02. Aaron Beam and the HealthSouth Fraud

Topics: Morality, Ethics, Business ethics Pages: 6 (959 words) Published: October 11, 2014

Ethics and Organizations

Case Study 1

Vernon Tilly Jr.

University of Central Oklahoma


In reference to the Aaron Beam and the HealthSouth Fraud case in our text Velasquez

(2012), the following questions from the text and my answers to these questions are provided as


1. Which of the "obstacles to moral behavior do you see at work in Aaron Beam's behavior and thinking? In Scrushy's?

The obstacles I see in Aaron Beam's behavior are "Rationalizing Our Actions and

Displacement of Responsibility". Rationalizing his actions is supported by comments he made

in reference to the actions he had or was about to take in supporting his employer. Aaron Beam

stated in Velasquez (2012), "He described the move to himself as aggressive accounting but

definitely not fraudulent" (p 68). In the continual cooking of the books, each time Beam was

press or directed by Scrushy to do so. Aaron Beam possibly considers that to be his get out of

jail free card, by pointing the finger back at his employer, as displacement of his responsibility.

We see clearly what he was thinking in Velasquez (2012), as he "felt it was technically

within the bounds of accounting rules and investors would be sophisticated enough to understand

what was happening" (page 68). This would relate to "Biased Theories about Others", as he

believed this group of investors was sophisticated. You cannot help but think he also felt

secretly an investor(s) would question their actions and bring them to account for their actions

considering the situation he was in with his employer.

The obstacles I see in Richard Scrushy's behavior are "Disregarding or Distorting Harm,

Euphemistic Labeling, and Rationalizing Our Actions". In reference to "Disregarding or

Distorting Harm" based on the belief he was doing a good thing by providing rehabilitation

therapy to patients at lower costs than regular hospitals, one could surmise he found doing


whatever it takes to succeed he would do, all on the backs of his employees, of which as CEO he

could discredit at will. We could also, along these lines consider "Euphemistic Labeling" as he

was not above lying as interpreted by the various financial reports produced to make the

company look more profitable under the veil of only business. He himself would feel pressure in

1996 as they could not meet second quarter projections. He would once again ask Aaron Beam

to cook the books, or the company would face financial ruin. Scrushy rationalizes this away by

saying in Velasquez, (2012), "If they could just get through the quarter, then everything would

be okay" (p 69).

We see clearly what he was thinking as up until now he felt everything was going his

way; just one more time let the dice roll. This would relate to "Biased Theories about Oneself",

as he is very confident in his abilities, so what random event could he not control, after all he

was the third highest paid CEO in the America; he had to be doing it right.

2. Explain how Aaron Beam might have used the "loyal agent's argument" to defend his actions. Do you think that Aaron Beam's situation the "loyal agent's argument" might have been valid? Explain.

Under the "loyal agent's argument" Aaron Beam's defense would be that Scrushy had

ordered him to manipulate the accounting records or more specifically the general ledgers. He

was seen as reluctant to comply, but was pressured by Scrushy and a bit intimidated by him to

the point at times of fear. I do not believe Aaron Beam could have actually used the "loyal

agent's argument". The information shows Scrushy and Beam knew as stated in Velasquez

(2012), "From the beginning Scrushy and Beam both knew the company had to appear profitable

to satisfy investors and...
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