Bob May had weathered his share of
corporate storms, but when Richard Scrushy, the soon-to-be-disgraced founder of
HealthSouth, asked him to serve on the board as a fix-it man in September 2002,
he quickly saw that it was not just another troubled company. Nor would he be
just another board member. Shareholders had complained that the board was
stacked with Scrushy sycophants, so, under duress, Scrushy recruited two
directors who were not personal friends of his: May, who had been an executive
at FedEx during a period of rapid growth, and Jon Hanson, chairman of a New
Jersey-based real estate firm.
 The Securities and Exchange Commission accused HealthSouth
executives, including Scrushy, of orchestrating a $2.6 billion accounting fraud
dating back to 1999. By the spring of 2003, HealthSouth’s stock had plunged to 9
cents per share; it was widely expected that the company would file for
bankruptcy. Hardly a week went by that spring without an executive pleading
guilty to securities fraud: All five of HealthSouth’s CFOs pled guilty, as did
seven other executives. (Scrushy decided to take his chances in court and, in a
stunning blow to federal prosecutors, was acquitted in June 2005). "With all of
the guilty pleas, it was hard to know who was involved and exactly how far the
fraud went," May says.
Operating under klieg lights of scrutiny, the board members had
to embark on an all-out effort to overhaul HealthSouth’s governance and convince
investors, customers, employees, the media and its home city of Birmingham,
Ala., that the company deserved a second chance and could be transformed.
May believed that, unlike Enron, HealthSouth was a viable
business, albeit a badly managed one. "There were 45,000 people who worked at
the company who didn’t do anything wrong and didn’t deserve these problems," he
says. But by the end of March 2003, it became clear that Scrushy, who had come
up with a plan to spin off part of the company in an effort to retain control,
was the biggest of HealthSouth’s problems. So the board declared Scrushy’s
employment agreement invalid and named Hanson as chairman and May as interim
CEO. May’s job, in a nutshell, was to try to rescue the company, or, at the very
least, keep it out of bankruptcy.
Binging and Purging
Among the companies that made headlines for the wrong reasons
in recent years, Tyco, Reliant Energy and HealthSouth took remarkably similar
paths. Today all three are in various phases of a recovery and are actively
engaged in an ongoing effort to restore public trust, despite the fact that each
nearly wound up filing for bankruptcy.
All three purged standing directors and engaged new ones to
start the cleanup process. In hindsight, this step served to reassure investors,
bankers and employees that the company was headed in the right direction. Tyco
and Reliant Energy both had to contend with board members and managers who were
reluctant to step aside, but most of them eventually got the message that they
were standing in the way of their companies’ repair.
HealthSouth, however, suffered a more intractable problem when
Scrushy refused to resign from the board of directors. Board members have been
holding special sessions for the past three years to avoid giving Scrushy the
chance to turn up at their meetings. Last September, freshly vindicated in
court, Scrushy demanded access to HealthSouth’s financials and said that the
company lacked leadership and vision. On his website, he posts press releases
aimed at, as the site claims, "setting the record straight." He continues to be
a thorn in the board’s side.
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