Embattled ambulatory surgery, diagnostic imaging and rehabilitation center operator HealthSouth Corp. said today that it has agreed to replace nearly half of its board in the next nine months to head off a lawsuit filed by a major shareholder.
However, company founder and former CEO Richard Scrushy--fired from HealthSouth in March and now facing an 85-count federal indictment--has refused a request from other directors that he resign his seat on the board, according to the company.
Birmingham, Ala.-based HealthSouth, says the board transition plan settles a lawsuit brought by the Teachers' Retirement System of Louisiana to compel HealthSouth to hold its first shareholders' meeting in more than 18 months. The state of Delaware, where HealthSouth is incorporated, requires public companies to hold annual meetings.
The Louisiana pension fund has asked the court to allow shareholders to vote on a new board. The majority of HealthSouth directors held their seats during a what the government alleges is a $2.7 billion accounting and tax scandal that, to date, has resulted in 15 former executives pleading guilty to federal fraud charges.
(U.S. District Judge Inge Johnson ruled Nov. 20 that shareholders lost just $65.8 million as a result of false statements by HealthSouth--far below what prosecutors have charged.)
Under the HealthSouth plan, two directors will leave by Dec. 15, two more will depart by April 15, and one more will resign no later than Aug. 15, 2004, the company says. All the changes will be voluntary, according to HealthSouth.
The company says it plans on naming just four new directors, even though five will leave in the coming months.
Jon Hanson, Robert May and Lee Hillman, directors who joined the board after investigators discovered financial irregularities in August 2002, will stay on, as will interim Chairman Joel Gordon, HealthSouth says. The four make up a special committee overseeing the company's restructuring.
Scrushy has been left off the special committee because other current board members have asked him to quit. Scrushy is entitled to finish his term as director unless he voluntarily resigns or shareholders vote him out.
Instead of complying, Scrushy has taken the offensive, reaffirming his claim of innocence by leaning on a statement made in court last week as Catherine Fowler became the 15th former HealthSouth executive to admit to federal fraud or conspiracy charges.
"Judge U.W. Clemon asked Fowler if former CEO Richard Scrushy was involved. Fowler responded that she did not believe so. Ms. Fowler can be added to the long list of former employees who have pled guilty to charges of participating in an account fraud at HealthSouth but have stated that Mr. Scrushy was not involved in the fraud," according to a posting on Scrushy's personal Web site today.