HealthSouth To Postpone Board Shake-UpApr 21, 2003 | FT.COM
A shake-up of HealthSouth's board has been delayed because the potential outside directors the company needs to help repair its reputation are having second thoughts amid fraud, scandal and courtroom drama.
The postponement, which is also due to difficulties in insulating new directors from litigation liability, is hampering efforts by the troubled health centre operator to convince creditors and bondholders that it is worth saving.
HealthSouth and several former executives including Richard Scrushy, the ex-chairman and chief executive stand accused of billions of dollars of fraud over 15 years.
Nine people have admitted their guilt in a scheme that saw wide-ranging manipulation of accounts, but Mr Scrushy has come out fighting, saying he has done nothing wrong and knew nothing about inaccurate accounting until March this year.
Some board members have been heavily criticised for their financial links to Mr Scrushy and the company, and the new management hopes to prove its intentions to creditors with a number of governance initiatives.
The move to hire more outsiders was started by Mr Scrushy at the end of last year. It was made in an effort to quell a shareholder rebellion over corporate governance that preceded the accounting scandal.
Three people were found by headhunters and one, Betsy Atkins, joined the board. However, Ms Atkins resigned soon after the scandal erupted in March. Now the other two, Lee Higdon and Edward Blechschmidt, have also backed off.
As recently as last week, HealthSouth was still hoping to announce that Mr Blechschmidt had joined the board. The respected executive, best known for his stint as chief financial officer of Unisys, the US technology group, would probably have been named head of the audit committee. Mr Blechschmidt declined to comment.
People close to the situation say several candidates are willing to join the board but have been deterred for now by the uncertainty surrounding the company. Before committing themselves, they want to know more about possible bankruptcy, the new management line-up and the existing board's intentions.
The company, which declined to comment, is also trying to rearrange its directors' insurance to protect new board recruits from shareholder lawsuits.
Mr Scrushy's actions have added to reasons for candidates to delay making a decision. He has been in court trying to regain control of some of his assets, and through his legal team has stated his innocence, implying that others orchestrated the fraud.