Sign in Subscribe
Accounting services

Rehabilitating Companies After Scandals: A Focus on Employees and Assets

Strategic Insights

— 2 min read

The US government has been using a three-pronged approach to handle corporate scandals: identifying and punishing responsible executives, ensuring that companies recover, and making sure that the company itself can recover. In the past four years, the approach has shifted from shutting down companies to rehabilitating them, which has allowed companies to avoid liquidation and recover through bankruptcy and settlements. This approach has been seen in the handling of corporate scandals at companies such as Enron, WorldCom, Adelphia, Marsh & McLennan, and the American International Group. In each case, the government has focused on punishing the responsible executives and allowing the companies to recover.

Key Takeaways:

  • The US government has been using a rehabilitative approach to handle corporate scandals, focusing on punishing responsible executives and ensuring that companies recover.
  • This approach has allowed companies to avoid liquidation and recover through bankruptcy and settlements.
  • Companies such as Enron, WorldCom, Adelphia, Marsh & McLennan, and the American International Group have all followed this approach.
  • In each case, the government has focused on punishing the responsible executives and allowing the companies to recover.
  • The bankruptcy system provides for companies to file for bankruptcy protection and then recycle the companies back into the marketplace.
  • Edward D. Breen, the new chief executive of Tyco International, took quick and decisive action to rehabilitate the company after the former chief executive, L. Dennis Kozlowski, was forced to resign.
  • Breen streamlined operations, pulled out of a couple of businesses, and cut the company's debt in half, allowing Tyco to grow profitably again.
  • HealthSouth, another company that was embroiled in a scandal, was able to sidestep bankruptcy and recover through a combination of new management and financial restructuring.
  • Ward Brehm, a turnaround consultant, was in Birmingham, Ala, to help HealthSouth raise $300 million by selling assets such as land and corporate aircraft.
  • HealthSouth's new chief executive, Jay F. Grinney, was able to bring in new senior management, set a long-term strategy, revitalize the corporate culture, and put in place new procedures for handling sales, expenses, and corporate reporting.

Statistics:

  • The number of employees at corporate headquarters in Princeton, N.J, has been reduced from 500 to 480 since Edward D. Breen came aboard at Tyco.
  • Tyco has been able to cut its debt in half and is growing profitably again.
  • HealthSouth shares have risen from a low in the pennies two years ago to $5.30.
  • WorldCom brought in Michael D. Capellas, the former president of Hewlett-Packard, as its chief executive in December 2002, and he guided the company, which changed its name to MCI in 2003, out of bankruptcy and eventually into the arms of Verizon.

Sources:

  • "The New York Times" article, dated [23 February 2004](https://www.nytimes.com/2004/02/23/business/till-regain-confidence.html)
  • "The New York Times" article, dated [April 25, 2004](https://www.nytimes.com/2004/04/25/business/a-seeing-to-the-skeletons-of-corporate-scandals.html)
  • "The New York Times" article, dated [April 26, 2004](https://www.nytimes.com/2004/04/26/business/at-worldcom-the-cleanup-is-there-to-stay-forever.html)

Read more