the family. While residing in the trailer park and working hard, Scurshy got very frustrated and dissatisfied with his life. Therefore, he chose to obtain a certification through college as a respiratory technician. Eventually, Scrushy became an instructor of Respiratory Therapy at the University of Birmingham. After serving years as an instructor, he was able to become a director of the respiratory unit at a Birmingham hospital. Then, in 1979, Scrushy transitioned into Life-mark Corporation, a company that managed hospitals.

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Once again, Scrushy was able to rise up the ladder in the company. He held several positions at Life-mark, and eventually became a corporate director. There he was, at the age of twenty-eight, a successful young man, who has made himself. (Matulich, 2007). Jennings(2012) described the start of HealthSouth in steps. Frist, Life-mark was acquired in 1983. Scrushy had many brilliant ideas; one of them consisted of incorporating a rehabilitation services for patients at a lower cost. This new line of service would make an organization a “one stop shop”, providing patients with surgery, rehabilitation, and much quicker ecovery. Scrushy was able to put his idea into practice, forming HealthSouth (Jennings, 2007). Scrushy in the public eye It is interesting to study Mr. Scrushy and his business practice. He was a person, who was comfortable at living a double life. On one side, he was a charismatic, kind, generous, and very likable individual. Scrushy was loved by most celebrities, and he was, indeed, a celebrity. He had that lifestyle: a jet, several homes, multiple cars, and a lot of money. Scrushy was an influential figure; his name stood behind many growing businesses, endorsements, and promotional materials.

He lived a life, where money could buy everything. As a business man he was a dynamic risk taker, excellent goal setter and achiever. Scrushy as a CEO Unfortunately, Scrushy had another personality as a CEO that only his employees knew about. Helyar (2003) wrote about Scrushy’s ways of getting things accomplished. Helyar described Scrushy as a terror CEO, who created a very intimidating, controlling, based on fear and pressure corporate culture. His meetings were torture and pure harassment; many employees have reported that they were humiliated, made fun of, and treated with disrespect.

As the company grew, Richard Scrushy was becoming more and more paranoid. He hired bodyguards, made special entrance ways to the buildings for himself, and spied on his employees. (Helyar, 2003). HealthSouth during the good times The company was performing extremely well in through the mid- 1990s. HealthSouth was the largest Healthcare organization in America, fortune 500 company on the list, with winning stock market record. Scrushy in public was viewed as the most loved, admired, and high paid CEO in the Healthcare industry. From the outside, HealthSouth was doing unbelievably well. As

Jeanine Ibrahim (2013) described, Scrushy lived high, putting “charismatic exterior on the show”. Therefore, on the outside, there were no external flags raised, but on the inside, the organization was boiling. Collapse of HealthSouth In 2002, Scrushy started to have a bad feeling about the organization. He sold a lot of his shares, and was determined to divide the company in half and separate the finances. He was on the way out, when all fiasco has started in the accounting department. The financial problem that originated in the 1996, instead of being revealed, got covered with fake numbers, and the umbers grew year after year. After the former CFO, Weston, blew the whistle, the process of the investigation has begun. The audits were performed and the findings were announced. According to Bergeniv,Magath, and Weld (2004), a very through audit conducted by PricewaterhouseCoopers noted that HealthSouth Corporation’s cumulative earnings were exaggerated by anywhere from $3. 8 billion to $4. 6 billion. HealthSouth agreed to the forensic audit discovery of at least another $1. 3 billion dollars in suspect financial reporting in addition to the previously estimated $2. 5 billion.

The very last report found additional fraud of $500 million, and secured at least $800 million of improper money usage for high bonuses, third party transactions, and accounting reserves. These very findings have put an end to the long term fraud activity at HealthSouth. Fifteen employees, mostly executives and accountants came forward with, claiming their guilty involvement in the financial fraud. The CEO of the company, Scrushy, denied any knowledge of the ongoing fraud in the organization. Impact on Stakeholders The fraud at HealthSouth had a very negative effect on the stakeholders.

There was a lot of pension money invested by many people. Employees, customers, and patients also had money invested in HealthSouth stock market. In 2003, it became obvious that the fraud situation at HealthSouth has caused investors a serious damage and loss. Outcome and Fairness of Punishment It is interesting to see that Scrushy got lucky even in the trial. The jury did not find him guilty. While his employees went to prison for the fraud they conducted, Scrushy was safe. Though there is plenty of evidence that he orchestrated the fraud, the court found him not guilty.

The federal government was shocked and disappointed. However, Scrushy’s freedom was only short lived, due to the next trial, based on the political bribery charges, that put him in jail for 82 months (Pavlo, 2012). Besides his jail time, Scrushy was also made to pay back $36 million fine and give away his assets. Conclusion I believe, to this day, there are people who struggle to answer the question of who Richard Scrushy really was in the business arena. Some continue to think of him as a business genius, but maybe, the facts speak for themselves.

Though he denied any involvement in the fraud occurrence, the evidence was established to confirm that he was aware of many ongoing fraudulent activities in the finance department at HealthSouth. As a CEO, his job was to know and approve the budgets and check all the balances. Perhaps, he was both: a self-made, hardworking, and unbelievably smart person, who lacked business ethics and allowed his personal interests to be present in the core of every decision that was made. According to Werner (2003), it really did not matter in 2003, because everybody lost back then. Unfortunately, not just he reputation of Richard Scrushy suffered; the government, stakeholders, and the whole society, in general, have failed and suffered as well. The government failed to control the auditing from the very start of this organization, therefore, the stakeholders lost their money, resulting in the negative influence on the American society and economy. Based on this story of HealthSouth and many others throughout the course, it is discouraging to see the effects of the money and power on the human being. A chance, that an individual will do the right thing appears very slim when big money and power are involved.

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