Corporate liability is a business term that refers to responsibilities of a company in relation to employer’s criminal actions. The legal responsibility for criminal actions or failure to act to employee’s commitments results to neglect. “Negligence causes prosecution-related punishment to corporation” (Laufer 76).
HealthSouth Corporation is a Company that deals with rehabilitation, diagnostic services and surgery in the medical industry. The company has its headquarters in Birmingham Alabama in the United States of America. The company had 23,000 employees by the year 2010. In 2003, the company recorded revenue worth of $4.5 billion that was the best ever recorded. It was involved in a corporate scandal in the accounting department and included its chairperson, founder, and chief executive officer. They were accused because of false report that overestimated the earnings of the company to meet the expectations of the stakeholders.
HealthSouth Corporation was founded in 1984. Richard M. Scrushy is the founder of the organization. It deals with patient health care especially dealing with neurological or cardiac disorders. In the year 1999, Richard Scrushy engineered many acquisitions of outpatient surgical care operations, rehabilitation clinics, health care companies and nursing homes. In 2003, the commission dealing with securities and exchange accused the company of inflating earnings to a tune of $1.4 billion in a span of four years.
The company’s CEO Mr. Richard Scrushy got into a scandal in the year 2002. The company reported huge losses just after selling stocks worthy $75 million. After investigations, it was found that the CEO was involved in fraudulent deals which amounted to $10 billion. In November 2003, an indication from the federal grand’s jury reveals 85 accounts of charges. “The charges include security fraud, conspiracy, charges related to overstating HealthSouth’s earnings at an approximated $3 billion and concealing the source of money gotten illegally” (Jennings 24).
Auditing was done to the company during the investigation and trial period. HealthSouth editors, Ernst and Young could not uncover the $2.5 billion overstatement of earnings that were systematic. The auditors could not establish an adequate reserve for the receivables due to lack of persistence to the company.
The civil suit that started four years ago has been resolved. Mr. Scrushy was found guilty in taking part on the scandal by concocting false financial statement that resulted in inflating HealthSouth’s earnings. He knew about the fraud that ran for seven years and totaled $2.7 billion. He was ordered to pay 2.9 billion to the company’s stakeholders. The C.E.O was also charged for money laundering, obstruction, bribery and racketeering in a political corruption charges case. He was involved with former Alabama Governor and was given a prison sentence of 55 months.
He was first charged by the U.S Securities and Exchange Commission with 36 accounts of the original 85. He was acquitted of all charges but later indicted due to former acquisition from the HealthSouth stakeholder on the accounts that included extortion of money and obstruction of justice. This depicted a conflict of interest due to the Companies need for compensation on the damages caused by the former C.E.O.
These activities affected the company as a whole. The health services provided by the company reduced drastically. The investors also declined in their investment plans resulting to stagnant improvement of the services. This is because there was lack of trust in the management of the company. “The massive investment that is being done is in respect to standard service to the public without taking advantage of the investor that is contrary to the HealthSouth scandal” (Farrell 123).
There are a number of offices that were involved. It included the accounts offices, the executive office, Auditors and the office of the controller among others. The officers and directors could not stand by the required business ethics. They misused their offices by perpetuating corruption, interfering with audit results and increasing the amount details in the account books with the mind of giving the company a good image for investments.
HealthSouth completed its recovery and went back to listing in the New York stock exchange in 2006. Currently, the company has a one-division operation for rehabilitation. This operation deals with inpatient. The former outpatient rehabilitation, diagnostics, and surgery services were closed because of the scandal.
Corporate liability calls for personal integrity to the part of each entity. Any illegal deals from any branch affect the company ethics and results to losses to the organization. Therefore, it is pivotal to abide by the ethics and governance policies of the company so as to avert scandals.
Farrell Courtney. Gulf of Mexico Oil Spill. United States: ABDO Publishing Company,
Jennings M. Marianne. Business Ethics: Case studies and selected readings. United States:
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Laufer S. William. Corporate bodies and guilty minds: The failure of corporate criminal
Liability. London: University of Chicago Press, 2006. Print.