Research Paper on HealthSouth Scandal

Abstract

The beginning of the 21st century witnessed the worst financial frauds in the history of American corporate scandals. At one end, it unraveled the shortcomings of the international standards of financial reporting while on contrast it also raised much ethical concern in corporations. HealthSouth is among the top five financial fraudulent scandals of all times. It involved 'cooking of the books' by the top management including its CEO to amplitude the financial statements. Moreover, as the scandal unfolded, it also raised many other questions including the role of the directors, auditors and their respective fiduciary responsibilities towards the shareholders. It also invited considerations whether the executive compensation should be dependent on the company's earnings, which in turn, foster the motivation beyond the fraud. It is also still questionable that if a strong leader like Scrushy is capable, as it is perceived, to quiet all voices of reason in the firm. Astonishingly, Scrushy got acquitted from the case since not enough evidence was available to proof him guilty but subsequently documented proof retrieved which charge him culpable in the bribery case.

Table of Contents

Abstract1

Introduction3

Scandal and Ethical Concerns4

Impact on Stakeholders5

Management5

Board of Directors7

Employees8

Shareholders8

Auditors9

Outcome and fairness of punishment10

Conclusion12

Research Paper on HealthSouth Scandal

Introduction

The past one decade has witnessed some of the worst corporate scandals of all times. Sarbanes Oxley Act was proposed in 2002, but it was too late to avoid the unprecedented corporate scandals in the history of corporate America. Even these scandals are dominated by Enron and WorldCom, but nobody could avoid the HealthSouth scandal which involved a financial reporting fraud of $2.7 Billion. It is ironic that these companies were entirely in different industries, but there came a time when all of them were competing for headline space as biggest scandal in history. One on the side, these companies highlighted the gaps and shortcomings of various international financial reporting standards which in turn enable them to commit these frauds. At the same time, it also surfaces many ethical concerns during the normal operations of a business. As famously quoted adverb, a system is as good as the people employing it. Any system is prone to fail if the people involved with the system are exploiting it for a purpose other than it is meant. Top leadership including the former CEO Scrushy and other executives engaged in the company definitely established a place in the hall of fame for worst corporate abuse. The common element, which can clearly be observed in all these scandals is breach of the basic ethical precept that is leaders are meant to lead by example and they are followed by their subordinates right from top to bottom of the organization hierarchy. If the top hierarchy is engaged in unethical practice, the whole organization including all employees on its payroll would follow their example. A former chairperson also noted that, in contemporary terms, top leaders cannot avoid their responsibility of setting a moral example. In the same context, especially CEO has the most crucial role ...