CORPORATE

GOVERNANCE

PRESENTED TO: SIR JAVAID ZAFAR

PRESENTED BY : SANA MUNIR
HEALTHSOUTH CORPORATION
HEALTHSOUTH INTRODUCTION
 leading provider of medical rehabilitation
 more than 1,900 locations
 Various facilities
 Rehabilitation hospital
 Outpatient Therapy Services

 Long Term Acute Care Hospital

 Home Health

 Rehabilitation Technology
HISTORY
 Established in 1984, Richard Scrushy,
CEO and Chairman of Board Of Directors
 Appealed to medical community
 Expanded and Profited
 Rapid Growth through Acquisitions
 Fall and Rise Of Revenues within Same
Year
ACCOUNTING SCANDAL
 1. To meet Wall Street’s
Expectation

1.
 To Make up the shortfall

FIX
 Meetings were organized
THE
EARNING  In 1997, Attendees refered
S as family members

 Fill the "gap" or "hole"

 1. To meet Wall Street’s
Expectation

2. Income Before Income Taxes And

Minority Interests
OVER Income (Loss) 1 2000 2001 June
before Income 999 For For 30,
STATED Taxes and Minority For m m 2002
Interests (in $ m 10-K 10-K
EARNING millions)
Actual 10-
$(191
$194 $9 $157
)K
S Reported 230 559 434 340

Misstated Amount 421 365 425 183

Misstated 4,722
220% 188% 119%
Percentage %
 2. Insider Trading

 1997, Scrushy planned to sell stock, & wanted to

maintain the current stock price.

 Scrushy advised to abandon the manipulation he

refused and said, "not until I sell my stock.“

 1998, selling of stock, announced that company is

likely to miss the analysts' estimates for 1998 and
1999.

 2003, Sold 5.2 million shares for $14.05 and about 2.5
million more shares back to HealthSouth at $10.06
each, Share value dropped by 50%
 3. Personal Profits

 He has sold at least 7,782,130 shares of

Healthsouth’s stock since 1999

 99-02, Healthsouth paid Scrushy $9.2

million in salary.

 Scrushy received $6.5 million from

Healthsouth during 2001 in
"Bonus/Annual Incentive Awards”
 4. Hiding the Fraud: To
Restructure

 1992 "absolutely necessary" to

restructure

 1999, split inpatient and outpatient

services

 2002, Recomposing the plan.

DETECTION OF THE
FRAUD
 Detection of Fraud

 On Radar of SEC

 Fleeced Shareholder

 An employee of Healthsouth had written a

letter to the E&Y audit team

 An employee sent an email to Healthsouth's

auditor, Ernst & Young, also used Yahoo
Forum.

 A former CFO of Healthsouth, Weston

PENALTIES FOR FRAUD
 Richard Scrushy CEO and
Chairman
 Falsified financial results by $2.7 billion
since 1996.

 Was not pleaded guilty

 Has been indicted on 85 counts in a

massive federal fraud

 Government's court filed six "crimes,

acts or wrongs"
 Chief Financial Officers
 Malcolm McVay, was  Weston Smith, who blew
sentenced to 6months the whistle on the
home detention and five accounting scandal ,was
years probation after the given 27 months in prison
tenure, also fined $10,000 and was also ordered to
and ordered him to forfeit forfeit $1.5 million
$50,000.
 William Owens, was
 Michael Martin to five sentenced to five years in
years probation, also fined prison. Owens is
Martin $50,000 and ordered contesting the
him to forfeit gains of government's request that
$2,375,000. he forfeit $12 million in
assets.
 Aaron Beam, was
sentenced to three months
in jail, was also fined
$10,000 and ordered to
ROLE OF AUDITORS
Ernst and Young
 Healthsouth employees were Previous
employees of E&Y
 Overlooking the accounts
 Why to be Picky???
 Ernst & Young received$1.16m (pounds
700,000) in audit fees and $2.39m in
"audit- related fees" in 2001.
Penalties to Ernst and Young

 Still had not been charged with criminal

conduct in the fraud.

 But the accounting firm still in 2007 was

subjected to multiple lawsuits.
BOARD OF DIRECTORS
 Scrushy, Chairman of Board of Directors

 Healthsouth board viewed as beholden

to Scrushy

 Doubts created on Scrushy’s actions

 Board Members
 Shareholders

 Dismissed the concept

CORPORATE SOCIAL
RESPONSIBILITY
CONCLUSION
QUESTIONS ???
THANK U