Ethics and HealthSouth - Essay Example

?Running Head: Ethics and health south Ethics and HealthSouth of the of the of the Table of Contents Abstract ………………………………………………………………………………………......3 An Overview of the Case …………………………………………………………………….......4 Approaches of the Involved Parties …………………….......……………………………………5 Contrasting Approaches of Decision Makers …………………………………………………....6 Conflicting Objectives of the Business Leaders …………………………………………...…….7 Impact on Stakeholders ………………………………………………………………..................8 Outcome and Fairness of Punishments …………………………………………………10 Birmingham Criminal Trial and Outcomes………………………………………..........10 Montgomery Criminal Trial…………………………………………………………......10 Appeal and Birmingham Civil Try………………………………………………….......11 Fairness of Punishment…………………………………………………………….........11 Company’s Ethical Considerations …………………………………….……………………….12 Social, Ethical and Public Issues in Stakeholder Relationship ……………………………...…..13 Ethics in Academic Setting ……………………………………………………………..............13 Consequences of Ethics Violation………………………………………...…………………..…14 Conclusion ……………………….……………………………………………………..….……14 References ………………………………………………………………………………………15 Abstract The business of the business is to do business in an effective and honest manner to contribute in the success and development of the society and people. However, few unethical needs and demands along with chasing golden dreams of earning maximum amount of money often kill the honesty and innocence of the business in a negative manner. The case of HealthSouth Corporation is one of those cases where the owner along with others killed the image and essence of the business for earning extra wealth and recognition in the business and social environment. Richard Marin Scrushy is the founder of HealthSouth Corporation; a global health care organization located in Birmingham, Alabama (Bartlett, Donald, 2005). The organization is the largest owner and operator of inpatient rehabilitative hospitals in the nation with great reach in more than 26 states in the country. By the beginning of 2000s, the organization was performing well in the competitive business environment and even recorded $4.5 billion in the year 2003. This made HealthSouth Corporation as one of the most successful health care organizations in the United States. The dawn of 2002 marked the presence of slow down and many expected HealthSouth Corporation to move at a slow pace. However, the organization kept performing at a steady pace that amazed the industry analysts. An investigation by the Federal Bureau of Investigation revealed that Richard Marin Scrushy has been charged for the accounting scandal for falsely exaggerating the company’s earning along with playing with the emotions of shareholders by keeping them in dark. The Security and Exchange Commission of the US charged Scrushy with 36 of the original 85 counts and was acquitted of all charges in 2005. However, cases were filed against him that proved him guilty on charges of manipulation of earnings and accounting fraud affecting the decisions of shareholders. The discussion aims at highlighting the key issues associated with the accounting fraud along with analysing key ethical issues involved in an analytical manner. An Overview of the Case The accounting fraud surfaced in the year 2002 when Scrushy was accused of selling $75 million of stocks before posting a huge loss that raised a number of questions on the accounting activities of the company. The Security and Exchange Commission of the United States later accused Scrushy for an accounting fraud pertaining to inflation of company’s earnings by $1.4 billion. This was considered as an attempted fraud for misleading the shareholders along with window dressing the financial statements for meeting shareholder’s expectations. The Security and Exchange Commission of the United States stated that Scrushy instructed his top officials and accountants to falsify financial statements in order to stand tall in front of the investor’s expectations. The prices of the share were controlled in an illegal and unethical manner that later proved fatal for the organization and other top officials along with the owner Scrushy. In the early 2000s, the company’s earnings were inflated by more than 4000% that represented 10% of the total assets of the organization. The organization hired an outside law firm to analyze the stock sale tale of Scrushy but later found that it has nothing to do with the manipulation in the financial statements. In 2003, the Federal Bureau of Investigation executed search warrants and accused Scrushy for more than 80 charges and he was acquitted on 36 charges against him. The ethical and legal stances of the owner and the organization were questioned by the shareholders and stakeholders that went unanswered till 2009. The organization also violated the Sarbanes–Oxley Act of 2002 also known as 'Corporate and Auditing Accountability and Responsibility Act is a United States federal law that set standards for the management and public accounting firms. The corporate responsibilities and criminal penalties are well defined in the act. It is perceived that HealthSouth Corporation violated the Sarbanes–Oxley Act of 2002 by manipulating financial statements along with misguiding stakeholders in an offensive manner. Approaches of the Involved Parties Smith (2004) in his article “The HealthSouth Story: From Dream to Nightmare” stated that Scrushy was the main culprit in the accounting fraud saga that shook the entire country with disbelief. Scrushy picked four of his former colleagues who later became his close associates and member of the management. The management was ruled by the ardent Scrushy and his associates taking decisions on their own. This can be considered as an unethical practice rather illegal practice in the context of the accounting fraud. The beginning of 2002 highlighted string statements being made public in context of the healthy position of the organization in the industry and between that period Scrushy sold 75% of his holdings. Money began to appear and disappear from the corporate books that raised alarm within the management and stakeholders when unveiled. The company stocks that once traded at $21 in 2002 plummeted to $4 dazzling the corporate headquarters. The book keeping problems affected the reputation and image of the organization along with highlighting its dark secrets kept by few of the top officials to peruse personal satisfaction and well being at the cost of playing with the emotions and trust level of a number of stakeholders. The falsification of financial statements and inclusion of fictitious revenues highlighted the real image of the organization to stakeholders based on misguidance and manipulation As a result of government investigation and pressure, seventeen executives of HealthSouth were indicted. The five CFOs of the company and low level managers who fixed the books and higher up executives who ordered them to do so along with Scrushy were questioned and indicted for committing the accounting fraud. Scrushy was indicted on 85 counts of frauds while other were proved guilty for managing the dark game based on acceptance of ideas to manipulate the financial statements. Thus, it can be assumed that the CEO planned the fraud and his men assisted him in achieving the fraud’s goals and objectives. Contrasting Approaches of the Decision Makers In 1986, HealthSouth Corporation conducted an outside audit and auditors found that the books were not reliable. On hearing this, Scrushy fired those auditors as he was sure of his organization’s position and reputation offering great value. Scrushy also fired Ernst and Young as their auditors when claims were made on weak financial health of the organization in the late 90s. The insiders perceived Scrushy as an autocrat micro managing the company and its policies in an autocratic manner. The Board of Directors after knowing the whole accounting fraud held an emergency meeting in which Scrushy was terminated as the chairman and CEO of the organization. The board of directors also restructured the organization along with reorganizing the finances of the organization in an effective manner. It can be assumed that Scrushy along with sixteen other executives wrote a script of disaster that was kept secret from the stakeholders. However, insiders were always sure of something wrong and manipulative about the financial statements of the organization but did not have the prowess and authority to blow the whistle at the right time. The organization that was engaged in financial conspiracies failed to unveil the drama at the initial stages because of the little power and support from the top management. There is definitely a contrasting approach in handling the issue. People with power and authority were expanding their criminal and manipulation acts at will while the other having little power and authority failed to unveil their act and conspiracy (Matulich, Currie, David, 2008) It can be assumed that what the board of directors did was under pressure and obligations. The distinctive approach of being a silent observer and waiting for the right moment to raise the issue and problem can be considered as an unethical approach of handling the issue especially when a number of stakeholders were associated with the planned conspiracy. It also shows that few people were there to handle issue in an ethical manner rather than supporting it. Conflicting Objectives of Business Leaders The primary objective of Scrushy was to put his organization on the top along with making his personal mark in the industry. He was the man behind the rise of HealthSouth Corporation and later claimed was not aware of what his top executives were doing to achieve organization’s goals and objectives. The most interesting part was Scrushy image and position that dominated many within the organization in terms of being vocal on different ideas and perceptions. Scrushy was so full of himself that his micro managing style of organizational management made him feel good and content. His employees were not in a position to speak against him and his beliefs, attitude and behavior drove the organization in the direction created and developed by him to seek personal benefits and advantages. Over the years, the concept of management has not changed much highlighting the role of effective management in wide arrays of scenario. The business objectives of most leaders are to create value and wealth for stakeholders in an ethical and legal manner along with being honest and loyal to different stakeholders. However, the world’s famous conspiracies shaped with common objectives of seeking personal benefits at the cost of cheating stakeholders in an unethical and illegal manner. It needs to be understood that the major problem erupts when leaders start perceiving their position as that of a creator having full rights to do things offering personal and professional benefits. They forget to understand the separate entity concept where business is a separate entity based on the pillars of loyalty, trust, ethics and legal stance. The conflicting objectives destroy these pillars along with snubbing the professional ethics. Business leaders fail to realize the value of being honest and trustworthy and often suffer from narcissistic personality disorder based on micro benefits rather than social benefits based on macro benefits. The next part highlights the impact of conflicting objectives on stakeholders along with analyzing the concept in the context of HealthSouth Corporation. Impact on Stakeholders The onset of remarkable revelations of corporate frauds in the latest millennium shook the United States along with other nations. The past corporate frauds of Enron and World.com were a lesson for many organizations willing to put extra value in their financial statements but few of them did not learn their lessons and engaged themselves in one of the most heinous crimes of cheating people through false and manipulation information. These acts affected a number of stakeholders in a different manner (Smith, 2004). However, one thing that was common in all the frauds was; misery and death of honesty and trust. It needs to be mentioned that an organization shaped up on the expectations of people defined as stakeholders. These stakeholders are employees, customers, shareholders, government and the society. It is important to assess the impact of HealthSouth Corporation’s accounting fraud on wide arrays of stakeholders in an analytical manner considering ethical values and moral principles. The profit mongering and money laundering affected the employees in a negative manner. HealthSouth Corporation offered pink slips to thousands of its employees in order to cope up with the accounting fraud. This act threw thousands of families and lives in disarray along with giving them the feeling of hopelessness. Employees with no job were made to suffer emotionally and financially that can be considered as an immoral human act based on unethical business activities and approaches. The accounting fraud drama unfolded in the year 2003 and employees were in a sense of disbelief and hopelessness. The company’s downsizing approach of stabilizing the business and organization proved to be a curse for thousands of innocent employees living with the hope of a secured job helping them in taking care of their lives and families. However, they were left with the option of suffering along with finding a new job based on the reason of their previous organization engaged in immoral and unethical acts of falsifying financial statements. By the end of 2001, HealthSouth’s employee pension plan had more than 3 million shares of HealthSouth Stocks but indictments of some of the top executives including few pension trustees, the stock of the organization are trading at a lower price than the expected price and thus a setback that is hard to accept. The illegal accounting fraud also affected the share prices of the organization affecting the investments of shareholders. Shareholders invest in an organization with a view of earning profits and dividends. However, the share prices of HealthSouth plummeted so much that investors were down on their face with a hope of gaining a fraction of their investments rather than losing all. The impact has been severe on stakeholders and employees taking all their hopes and wealth in a dramatic manner. This not only affected their lives but also many lives associated with them. When customers buy a product or service, there is a sense of belief and trust associated with that buying (Weiss, 2009). The services offered by HealthSouth were accepted by a number of people but the accounting fraud took all the trust and beliefs along with making them think twice before investing their trust and beliefs in any organization. Customers felt cheated that annoyed them to the core along with raising questions over the government’s initiatives in combating with unethical stances often deployed by few organizations. The government of the United States learnt its lesson after Enron and WorldCom’s frauds by establishing the Sarbanes–Oxley Act of 2002 also known as 'Corporate and Auditing Accountability and Responsibility Act to prevent frauds and unethical business practices (Markham, Jerry. 2005). However, HealthSouth’s accounting fraud again questioned government’s initiatives along with demeaning its image. It also affected and impacted its position and reputation in millions of eyes. Thus, it can be assumed that the impact of HealthSouth’s accounting fraud has been immense on its employees, stakeholders and customers with the government being criticized on the ground of being a mere spectator (Smith, 2004). Outcome and Fairness of Punishment In a period of 9 years, Scrushy and 15 others faced three criminal trials and different outcomes led many questions over the fairness of punishment especially for being accused of ruining thousands of lives. Outcomes and fairness of punishment have been discussed in a logical manner based on ethical and moral principles. Birmingham Criminal Trial and Outcomes In 2003, the Federal Bureau of Investigation announced that it would begin criminal investigations against Scrushy and others on the charge of falsifying the financial statements along with inflating the financial information and figures. Civil charges were brought against them by the Security and Exchange Commission of the United States (2003). The initial indictment included 85 counts of money laundering, accounting conspiracy and securities fraud and Scrushy was charged for 36 counts. He was also accused of threatening and intimidating top executives to commit frauds. The act of paying cash for committing frauds was also charged against him that was further denied by Scrushy. The prosecutors of Birmingham Criminal Trial failed to produce any material evidence for the charges imposed on Scrushy. The trial continued for a period of more than 2 years and Scrushy was acquitted of all charges in 2005 on the ground of little evidence to prove him guilty in the context of accounting fraud (Whitmire, Kyle, 2005). Montgomery Criminal Trial In the year 2005, Scrushy was indicted by a federal grand jury in Montgomery, Alabama. The indictment included 30 counts pertaining to money laundering, falsification of accounting data and facts and securities frauds. It also included bribery of Alabama Governor Don Siegelman that questioned the government’s stance on illegal activities. Prosecutors claimed that Scrushy has paid $500,000 to Don Siegelman to pay his debt in exchange for a seat on the Certificates of Need Review Board. However, Scrushy and Siegelman were acquitted of all charges but convicted of bribery, conspiracy and mail fraud. He was offered house arrest sentence for a period of three months in 2007 and in June 2007 was sentenced to six years and ten months in federal prison, three years’ probation and a fine of $ 150,000. He was also asked to perform 500 hours of community service. Siegelman was sentenced to seven years and four months in the prison. The sentencing put them into custody and both were transported to a federal prison on Atlanta, Georgia. Appeal and Birmingham Civil Try After the sentencing, Scrushy appealed several times but was denied. However, in March, 2009, a panel of three judges from the panel 11th U.S. Circuit Court maintained all charges against Scrushy. However, the Supreme Court of the United States issues an order to review the case. Scrushy returned to Alabama to testify in a new civil trial. Investors accused him for the fraud and he kept denying his participation in the actual fraud. On June 18, 2009, Judge Horn ordained Scrushy to pay $2.87 billion for damages that compelled Scrushy to appeal further against the verdict. He is still in the federal prison serving the sentence and is expected to be released in 2013 as per the Federal Bureau of Prisons (2011). Fairness of Punishment The punishment offered to Scrushy is quite justified in practical terms. He will be in prison for more than six years along with an obligation as a part of the ordinate to pay $2.87 billion. The emotional and actual loss embedded with thousands of suffering lives cannot justify the fairness of the punishment. However, the punishment is fair enough to make him feel guilty and responsible for hurting millions of emotions at the cost of personal benefits and advantages. He has disrespected and killed ethical and moral principles along with putting millions of lives in disarray and in a state of hopelessness. There is no punishment to amend this crime and its impact and thus there cannot be any valuation of the punishment being sentenced. Company’s Ethical Considerations Business ethics or professional ethics are moral principles that need to be followed by organizations across the world in the social and business environment. The ethical issues in HealthSouth Corporation led to the downfall of the organization in the business and social environment. Ethical considerations in the business environment include managing the business in an honest manner along with being loyal to stakeholders (Duska, 2007). It needs to be understood that the organization is a separate social entity that needs to follow social norms and values in a systematic and ethical manner. The financial performance of an organization matters the most when it comes to making it a successful entity in the competitive business environment. However, in order to highlight expected financial performance, organizations often follow unethical business approaches known as financial frauds. HealthSouth Corporation falsified its financial statements in order to stand up against the expected emotions of Wall Street Analysts and failed to present an ethical image. The organization could have followed the conventional path of appointing inside and outside auditing of financial statements along with keeping a close on inflow and outflow of the fund. The financial problems and issues could have been highlighted earlier in order to stop unethical approach of misleading stakeholders in an illegal manner (Machan, 2007). The social performance of the organization can be analyzed through the assessment of corporate social responsibilities undertaken by the organization. However, the unethical financial performance of the organization offered little room to enhance its social performance and reputation. HealthSouth Corporation could have invested money in revamping the society by implementing wide arrays of social benefits programs. This could have helped in winning the trust and loyalty of stakeholders. However, in quest of an exemplary financial performance; oftentimes, organizations failed to raise their social performance and reputation. Social, Ethical and Public Issues in Stakeholder Relationship Stakeholders can be insider in the form of employees and shareholders and also outsiders in the form of customers and other stakeholders. It needs to be understood that every relationship is based on trust, honesty and loyalty. Major issues can be addressed using an honest and trustworthy approach in the social and business environment. Organizations need to discuss social issues with the society in order to come up with solutions offering mutual benefits. At the same time ethical issues need to be discussed with honesty with a number of stakeholders. HealthSouth Corporation failed to discuss ethical, social and public issues with concerned groups and failed to live up to the expectations. This act destroyed the relationship of over 14 years along with demeaning the image of the organization. Issues need to be discussed with stakeholders if an organization wants to grow and develop in the short as well as in the long run. There is no extent to which issues should be discussed and shared but it is judicious to handle them in an ethical and honest manner rather than making a bigger issue of the existing issue. Ethics in Academic Setting Academic environment allows students to learn new things based on sharing of ideas and information. However, there is a need of honesty and integrity to achieve desire goals and objectives pertaining to academics. In an academic environment, students, researcher and teachers often violate certain code of conducts that are against the professional ethics. Plagiarism and imposing of ideas and information are issues that need proper understanding as these issues often assists unethical approaches. The role of a student, researcher and teacher is to understand and present ideas and information in an honest manner without manipulating them. This particular discussion is an honest attempt of underpinning ethical issues prevailing in the social and business environment with special focus on HealthSouth Corporation and follows morally and ethically accepted approaches of presenting data and information (Jennings, 2009) Consequences of Ethics Violation Ethics are morally accepted values and beliefs accepted by the masses and any sort of violation affects the associated parties. However, it depends on the effect and magnitude of ethics violation to analyze the severity and consequences. Ethics violation in the business environment is considered as a crime especially if it affects the mental and physical states of stakeholders. This may lead to sever punishments like incarceration or monetary fine. It needs to be understood that any sort of ethics violation is a heinous crime that has severe and negative consequences on different people and thus should be avoided at any cost by being morally and ethically correct in every deed irrespective of personal or professional. The accounting fraud committed by Scrushy can be considered as the best example for understanding the consequences of ethics violation (Jennings, Marianne, 2006). Conclusion The discussion over ethics and its value and importance in the social and business environment has been discussed in an illustrative and analytical manner. Ethical practices and violation of ethics have been discussed in the context of the accounting fraud committed by Scrushy, the owner and CEO of HealthSouth Corporation. The discussion has been presented in an ethical and logical manner covering all the prescribed guidelines. The understanding over ethics has been presented through a thorough analysis of journals, academic books and newspaper articles. The case study of HealthSouth Corporation clearly stated that unethical business approach can only thwart the financial position and social reputation of organizations and should be avoided by embracing honesty (Tarantino, Anthony, 2006). Overall, the discussion offers a clear understanding over ethical issues and consequences along with analysing them in an ethical and analytical manner in terms of understanding and solutions. References Books Bartlett, Donald (2005). "Wall Street Medicine". Critical condition: how health care in America became big business--and bad medicine. New York: Broadway Books. pp. 81. Duska, R. (2007). Contemporary Reflections on Business Ethics. Boston: Springer. Jennings, M. (2009) “Business ethics: Case studies and selected readings (6th ed.). Mason, OH: South-Western Cengage Learning. ISBN: 9780324657746 Jennings, Marianne (2006). "Innovation like No Other". The Seven Signs of Ethical Collapse (annotated Ed.). New York: St. Martin's Press. pp. 214–216 Matulich, Serge; Currie, David (2008). "Richard Scrushy: The Rise and fall of the King of Health Care". Handbook of Frauds, Scams, and Swindles: Failures of Ethics in Leadership (Illustrated Ed.). CRC Press. pp. 315–351 Markham, Jerry (2005). "Full Disclosure Fails". A Financial History of Modern U.S. Corporate Scandals: From Enron to Reform (illustrated Ed.). Armonk, N.Y: M.E. Sharpe. pp. 360–364 Machan, T. R. (2007). The Morality of Business: A Profession for Human Wealthcare. Boston: Springer. Tarantino, Anthony (2006). "Civil and Criminal Penalties for Noncompliance". Manager's Guide to Compliance (illustrated ed.). Hoboken: John Wiley and Sons. p. 111. Weiss, J. W. (2009). Business Ethics: A Stakeholder and Issues Management Approach With Cases (5 Ed.). Mason, OH: South-Western Cengage Learning Electronic Sources Federal Bureau of Prisons (2011). Inmate Locator. Retrieved on November, 13, 2011 from http://www.bop.gov/iloc2/InmateFinderServlet?Transaction=NameSearch&needingMoreList=false&FirstName=Richard&Middle=Marin&LastName=Scrushy&Race=U&Sex=U&Age=&x=77&y=8 Securities and Exchange Commission (2003). “Complaint: HealthSouth Corporation and Richard M. Scrushy”. Retrieved on November, 13, 2011 from http://www.sec.gov/litigation/complaints/comphealths.htm . Smith. P (2004). The HealthSouth Story: from Dream to Nightmare, Retrieved on November 13, 2011 from http://www.scrushy-report.com/printer-hs_story.html Whitmire, Kyle (2005). "Scrushy Pleads Not Guilty to Bribery and Mail Fraud". New York Times. Retrieved on November, 13, 2011 from http://www.nytimes.com/2005/10/29/business/29scrushy.html Read More