Forensic Diagnosis and Transformation of an Organizational Culture

Since the relatively recent unethical behaviour of some employees in various organizations has been publicized, organizational scientists and management practitioners have correctly attributed this behaviour to an organization's culture. However, based on our analysis of the case we describe in this manuscript and the existing ethics literature, we argue that there is a need to begin investigating factors here-to-fore that have been omitted in past research on why people behave unethically. We apply Schein's (2004) framework of organizational culture (i.e. artefacts, espoused beliefs and values, and underlying assumptions) and the stakeholder theory of management (i.e. the satisfaction of legal, economic, moral, and philanthropic responsibilities) in describing the evolution and transformation of the HealthSouth (HS) Corporation (a Birmingham, AL-based healthcare company) organizational culture from its founding in 1984 to 2011. In 2003, a former chief financial officer of HS turned whistleblower and revealed that the company had been fraudulently reporting earnings since 1996. Once the investigation began, 16 executives were found to be guilty of a $2.7 billion fraud. From published documents available in the public domain and from information provided by the current CEO, we describe the details of the fraud, the turnaround of HS, and the transformation of the finance/accounting organizational culture. Because of the cultural transformation, the company is now a profitable and reputable company.