Ambulatory surgery and rehabilitation center operator HealthSouth Corp. has adopted a list of corporate governance guidelines--calling, in part, for a more independent board of directors--in the wake of the ninth guilty plea by a former executive in a wide-ranging federal fraud investigation.
And adding to the Birmingham, Ala.-based company's woes, a group of HealthSouth employees have sued founder and recently fired CEO Richard Scrushy for allegedly destroying the value of their employee stock ownership plan holdings.
HealthSouth said Tuesday that its board has voted to require that a majority of directors be independent from management, that the independent directors meet at least twice a year without any HealthSouth management present and that each director purchase a minimum of $100,000 in HealthSouth stock within three years of election to the board.
The announcement follows by one day an admission of guilt by former CFO Michael Martin in a scheme to falsify HealthSouth financial records by billions of dollars. Martin, who held the top financial post from October 1997 to February 2000, is the third former HealthSouth CFO to plead guilty to federal fraud charges.
A total of nine current and former HealthSouth executives have admitted guilt since the FBI seized company records last month. HealthSouth is charged with overstating profits by $2.5 billion between 1997 and 2002 and with inflating the value of company assets by $800 million in public financial reports.
Federal officials have told Modern Physician that they suspect the wrongdoing dates to 1986.
The new ethical standards are "encouraging the reporting of any illegal or unethical behavior" and take into consideration "not only legal and regulatory requirements but also current corporate governance best practices," according to a company statement.
The HealthSouth statement specifically mentions compliance with insider-trading laws. The U.S. Securities and Exchange Commission has charged Scrushy with illegal insider trading and the shareholder lawsuit filed Monday in federal court in Birmingham says Scrushy "withheld truthful information" to ESOP participants while he sold 7.7 million shares of HealthSouth stock for at least $99 million, according to a press release from the plaintiffs.
The five HealthSouth employees and ESOP participants who brought the case are seeking class action status on behalf of all those who have participated in the plan since the beginning of 1999. They say that the ESOP holds about 3 million shares, which have fallen from a high of $30 each since 1999 to the current share price of about 12 cents.