Richard M. Scrushy
1952–



Former chairman and chief executive officer, HealthSouth Corporation

Nationality: American.

Born: 1952, in Selma, Alabama.

Education: University of Alabama at Birmingham, BA, 1974.

Family: Son of Gerald Scrushy (cash register salesman) and Grace (nurse); married Leslie (third wife); children: eight.

Career: Lifemark Corporation, 1979–1984, vice president; HealthSouth Corporation, 1984–2003, chairman and chief executive officer.

Awards: Honorary doctorate from Troy State University; Man of the Year, Birmingham Business Journal , 1996.

■ Richard M. Scrushy represents the true American success story, albeit one with a less-than-happy ending. From his days as a gas station attendant in Selma, Alabama, he rose to become the CEO of HealthSouth Corporation, the nation's largest provider of outpatient rehabilitation services. Scrushy also became one of the highest paid executives in the country, with a lavish lifestyle to match. However, in 2003 a massive accounting scandal threatened to derail his career, erase his millions, and send him to jail for the rest of his life.

BLUE-COLLAR BEGINNINGS

Richard Marin Scrushy (he went by his middle name as a child) grew up in Selma, Alabama, the middle child of a modest family. He loved music and played in a garage band as a teen. However, at age 17, married and with a child to support, Scrushy dropped out of high school and got a job pumping gas. When his wife became pregnant a second time, he got a higher-paying job as a bricklayer. Although he was literally living a trailer park lifestyle, Scrushy emanated high class. "You went over to Marin's trailer, and he didn't serve Pabst, he served wine and cheese," his friend Gary West told Fortune magazine (July 7, 2003).

Richard M. Scrushy. © Larry Downing/Reuters NewMedia Inc./Corbis.
Richard M. Scrushy. ©
Larry Downing/Reuters NewMedia Inc./Corbis
.

According to Scrushy, he became dissatisfied with his job and one day just walked off the site. He walked all the way to his parents' house, where he told his mother he wanted to earn his high school diploma and go to college. His mother, a nurse, encouraged him to pursue a career as a respiratory technician. He studied for a year at Jefferson Community College in Birmingham while working nights at a local hospital's respiratory therapy program to support his family. After completing his clinical training at the University of Alabama at Birmingham, Scrushy got a job there teaching respiratory therapy.

Then Scrushy's transformation from blue-collar worker to corporate executive began. He cut his long hair, divorced his wife, and started going by his first name, Richard. Scrushy eventually took over the respiratory therapy unit at a Birmingham hospital and started a new department at Wallace Community College in Dothan, Alabama. However, he was still far from well off, living with his second wife in governmentsubsidized housing.

In 1979 Scrushy started working for Houston-based Life-mark Corporation, a company that owned and managed hospitals. He held various operational and management positions, including vice president of corporate development and vice president of Lifemark Shared Services. By age 28 he was running the company's pharmacy, physical therapy, and respiratory therapy departments.

STARTING HEALTHSOUTH

When Lifemark was acquired in 1983, Scrushy had to find a new opportunity. While he was still at Lifemark, he had framed an idea for a company that would offer outpatient rehabilitation services, helping patients return to work more quickly, and for less expense, than a traditional inpatient hospital. With an investment of $50,000 and the help of four friends, Scrushy formed HealthSouth. Starting as a single out-patient clinic in Little Rock, Arkansas, the company soon grew into a small chain of clinics. Scrushy had bigger plans, however. He wanted his company to be the first to provide widespread rehabilitation services outside the hospital setting. As he told a friend, "I'm either going to make it big or go flat broke" ( Fortune , July 7, 2003).

In his drive Scrushy relentlessly pushed his employees. At one meeting he reportedly drew a picture of a wagon and ten stick figures. Eight figures were inside the wagon; two were pulling it. "Everyone has to pull the wagon," he told his staff. The company's motto eventually became, "Pulling the wagon together" ( Fortune , July 7, 2003).

Scrushy's perseverance paid off. His company began to grow. By 1986 HealthSouth had gone public and its revenues had grown to $20 million. As his company increased in size, Scrushy tightened his reins. He controlled every aspect of HealthSouth, from human resources to construction, from his Birmingham office. He attended every investment conference, even flying into a blizzard to make a conference at a Utah ski resort, and he personally handled most of his company's investor relations.

Because of his tight control—and temper—many who worked for Scrushy regarded him as a tyrant. At Monday management meetings, he was regularly known to respond to a manager's report with the phrase, "That was the stupidest thing I ever heard" ( Fortune , July 7, 2003). As difficult as Scrushy was to work for, however, most HealthSouth employees stuck with him. Their commitment was not surprising, given that HealthSouth paid well and offered generous stock options. Moreover, the clinics had become somewhat glamorous places to work. Bo Jackson, Hershel Walker, and other sports figures and celebrities regularly came in for treatment.

By 1992 HealthSouth was operating 145 clinics and making $400 million in revenue. Scrushy began expanding his company even faster. He gobbled up competitors and increased efficiency at his clinics to offer reduced-rate health care to a market that was crying out for it.

A NEW BUSINESS VENTURE

Scrushy also took advantage of a new trend in health care—physician-practice management companies, or PPMs. At a time when doctor's clinics were struggling to deal with HMOs, these new companies offered a welcome relief. PPMs would manage doctor's offices to increase their bargaining clout with the HMOs plus take over many of the administrative responsibilities that tended to overwhelm many doctors.

In 1992 HealthSouth invested $1 million in a new PPM called MedPartners. Scrushy became one of the company's biggest shareholders as well as its director. The idea behind MedPartners was that it would not only create its own profits but also feed patients into HealthSouth facilities, boosting that company's earnings along the way. Scrushy hired a Health-South executive, Larry House, to run MedPartners. House quickly took the company public, and within three years it was a Fortune 500 company and the country's largest PPM. House gobbled up other companies—sometimes orchestrating as many as 20 acquisitions at once. However, he was ill prepared for his position, and as a result the company was disorganized. MedPartners' internal structure could barely keep pace with its rapid acquisitions. In 1998, after a failed merger attempt with HealthSouth and an announcement that the company would not meet earnings expectations, MedPartners stock plunged nearly 50 percent. House was out, and Scrushy became MedPartners' chairman and acting CEO. As head of the ailing company, Scrushy tried to bring it back to life, even investing his own money to buy a million shares of the company's stock. However, MedPartners was battling hundreds of millions of dollars in losses, as well as lawsuits from shareholders and physicians. Scrushy was finally forced to close Med-Partners.

ROCK 'N ROLL LIFESTYLE

Despite MedPartners' downfall, HealthSouth remained highly profitable. Its stock rose at an annual rate of 30 percent between 1987 and 1997. In 1994 Scrushy began acquiring other rehabilitation companies, making HealthSouth number one in the industry, with 70 percent of the market in rehabilitation services. By the beginning of the 21st century, the company boasted more than 50,000 employees and 2,000 outpatient surgery and rehabilitative facilities across the United States and the United Kingdom. HealthSouth also began competing with hospitals, launching its own line of inpatient hospitals and surgery centers. In 2003 it was busy constructing a $300 million, high-technology hospital near its headquarters.

While expanding his company, Scrushy was also attending to his other passion—music. Those who knew him say he craved the applause almost as much as he craved financial success. His band, Proxy, would often perform at company and local functions. Before performances, employees were often asked to attend to fill out the halls. The practice became known as "purchased applause." In the early 1990s Scrushy started another band called Dallas County Line and stocked it with professional musicians from the Oak Ridge Boys and Sawyer Brown. Dallas County Line released a CD and an accompanying video that featured Scrushy in an all-black outfit and cowboy hat singing "Honk if you Love to Honky Tonk."

Not content to merely perform, Scrushy also wanted to be a music entrepreneur. He spent $1 million of HealthSouth's money to bankroll a band of female singers called 3rd Faze, which at one time opened for Britney Spears. The Health-South board approved a grant of 250,000 stock options to the head of Sony Records, Tommy Mottola, who subsequently signed the band. Scrushy even accompanied the women of 3rd Faze to the Grammy Awards.

Scrushy was not only part of the music scene—he was living the rock-star lifestyle. In 1998 he made BusinessWeek 's list of the nation's highest paid CEOs, having raked in more than $106 million in salary and bonuses and exercising more than $90 million in stock options. He used the money to buy mansions, racing boats, a fleet of cars (including a $135,000 bullet-proof BMW), and a G-5 jet. "You always knew when Richard Scrushy was around," Mark S. Williams, a staff physician for HealthSouth told the Atlanta Journal and Constitution (March 22, 2003). "That's when the bodyguards started showing up."

Scrushy liked to hobnob with celebrities, including sports figures like the former football star Bo Jackson. He hired former Wonder Years actor Jason Hervey (he played the older brother, Wayne Arnold, on the show) to help him with a radio show and then put him in charge of marketing and communications at HealthSouth. When Scrushy married his third wife, Leslie, in 1997, he flew 150 guests to Jamaica and had Emmylou Harris perform at the reception.

Scrushy's lavish lifestyle prompted many to call him Birmingham's Donald Trump, or King Richard. "He's one of the most visible and flamboyant leaders in health care," Peter Emch, a health-care analyst with Credit Suisse First Boston told Chief Executive (December 1, 2001).

Scrushy was certainly visible in Birmingham, thanks to his many charitable donations. There few places in the city that did not carry his name—from the Richard M. Scrushy Building at the University of Alabama to the Richard M. Scrushy Parkway; even an entire campus of Jefferson State Community College bore his name. As if those tributes were not enough, Scrushy built his own self-monument—a museum behind the HealthSouth headquarters in Birmingham that was devoted to his career. In it was the company's first lease, an exact replica of the original boardroom and office Scrushy used in 1984 when he founded HealthSouth, and a book by Scrushy titled, How I Changed the Rehab Industry .

Scrushy supported a number of charitable organizations, including the Arthritis Foundation, United Cerebral Palsy, and the March of Dimes. He also served on the boards of Troy State University, Birmingham-Southern College, and the University of Alabama.

SCANDAL AT HEALTHSOUTH

At the turn of the 21st century, HealthSouth was flying high, but that high was about to come crashing down. In July 2002 HealthSouth's CFO, William A. Massey Jr., committed suicide after it was revealed that he was embezzling money from the company to pay for expensive dinners and gifts for his mistress. The day after the suicide, Scrushy sold $25 million in HealthSouth stock. This was not the first time he had dropped a large amount of company stock. The previous May he had sold $74 million worth of stock. Altogether, Scrushy discarded one-third of his stock value in HealthSouth, while announcing to the public the company's stellar earnings.

Just a few weeks after Scrushy's $25 million stock sale, HealthSouth lowered its earnings estimates by $175 million because of a change in the Medicare reimbursement policy. When the announcement came, the company's stock prices fell 58 percent to $5. Stockholders angrily filed lawsuits against HealthSouth. Scrushy claimed he did not know about the policy claim before selling his stock. Still, HealthSouth removed Scrushy from his position. Just a few months later, the company reinstated him.

On March 18, 2003, the FBI raided HealthSouth's office and took away documents. The Justice Department charged HealthSouth with inflating earnings by more than $2 billion to make it appear as though the company was meeting Wall Street expectations. According to investigators, the scheme had gone on since the mid-1990s, and Scrushy and other executives had been selling their stock to cash in on the company's inflated share prices. More than a dozen executives of the company pleaded guilty to fraud, and all pointed the finger at Scrushy, saying the CEO had forced them to falsify the company's financial statements.

In November 2003 Scrushy was indicted on 85 criminal counts of fraud. The charges included wire fraud, money laundering, conspiracy, and making false statements. Assistant Attorney General Christopher Wray charged Scrushy with using "threats, intimidations and pay-offs" to get HealthSouth executives to change the books. Scrushy was the first CEO charged under the new Sarbanes-Oxley Act, passed in July 2003, which holds CEOs and CFOs criminally responsible for signing false earnings statements. The charges carried a maximum penalty of up to 650 years in prison and a $36 million fine. The government pounced on Scrushy's homes, including his mansion in Palm Beach, Florida, in an attempt to seize roughly $267 million in ill-gotten assets. The judge set bail at $10 million, ordered the CEO to turn in his passport, and made Scrushy wear an electronic ankle bracelet that tracked his whereabouts.

Scrushy maintained his innocence throughout the investigation, saying that he had no knowledge of the ongoing fraud. He contended that the company's executives overstated earnings to line their own pockets. "There was no motive for me to destroy a … company that I built, a company that I loved," he told 60 Minutes ( American Medical News , November 3, 2003).

Like his embattled friend Martha Stewart, Scrushy launched a Web site to plead his own case. His biography page begins, "Born in 1952 in Selma, Alabama, a town known as the birthplace of the civil-rights movement—Richard Scrushy is now fighting for his own rights and freedoms in the face of false allegations" (http://www.richardmscrushy.com/biography.aspx). He even hosted his own morning television show called Viewpoint on WTTO-TV in Birmingham. His wife, Leslie, cohosted the show. In the half-hour program, Scrushy showcased himself as a religious and family man, and he referred to the media that had criticized him following the fraud charges as "old Satan sneaking in the back door" ( Los Angeles Times , March 2, 2004). Lawyers representing Health-South stockholders charged that the show was merely an attempt to sway voters before Scrushy's trial. Lawyers were also skeptical of Scrushy's decision to join the Guiding Light, a predominantly black church in Birmingham. Although Scrushy said he was "born again," critics said it was an attempt to influence a predominantly African American jury at his trial.

After the scandal broke, HealthSouth nearly went bankrupt, and a team was brought in to "clean up." The new managers tried to save the floundering company by fully cooperating with the government's investigation. They ousted Scrushy from his CEO post on March 31, 2003, although he was allowed to remain on the company board. Two statues of Scrushy that once stood outside the company's headquarters were removed.

In May 2003 Scrushy sued HealthSouth to enforce his contract, which would have indemnified him for all legal costs and expenses incurred in his fraud battle with the Securities and Exchange Commission. Then in June he sued the company's directors for excluding him from board meetings and failing to provide him with information about the company. In November of that year his former company fired back, forcing Scrushy to repay a $25 million loan from 1999 that he had used to buy HealthSouth shares.

Scrushy was scheduled to go to court to face his charges in August 2004.

See also entry on HealthSouth Corporation in International Directory of Company Histories .

sources for further information

Bond, Patti, "CEO's Troubles Like a Country Song," Atlanta Journal and Constitution , March 22, 2003.

Cherry, Brenda, and Patricia Neering, "The Insatiable King Richard. He Started as a Nobody. He Became a Hotshot CEO. He Tried to be a Country Star. Then It All Came Crashing Down. The Bizarre Rise and Fall of HealthSouth's Richard Scrushy," Fortune , July 7, 2003, p. 76.

"HealthSouth CEO Launches New TV Show," Los Angeles Times , March 2, 2004.

Pellet, Jennifer, "HealthSouth's Digital Dream," Chief Executive , December 1, 2001, pp. 33–36.

"Statement from HealthSouth Chairman Richard Scrushy and HealthSouth Chief Executive Officer Bill Owens," PR Newswire, September 25, 2002.

Vogt, Katherine, "Ousted HealthSouth Chief Invokes the Fifth," American Medical News , November 3, 2003, p. 29.

—Stephanie Watson



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