HealthSouth Review Panel Said to Have Been Chosen

By REED ABELSON,  NY Times

 January 25, 2003

The HealthSouth Corporation is expected to announce appointments on Monday to a committee formed to look into the independence of its board and how the company is governed, according to people who have been briefed on the decision.

Four outsiders, including some well-known shareholder advocates, will join three HealthSouth directors in advising the company on corporate governance matters and the selection of new independent directors. The company could add three people to its 11-member board later this year.

HealthSouth, the nation's largest chain of rehabilitation centers and hospitals, has come under sharp criticism for the management style of its chairman, Richard M. Scrushy, and the quality of its board. Some HealthSouth directors have close personal and business ties that brought their independence into question.

The company's stock, which traded as high as $15.90 last May, has been pummeled by controversy surrounding HealthSouth's Medicare billing practices, numerous shareholder suits and accusations of insider trading. The shares closed yesterday at $4.06, down 4 cents.

Under pressure from shareholders, Mr. Scrushy, who started the company in 1984, promised last fall to make changes that would ensure the board's independence.

"This has been a difficult time for Mr. Scrushy and the company, but he and the company have emerged with a commitment to transparency and corporate governance reform," said Lanny J. Davis, a lawyer who represents the company in some of the litigation facing it.

Herbert A. Denton, the president of Providence Capital, a New York money-management firm that led some of the recent efforts by investors to push for change at the company is on the committee. Robert J. Ravitz, a principal of David J. Greene & Company, another investor, is also a member, the people briefed on the decision said. The others are two well-regarded shareholder advocates, Charles M. Elson, who is chairman of the corporate governance program at the University of Delaware, and B. Kenneth West, a senior consultant at TIAA-CREF, the pension fund and mutual fund manager.

The three HealthSouth directors are Robert P. May, Jon F. Hanson and John S. Chamberlin. Members of the committee will have equal votes.

The announcement of the new committee comes after a recent court decision by Leo E. Strine Jr., a vice chancellor of the Delaware Chancery Court, that HealthSouth must continue to face shareholder lawsuits over accusations of insider trading by some directors, including Mr. Scrushy. HealthSouth had argued that the lawsuits should be delayed while a special board committee looks into the issue. In his decision, the judge questioned the independence of that committee.

Last fall, HealthSouth said a law firm it had hired found no evidence that Mr. Scrushy was aware of any inside information when he sold stock, and Mr. Scrushy has vigorously denied any wrongdoing. The Securities and Exchange Commission is also investigating, and the company is cooperating.

HealthSouth was not surprised by the decision, which has no bearing on the merits of the lawsuit, Mr. Davis said.