CORPORATE GOVERNANCE

PRESENTED TO: SIR JAVAID ZAFARPRESENTED BY : SANA MUNIR

HEALTHSOUTH CORPORATION

HEALTHSOUTH INTRODUCTION

leading provider of medical rehabilitation more than 1,900 locations Various facilities

Rehabilitation hospital Outpatient Therapy Services Long Term Acute Care Hospital Home Health Rehabilitation Technology

HISTORY

Established in 1984, Richard Scrushy, CEO and Chairman of Board Of Directors

Appealed to medical community Expanded and Profited Rapid Growth through Acquisitions Fall and Rise Of Revenues within Same

Year

ACCOUNTING SCANDAL

1. To meet Wall Street’s Expectation

1.

FIX

THE

EARNINGS

To Make up the shortfall

Meetings were organized

In 1997, Attendees refered as family members

Fill the "gap" or "hole"

Income Before Income Taxes And Minority Interests

1. To meet Wall Street’s Expectation

2.

OVER

STATED

EARNINGS

Income (Loss) before Income Taxes and Minority Interests (in $ millions)

1999Form 10-K

2000Form 10-K

2001Form 10-K

June 30, 2002

Actual $(191)

$194 $9 $157

Reported 230 559 434 340

Misstated Amount 421 365 425 183

Misstated Percentage 220% 188%

4,722%

119%

2. Insider Trading

1997, Scrushy planned to sell stock, & wanted to maintain the current stock price.

Scrushy advised to abandon the manipulation he refused and said, "not until I sell my stock.“

1998, selling of stock, announced that company is likely to miss the analysts' estimates for 1998 and 1999.

2003, Sold 5.2 million shares for $14.05 and about 2.5 million more shares back to HealthSouth at $10.06 each, Share value dropped by 50%

He has sold at least 7,782,130 shares of Healthsouth’s stock since 1999

99-02, Healthsouth paid Scrushy $9.2 million in salary.

Scrushy received $6.5 million from Healthsouth during 2001 in "Bonus/Annual Incentive Awards”

3. Personal Profits

1992 "absolutely necessary" to restructure

1999, split inpatient and outpatient services

2002, Recomposing the plan.

4. Hiding the Fraud: To Restructure

DETECTION OF THE FRAUD

Detection of Fraud

On Radar of SEC

Fleeced Shareholder

An employee of Healthsouth had written a letter to the E&Y audit team

An employee sent an email to Healthsouth's auditor, Ernst & Young, also used Yahoo Forum.

A former CFO of Healthsouth, Weston Smith, was a whistle blower 2003

PENALTIES FOR FRAUD

Richard Scrushy CEO and Chairman

Falsified financial results by $2.7 billion since 1996.

Was not pleaded guilty

Has been indicted on 85 counts in a massive federal fraud

Government's court filed six "crimes, acts or wrongs"

Chief Financial Officers

Malcolm McVay, was sentenced to 6months home detention and five years probation after the tenure, also fined $10,000 and ordered him to forfeit $50,000.

Michael Martin to five years probation, also fined Martin $50,000 and ordered him to forfeit gains of $2,375,000.

Aaron Beam, was sentenced to three months in jail, was also fined $10,000 and ordered to forfeit $275,000.

Weston Smith, who blew the whistle on the accounting scandal ,was given 27 months in prison and was also ordered to forfeit $1.5 million

William Owens, was sentenced to five years in prison. Owens is contesting the government's request that he forfeit $12 million in assets.

Ernst and Young

ROLE OF AUDITORS

Healthsouth employees were Previous employees of E&Y

Overlooking the accounts Why to be Picky??? Ernst & Young received$1.16m (pounds

700,000) in audit fees and $2.39m in "audit- related fees" in 2001.

Penalties to Ernst and Young

Still had not been charged with criminal conduct in the fraud.

But the accounting firm still in 2007 was subjected to multiple lawsuits.

BOARD OF DIRECTORS

Scrushy, Chairman of Board of Directors

Healthsouth board viewed as beholden to Scrushy

Doubts created on Scrushy’s actions Board Members Shareholders Dismissed the concept

2002, Recruiting the outside investor

CORPORATE SOCIAL RESPONSIBILITY

CONCLUSION

QUESTIONS ???

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