HealthSouth Settles on Board

HealthSouth'sHLSH boardroom is losing that cozy feel.

Facing the prospect of a courtroom loss that could have cleared the way for a full-blown proxy fight, HealthSouth agreed early Tuesday to begin replacing most of its board members on its own. Over the next nine months, the company will hand out pink slips to five incumbent directors accused of collecting secret perks while failing to do their jobs.

All five have deep ties to ousted CEO Richard Scrushy, who faces criminal charges for allegedly orchestrating a multibillion-dollar accounting scam that went unchecked by the board for many years.

"These were the five directors who were on the board when Scrushy did his dirty work," said Stuart Grant, a partner at Grant & Eisenhower, the law firm that scored Tuesday's settlement on behalf of the Teachers Retirement System of Louisiana. "We got exactly what we were after."

In confirming the settlement on Tuesday, HealthSouth said that it had decided to adopt a "transition plan which had previously been under consideration." But before the actual agreement, HealthSouth had warned that boardroom upheaval could disrupt its recovery, and even push it into bankruptcy.

"I don't think anybody bought that," Grant said. "There's nothing like a trial you know you're going to lose that will bring you to the table."

In the end, HealthSouth agreed to replace five incumbent directors in an orderly fashion. The first two will leave in less than two weeks. Two more will follow by next April, and a fifth will depart by next August. Interim Chairman Joel Gordon, along with three newcomers to the board, will remain "in order to help ensure the continuity and stability of HealthSouth's current turnaround efforts."

Grant said the settlement offered "the best of both worlds" by eliminating questionable directors with minimal disruption to the company. Board members tapped for removal include John Chamberlin, Sage Givens, Charles Newhall, Larry Striplin and George Strong. All but Striplin have spent a decade or more on the board.