Health South: The Scrushy way - Research Paper Example

? Health South: The Scrushy way Table of Contents Introduction 3 Impact on stakeholders 3 Richard Scrushy 3 Management Team of HealthSouth 7 Board ofDirectors 8 Employees 8 Patients 9 US Government 10 Outcome and Fairness of Punishment 10 Conclusion 12 References 13 Introduction There is a myth about crime that ‘it does not pays’, but perhaps crime pays when an individual has the personality to administer and lead a billion dollar company, and authority to affect the welfare of millions. The case entails about how Richard M. Scrushy’s unethical behavior has caused problems for the stakeholders of the company. In the context of the study, the author has investigated the case on the basis of business ethics. According to the author, crime sustains only for a shorter period of time. Therefore the persons who cheats other or takes unfair advantage from the circumstance of other individuals, gets distorted at some point of time from the external sources of environment. At times individuals who remain unethical even hurt themselves as well as the persons who stay around them. Impact on stakeholders A number of stakeholders are impacted by this unethical approach and dishonesty. The individual and the groups that have been affected by this phenomenon are Richard Scrushy himself, the management team of Richard Scrushy, the board of directors of the company, employees, and the patients of HealthSouth. Furthermore the Government of USA has also suffered a setback. The report will now discuss about the impact of this activity on each of these stakeholders, but before highlighting the impacts of dishonesty on stakeholders, a brief introduction about the groups are presented below. Richard Scrushy Richard Scrushy can be regarded as a self made man who loves to achieve everything in life. He was actually a school dropout, but finished his GED (General Education Development). After that he also completed his degree from the University of Alabama at Birmingham (UAB) in the field of respiratory therapy. During the period of 1984 to 1997 Scrushy built the HealthSouth. It was a multi-million dollar project and the investments were mainly done by Citicorp Venture Capital. HealthSouth was established for the primary purpose of offering large number of facilities to the patients. Some of the important ones are treating large number of patients per day, and outsized accommodation capacity. The outcome of this large investment also came forward within few years of its operation. It started to treat more than 1, 20,000 patients per day, and the earnings reached $106 million. Meanwhile during this period there were a number of allegations regarding the financial deception and breaking of ethical standards against the organization. In this context during the year 1989 Solieri, Felo, & Hodowanitz (2008) highlighted that an internal auditor was fired from the organization for the purpose of drawing attention to HealthSouth’s financial problems. In the year 1991 Solieri et al. also highlighted that the accusations by Medicare was that, HealthSouth was filling the bills that were charged against them for the indoor patients as well as the outdoor patient rehabilitation. Hence in the year 1998 Medicare modified their payment system in order to reduce payments and exploitations which may have negatively impacted HealthSouth. In addition it has been further identified that several complaints were lodged against HealthSouth by Medicare. It claimed that the company has inappropriately billed them for the purpose of therapy by interns, students, athletic trainers, and other unlicensed individuals. Furthermore Medicare stated that the company has billed amount for the services that it had never offered. It also highlighted that HealthSouth delivered poor services, never taken care of the patient; they did not have a suitable treatment plan and were also making use of unlicensed therapists for treating the patients. After all such happenings and investigations, finally the U.S. Securities and Exchange Commission (SEC) lodged a complaint against HealthSouth and Scrushy for the reason that his company had hidden and laundered a sum of around $ 2.7 billion among the period of 1996 to 2006. Until these final verdict Richard Scrushy, CEO and Chairman of the Board for HealthSouth was fully in charge of the operations of HealthSouth from its establishment. He set the tone at the top which depicted enough indications of corruption (Beasley, Carcello, & Hermanson, 1999, p. 12). A deeper inquiry should have been carried out at the company long before the collapse. Several actions of Richard Scrushy such as the negligent attitude towards interior controls, sumptuous lifestyle, and the sense of freedom indicated his attitude. The factors are detailed below:- Treatment of others: - All the financial records highlighted that Richard Scrushy led his team jeopardize manner. He interfered in the personal things of the employees. It includes intimidation, threats, electronic and telephonic surveillance, and illegally reading their emails. Richard Scrushy had a coercive and autocratic leadership style (Graham, 1995). He had belief about the fact that if individuals are pressurized, they will perform better. He used to have weekly meeting with the employees, for the purpose of discussing the performance of the employees. His approach to the employees was such that if employees fail to accomplish their task properly, the next day they will be fired. According to the author such behavior with the employees is highly unethical. In this context few eminent scholars highlighted that an organization always holds two types of leader. The leaders can be classified as ethical and unethical leaders. Unethical leaders have the tendency to pursue their ambitions, irrespective of the impact on external environment (Howell & Avolio, 1992). Also unethical leaders use power to satisfy their personal interests and do not think about the fact, that these practices can affect others. Their motive is to reach the goals at any cost without thinking about others. They also portray differences in the process of implementing their corporate vision. Apart from that they promote their goals in a way that satisfies their personal agenda. Moreover their personal wants, create problems for others, most of the time. This is the reason why unethical leaders are regarded as one way communicators, and mean mindedly when taking suggestions and other inputs. Hence in others words such leaders pretend to know everything or know more than anybody else. Such is the characteristics of Scrushy who used to practice all the aforementioned unethical activities. One of the important skills that such leaders possess is the strong communication skills. By applying communication skills they manipulate others to support their thoughts and personal requirements. Negligent attitude toward internal controls: - In this section, further discussion about the Board of Directors of the HealthSouth will be carried out. From the findings of the study it is apparent that there were hardly any internal controls in the organization. Also there was a lack of controls on the executives in order to prevent any clash of interest. Even there was an absence of executives who could protest or report about the unethical practices of the organization. In accordance with the situation Holmes, Langford, Welch, & Welch in the year 2002, highlighted that negligent attitude towards the internal control may reduce precision and activeness of the employees. The internal working environment was therefore transformed in such a way that it perhaps encouraged fraudulent activity and highly discouraged reporting of such activities (Holmes, Langford & O. J. Welch & S. T. Welch, 2002). Sumptuous Lifestyle: Richard Scrushy has always tried to live a lavish life (Jennings, 2009). The reported assets of Richard Scrushy were a mansion in Birmingham, 14,000 square-feet lakefront home in the Lake Martins of a whopping $ 3million, a yacht of 92 foots, and thirty four cars which includes one Lamborghini and two Rolls-Royces. Apart from that he also had the privilege of 11 corporate jets. Also Richard Scrushy influenced the staff members to take risk for earning money and live a lavish life (Neeley & Boyd, 2010). Sense of Privilege: - The author identified that a number of corporate personalities are strangely less concerned about their fraudulent activities. However this is mainly due to their philanthropic endeavors. With their charitable and societal work they cover mal-practices and frauds in such a manner that people remain unaware about their dark sides. The sense of being privileged can be best portrayed by two factors. One is the ‘wild west behavior’ and the other is ‘culture of innovation and social responsibility’. There are huge differences among the two groups. Individuals exhibiting Wild West behavior have a feel of high status in the society and slowly forget their roots. Such kind of behavior was portrayed by Richard Scrushy. On the other hand the leaders which belong to the ‘culture of innovation and social responsibility’ group have high sense pertaining to social responsibility and innovation. Management Team of HealthSouth The management team of the HealthSouth can be characterized by two essential factors. The two factors are character imperfection and negligent management practices. The two aspects are explained below:- Character Imperfection – The factor that contributed largely towards the establishment of such character within the management is the unethical activities of Richard Scrushy. He seemed to promote those individuals who were motivated for earning more and were also ready to indulge in unethical activities. According to the author HealthSouth mostly had young officers in his team. The rationale behind recruiting young individuals was actually to use them in accomplishing his personal objective. Moreover with experienced and aged team members unethical practices and money laundering would have been difficult. Further the author pointed that it is common in a corporate scandal that everyone blames the other party in order to save themselves. The management team of HealthSouth had asked the CEO about his intentions and what tasks are needed to be accomplished in order to reach those goals. From this statement it is clear that the management of HealthSouth also had the motive to get involved in the fraudulent activities for the purpose of earning more money. Following their approach Scrushy offered them large pay packages just for assisting him in the process of money laundering. Furthermore he offered incentives to the management team for the purpose of discussing the fraudulent schemes. Negligent management practices – The management team of HealthSouth knew the practices through which they will be benefitted. However they also knew the fact that if they did not take the side of Scrushy, strong actions may be taken against them. Therefore without giving any second thought, they opted to follow the way led by Richard Scrushy. In this context the author identified that the principal reason by which the organization faced ethical collapse is the negligence of the management in performing their duties. Board of Directors The principal purpose of the Sarbanes-Oxley Act and the development of codes of governance were to improve the eminence of the company’s board governance (Enrione, Mazza, & Zerboni, 2006, p. 963). The board of Health South had abolished the governance of the company and was principally engaged in the process of managing conflict of interest. In this context one of the board members highlighted that they were to a certain extent was unaware about what was happening within the organization. Hence from this fact it is clear that there was a huge lack of appropriate knowledge among the directors regarding the corporate malfunction. It has mainly been caused due to inadequate and poor administration. Similarly for the particular company poor governance can be cited as one of the reasons (Lublin & Carrns, 2003). However the state of affairs was promoted and supported by a number of individual directors. It also had strong links with the founder of the company Richard M. Scrushy. Another expert in the corporate governance has highlighted that, there has been huge negligence in the job and therefore must rise during the demanding situations. The company was on the verge of a collapse and was probably going to face an ethical crumple. The reason behind this occurrence is the lack of proper administration which should have been accomplished by the board of HealthSouth. Furthermore there was a conflict of interests among the members of board and the organization. According to Jennings, these conflicts do not merely portray independent judgment but also develops an environment in which the standard of ethics diminishes. The main reason was the failure to gain loyalty from the customers (Jennings, 2003). Also the group that should have balanced the activities and ensured ethical practices at the company did not exercise any restrain. Employees The unethical practice also affected the employees. Possibly the most important fact regarding the ethical collapse of HealthSouth is not only due to the greed and voracity of the CEO, and the mismanagement of the board or the top level management, but it was also due to the involvement of several employee. Hence this has led Rossbacher to put emphasis on the fact that the HealthSouth venture was engulfed by corruption and many fraudulent activities have been in place. However the company does not stress on its primary function of treating patients. They were much more focused on earning money. Due to such mismanagement the employees of the company were also encouraged to undertake unethical activities. There was hardly any whistle blower in the company. Again in this context Jennings highlighted that the working environment of this organization was very poor for the employees who were truthful and honest (Jennings, 2005). Under such working conditions the study of Holmes stated that if the staff members feel they have been trapped in the situation and do not have any provisions to exit from there, then the members must consider the fact that at some point of time they have to face the consequence. Another thing is that they can adjust themselves according to the need of the situation. The culture of the organization was also stringent, both coercive and authoritarian culture is being practiced in the organization. This has led to a ‘culture of fear’. In order to describe it more elaborately, according to Milgram, there are considerable numbers of people in the society who perform the action they have been asked by their superior, irrespective of the future consequences of the task. They are also happy to perform the task until the order comes from a legitimate authority. Another interesting face came around in this context is that a number of employees were forced to do what they had been ordered, and moreover the employees also remained silent about it. Patients The patients of the company were also affected by the dishonesty and ethical breakdown of the company. Patients were the most ignored group of stakeholders. The company was primarily responsible for providing outpatient and inpatient rehabilitative care. It seemed that during the course of time the CEO had forgotten the actual roots of his colossal financial growth. Actually his main job is to offer health care service to the individual patients. However there were several allegations made by Medicare over the years about the fact that the company is not fulfilling its primary task of curing the patients. The scandal also broke the financial situation of Scrushy. The author also highlighted the fact that the ethical rationale of company may be to increase profits, but it should engage itself in a competition which is free and open, thereby restricting any practices pertaining to fraud and deception (Friedman, 1970). US Government The Government of USA was also highly affected by these mal-practices. The management of HealthSouth along with its CEO has been practicing unethical activities. However off late they faced consequences. The verdict came late mainly because of the deferred prosecution. Deferred prosecution can be referred to as the prosecutions of criminals, where a company found blameworthy for carrying out a crime is not punished, provided the fact that the guilty company and prosecutor enters an agreement. The typical agreements come in the form of fine, contribution in the civil recoveries, contribution for charitable or social work, assisting the prosecutors, change in management, and appointment of a supervisor among others (Rossbacher, 2006, p. 205). It is an important fact that the company only did not have corrupted members in the form of senior executives, but they also had a number of ordinary employees who were dishonest. The government went for the elite leadership but failed despondently. Following the first trial, Scrushy was accused on 30 charges of money laundering. Some of the cases that have been highlighted include obstruction of justice, racketeering, extortion, bribery and extortion. For this reason he was jailed for a period of 6 years and 10 months (Whitmire, 2006). Richard Scrushy also faced another trial, which was a civil trial. It was initiated by the shareholders for the purpose of seeking damages (Baurlein, 2009). The judge then found that Scrushy was the person to blame for HealthSouth’s fraud. Hence in this matter the judge awarded the defendants a sum of $2.87 billion (Hubard, 2009). Outcome and Fairness of Punishment For Richard M. Scrushy crime did not pay at the end. During the last 20 years poor ethical practices of Richard M. Scrushy has impacted the patients, tax cost tax payers, management and also the employees. However each of these groups got affected by different forms. The taxpayers were highly impacted in the form of Medicare fraud. It never actually recuperated in spite of the fact that recompense was already being made by the company. The patients were also hugely impacted by this phenomenon. It came in the form of ‘less care or ignorance’ to the patients. The patients were not at all cared by the company which has caused various health issues. The rehabilitants were looked after by the individuals who do not have the credentials to treat a patient or the individuals lack the required knowledge and skills for treating a patient. The people who were there in charge of the patients also lacked proper training which acts as a crucial factor for carrying out the process of treatment. However the patients were billed according to the standard rates. Furthermore the impact on patients also came in the form of financials. HealthSouth and its management staffs highly focused on earning more profits rather than thinking about the welfare of the patients. It can be also illustrated that the management of HealthSouth focused on quantity rather than quality. In the meantime the employees of Health South were highly affected by this mal-practice. It came in the form of insensitive working environment, and poor working culture. The environment was such that every employee felt of losing their job at any moment of time. The employees also feared that they may face the anger of management. Therefore the employees had to struggle every time to sustain in the organization. Moreover they had also lost their self integrity and disposition. Finally the management of the company had to face the consequences for their greed. They faced tremendous ethical dilemmas of the staff members. The employees also stressed that they should be allowed to meet directly with the CEO Scrushy. Furthermore such activities has caused high attrition rate among the senior executives. The turnover rate was also extremely high among the employees who are particularly of more than 50 years of age. Hence high turnover of senior level executives has caused a number of problems for the company. Nevertheless the ending of the case was according to the expectations. Scrushy and a number of members from his team had to face legal consequences. They went behind the bars. Even there were other restrictions imposed on Richard Scrushy. The biggest one came in the form of legal restrictions from the court. The civil court illustrated that Scrushy can never become an administrator in public corporation and can never become an officer again. The assets of Scrushy were also seized and he also lost his freedom. Such thing had only happened due to the autocratic leadership style, lack of integrity and honesty, actions and for being unethical and greedy. Now regarding the matter that whether the punishment is justified and the outcome is proper or not, the author has a different viewpoint. In this context it is believed that it is always better to prevent the malpractices at the first stage. Hence it is also perceived that the results could have been better and the situation would not have worsened if the initial attempts of Richard Scrushy could have been resisted. Conclusion Crime never pays at instant and has long term consequences. In the perspective of unethical decisions, it may not be exposed for a certain period of time, but at some point of time these decisions gets uncovered. During that time the individuals that made such decisions will have to pay for their misconduct. The CEO Richard Scrushy obtained money fraudulently from various government agencies, insurance companies as well as from the patients. Richard Scrushy was the person who has developed a culture of corruption and negligence within the organization. He was also the person responsible for implementing unethical practices within the organization. Due to this unethical practice and dishonesty, countless people were negatively impacted. However at the end of it he gets back all his dues in the form of punishment. As explained previously crime never pays instantly, it has a long term consequence. Similarly the crime of Scrushy was uncovered after a certain period of time and he along with his team members went behind the bars. 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