With creditors and shareholders clamoring for evidence of dramatically improved finances and leadership strategies at HealthSouth Corp., the company last week revised its governance practices to comply with the Sarbanes-Oxley Act and hired a new compliance officer in preparation for a specially convened meeting with its stakeholders this week.
The company announced that attorney John Markus, former senior vice president of corporate compliance at dialysis provider Fresenius Medical Care North America, will manage HealthSouth's regulatory compliance and internal audit programs. In 2000, Fresenius and its U.S. subsidiary agreed to pay $486 million-including $101 million in criminal fines-to settle Medicare fraud charges.
Fifteen former employees at Birmingham, Ala.-based HealthSouth-including all five of the company's previous chief financial officers-have pleaded guilty to an alleged scheme that inflated the rehabilitation company's reported income by $2.7 billion since 1997.
The moves to ramp up governance reflect HealthSouth's ongoing efforts to assuage concerns that it is not making a full effort to repair its business plan, finances, image and operations. HealthSouth's creditors and shareholders so far have allowed the company to conduct an audit of its finances, helping it stave off bankruptcy.
In the Jan. 20 meeting, HealthSouth's interim management team is expected to outline a new requirement that three-fourths of board members, including the board chair, be independent.
"We are committed to ensuring that HealthSouth has best practices in place in all areas of corporate governance and compliance," interim Chief Executive Officer Robert May said in a press release.
HealthSouth critics contend company founder and former CEO Richard Scrushy directly and indirectly controlled the board. Indicted November 2003 on 85 counts of conspiracy, fraud and money laundering for allegedly leading the scandal, Scrushy maintains his innocence and is expected to begin his jury trial in Birmingham in August.
"What's interesting about the HealthSouth case ... is that you have a very charismatic leader and very strong concentration of power with directors beholden to the CEO," said Gordon Clark, president and CEO of the Governance Institute.
HealthSouth's new guidelines say independent directors will meet without company managers on a regular basis. Several board members have stepped down or announced they would step down under pressure from stockholders.