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Prepared Witness Testimony The House Committee on Energy and Commerce
The Financial Collapse of HealthSouth
Subcommittee on Oversight and Investigations
Mr. Robert May
Mr. Chairman, Ranking Member, and members of the Subcommittee, good morning. My name is Robert May, and I am the Interim Chief Executive Officer of HealthSouth, and a member of the HealthSouth Board of Directors. I appreciate the opportunity to appear before the Subcommittee today and look forward to answering your questions. I also look forward to describing for you the deliberate and purposeful steps taken by our Board of Directors, our management team, and our employees since we, along with the rest of the public, first became aware of the allegations of accounting fraud at the Company. I joined the Company's Board of Directors at the end of September 2002 along with my fellow Board member, Jon Hanson. Among our other duties, we looked forward to helping the Company to conform its governance platform to the requirements of the newly enacted Sarbanes-Oxley Act and the proposed listing standards of the New York Stock Exchange. From 1973 to 1993, I held a variety of executive and operational positions at Federal Express Corporation, most recently as President of Business Logistics. Following my tenure with FED EX, I became chief operating officer and a director of Cablevision Systems Corp., where I was part of the executive team that helped transition the Company through new operating strategies and the use of new technologies. Since the allegations of accounting fraud were first disclosed last March, the Board acted quickly and decisively to ensure that Mr. Scrushy and those members of management alleged to have assisted him in perpetrating a fraud on HealthSouth stockholders were immediately terminated. Since late March 2003, I have been serving as the Interim CEO, helping to lead the Company's day-to-day operations. As part of the interim management team, I have worked to help stabilize the Company's financial situation and refocus our core operations on patient care. As you have heard from previous testimony, some employees at HealthSouth felt afraid and intimidated, which should have no place in any workplace. We have sought to transform the culture of HealthSouth, especially at the corporate headquarters. On a symbolic level, we have taken down Mr. Scrushy's name from our corporate conference center; opened up the formerly restricted executive floors to all employees; and closed the executive dining room so that our leadership team eats in our cafeteria with the Company's employees. I also hold regular, open, informal brown bag lunch meetings with employees from all levels and departments of the Company - encouraging them to ask questions or raise issues - and sharing information about our plans and goals for the Company. While this is not an unusual practice in corporate America, it began at HealthSouth only when the interim management team took charge. The response has been encouraging at all levels of the Company. We also hold regular broadcasts to reach our 48,000 employees in the field, and we have traveled to many of our field locations throughout the country. We have also looked closely at our governance policies and compliance programs. I chair the Corporate Governance Committee. My fellow Committee members and I have recently updated our governance and compliance systems, a process that began when I joined the Board. Further changes are about to be incorporated as a result of adopting recent changes suggested by the New York Stock Exchange. Assisting in our effort is a team of outside expert advisors, including the noted Professor Charles M. Ellson, the Director of the Center for Corporate Governance at the University of Delaware. With the aid of this governance advisory panel, my fellow directors and I drafted corporate governance policies for our Board committees that meet or exceed the requirements of Sarbanes-Oxley and New York Stock Exchange with respect to important issues such as director independence. These new guidelines take into account not only legal and regulatory requirements, but also current corporate governance best practices. HealthSouth's Governance Committee, again with the input from our governance advisory panel, began to search for additional corporate directors who could bring valuable new experience and abilities to the Board. We have retained two nationally recognized search firms and have interviewed numerous candidates. Despite a lapse in our Directors and Officers insurance, we have attracted a talented, courageous new Board member, Lee Hillman, who now serves as Chairman of our Audit Committee. We have also drafted and approved charters for Board committees and reengineered our compliance programs. As part of those revised compliance procedures, the Corporate Compliance Officer now reports independently to the Compliance Committee. In that same vein, the internal auditor reports independently to the Audit Committee. I know this Committee is also interested in the internal investigation conducted by the outside law firm of Fulbright & Jaworski into the issue of insider trading and management's knowledge, specifically that of Richard Scrushy, of the impact on Company earnings of a new Medicare billing rule known as CMS Transmittal 1753. The Board retained Fulbright & Jaworski on September 17, 2002, prior to my Board appointment, and granted Fulbright & Jaworski total access to all corporate records and mandated that all management and employees cooperate fully in this internal investigation. The Board received regular updates, and ultimately, on October 21, 2002, received a report which indicated that, based on Fulbright's review, they could find no evidence that Mr. Scrushy had known of the impact of Transmittal 1753 at the time of certain stock sales executed by him. The Board was never given a reason to believe that the Fulbright & Jaworski investigation was anything other than a thorough and adequate investigation into insider trading allegations. I and other directors certainly understood from the briefings conducted by Fulbright & Jaworski that they had found no evidence of inappropriate or illegal conduct by Mr. Scrushy connected with his sale of stock. We continue to cooperate with all government authorities as they look into this and other areas. My focus now is on stabilizing the Company's financial position in order to ensure a viable future. We have made progress, and I am pleased to say that we are strengthening relationships with our payors, vendors, doctors and other outside parties critical to the continued success of HealthSouth. We are also developing new sources of revenue in our core areas, as demonstrated by new and expanded contracts with payors. As interim CEO, I have promised our 48,000 employees that we are committed to a future where the Company's goal of providing excellent patient care continues to come first. We believe the fundamentals are in place at numerous levels of HealthSouth for renewed success, but we will continue to improve the corporate culture to ensure that appropriate principles are effectively put into practice. Continuing to examine and enhance policies to prevent corporate fraud is important. However, in my opinion, the most critical element in prevention is providing a culture where employees are able to ask questions, challenge decisions and communicate with management in an open and direct fashion. It was a group of individuals who committed the fraud and engaged in criminal activities at HealthSouth - and without an employee stepping forward in this case, we still might not know the depths of a fraud that was perpetrated against the Company and its stakeholders. Let me end by saying that the Board and management team are committed to taking the necessary actions to ensure that we reach the goal of restoring the long-term health and viability of HealthSouth, and we are committed to assisting this Subcommittee in its work. Mr. Chairman, I appreciate this opportunity and will, to the best of my ability, be glad to answer questions you or any other members of the Subcommittee may have.
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