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Unethical Conduct

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HealthSouth, the nation's largest provider of outpatient surgery and rehabilitative services, was founded in 1984 by Richard Scrushy and co-founder Aaron Beam. HealthSouth was involved in a corporate accounting scandal in which Richard Scrushy was accused of directing company employees to falsely report grossly exaggerated company earnings in order to meet stockholder expectations. Revenues continued to grow to more than $3.5 billion allowing Scrushy and Beam to enjoy the lifestyle that accompanies corporate success. Then everything changed when, in 1996, the company’s earnings fell slightly short of its goal. According to Beam, Scrushy ordered the books to be fixed. Beam explained, "HealthSouth was a very viable company," Beam explains (2012), "Our earnings projection was just shy of what Wall Street was expecting in 1996 - we were 90-95% there. When it got to the point that we couldn't legitimately make our numbers, Richard couldn't accept that. He's such an intimidating person and led the company as a maniacal dictator. He convinced us to fudge that 5-10% so we would make our numbers. He made us believe that we’d make it up in the next quarter. Unfortunately, my lead accountant said he thought he could make the entries and hide them from the auditors, and Richard said, ‘Let’s do it.’ The correct thing to do was to say no to him, stand up to him, but I didn’t. Obviously, I was weak of character.” Beam’s actions were not uncommon to say the least. Many business professionals would have done the same and not stood up to Scrushy’s controlling nature. In order to help the business leaders of tomorrow make better ethical decisions, a more substantial knowledge of the real world pressures and red flags are a must.

Although Scrushy insisted the numbers would catch up next quarter, they did not. They actually fell short again. Beam repressed his anxieties of the goings on and continued the allowance of forged numbers for four more quarters. After which he stated “I couldn’t live with it anymore.” Overwhelmed with guilt, Beam resigned from HealthSouth in 1997. The fraud by HealthSouth continued until 2003, when it was made public by one of Beam’s successors. When the case went to trial in 2005 Beam, along the other four CFO’s, testified against Scrushy. Beam pleaded guilty to bank fraud and served a few months in federal prison for his part in cooking the books. Although Beam had many troubles finding a job after his release and even resorted to mowing lawns for a period of time, he ended up being asked to speak at Louisiana State University in Baton Rouge. “In the end, you got to keep in mind that what’s right is right even when no one is doing it and what’s wrong is wrong even when everyone is doing it,” Beam (2012) said.

On June 28, 2005, Richard Scrushy was acquitted on 36 counts of fraud that occurred at HealthSouth. Four months later, Scrushy was indicted on new charges of bribery and mail fraud in connection with former Alabama governor Don Siegelman. Scrushy was accused of donating $500,000 to Siegelman's campaign in exchange for a seat on a state hospital regulatory board. Both Scrushy and Siegleman were convicted on multiple charges, including bribery, mail fraud, and obstruction of justice. Both received sentences of or close to seven years in prison. In June 2009, Scrushy was ordered to pay approximately $2.9 billion to HealthSouth shareholders to settle a civil suit. At present, Scrushy is serving his sentence at the Beaumont Federal Correctional Complex in Beaumont, Texas. (2014) Scrushy used the heads of big banks, which have paid billions of dollars to settle claims of alleged misdeeds that contributed to the financial crisis, as examples of cases where top company officials can be blind to wrongdoing under their noses. “The CEO is just a human,” he said. “The mind can only absorb so much.”

The conduct displayed by the employees and, especially, CFO of HealthSouth was unethical and mischievous. Although Beam knew the actions were wrong, he did not stop them and the punishments following were just and fair. Scrushy was more or less just a bully, controlling his employees and forcing them to cook books. His actions were unethical and morally incorrect all together. The court process seemed a bit sketchy. I personally believe that Scrushy should not have been acquitted of those 36 counts of fraud, but made to take full responsibility and serve time. Karma ended up getting him shortly after regardless, but I feel if he would have been treated more like the criminal he was, he may not of felt untouchable and committed more unethical crimes. If I had a business of any kind I would never have the desire to cook books. To me, it seems inevitable that you would end up caught. Then your career would be forever in the ditch. Professionals would never look at you with trust in mind, but rather feel your ethical standards are near to nothing.

References

Business Ethics Program Speaker: Aaron Beam, former CFO of HealthSouth. (2012, October 14). Retrieved July 18, 2015, from http://news.unl.edu/newsrooms/cba-students/article/business-ethics-program-speaker-aaron-beam-former-cfo-healthsouth/
Convicted for fraudulent business practices, former cfo Aaron Beam speaks to UNL students about business ethics. (2012, October 19). Retrieved July 18, 2015, from http://www.daily

nebraskan.com/news/convicted-for-fradulent-business-practices-former-cfo-aaron-beam-speaks/article_7dfb89ce-199a-11e2-9cc4-0019bb30f31a.html

Convicted former HealthSouth CEO shares lesson: ‘Stay in the driver’s seat’. (2014, June 11). Retrieved July 18, 2015, from http://www.charlotteobserver.com/news/business

/article9130598.html

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