Carenetwest
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Problem Solution: CareNetWest Companies, Inc.
University of Phoenix / Dallas
Enterprise Risk/MBA 560
July 4, 2006
Problem Solution:
CareNetWest Companies, Inc.
CareNetWest is a large hospital chain that has been growing aggressively for the past several years and is now facing the realization that the Sarbanes Oxley Act of 2002 must be complied with. No plans have been put in place for this compliance and all personnel who are running the company have little or no business experience. The company is being operated by individuals who seem to be looking to the founder, Dr. Tad Smith, for all business decisions and operational guidance. While the company has seen much success while focusing on the basics of providing medical assistance to those in need, it must now face the realization that businesses are subject to compliance laws and structural requirements of the federal government when in the business of serving the general public.
Situation Background (Step 1)
CareNetWest is currently a strong and viable publicly traded company listed on the New York Stock Exchange. As with many companies that begin small and have a great idea, the company began to grow faster than the leadership probably expected. This led to an initial public offering and growth into a major hospital chain. While the company was growing at an impressive rate, the leadership never stopped to hire business professionals or seek the advice of a risk management specialist to see what the future may hold with respect to compliance issues or governmental legislation that could be looming.
Once the Sarbanes Oxley Act of 2002 was enacted, all publicly traded companies had to begin to comply with new governmental regulations. In addition, timeframes were given by the federal government and the Securities and Exchange Commission that forced companies to spend millions of dollars to ensure compliance with the new accounting and oversight rules and regulations.
CareNetWest has found that after avoiding or ignoring the inevitable challenges of running a publicly traded company, a risk management leader is now necessary and the executive leadership as well as the Board of Directors is now going to have to make hard decisions to ensure the changes are made that are required. Not only are the requirements legally demanded, now the leadership must sign off on certain of the accounting documents and will be held personally responsible for any mistakes that come to light.
Issue Identification
There are several issues that must be contended with in this situation. First, the founder is holding two positions, Chief Executive Officer and Chairman of the Board, which must be separated. Secondly, the major leadership of the company, both the Board of Directors and the Founder, is comprised of professional doctors, not businessman, and they have shown themselves to know very little about how to run a business that is compliant with the guidelines and the law. The executives in the organization are not in the positions which reflect their past performances, and this is leading to decisions being made that are not going to be conducive to a successful company. Lastly, the executives that are in place are not all contributing to the goal of keeping the company successful and moving it toward the requirements set forth by the Sarbanes Oxley Act and other requirements set forth by the Securities and Exchange Commission.
Opportunity Identification
CareNetWest has the potential to use the knowledge that will be gained through moving the company into compliance with the Sarbanes Oxley Act to look ahead with greater confidence and strength in the arena of publicly traded companies. By implementing all of the various checks and balances required, the company will be stronger and more internally and externally accountable to all stakeholders involved in the success of the company. This will, in turn, create more public confidence in the stock of the company and increase its net worth and profitability.
By moving forward with Sarbanes Oxley compliance, CareNetWest will move into the newly created environment for the companies that are traded publicly. All companies must be compliant with Sarbanes Oxley or face investigation, fines, and even imprisonment for the leadership.
Stakeholder Perspectives/Ethical Dilemmas
There are several stakeholders that must be taken into consideration with this company. Any or all of these groups have something, and some have everything, to lose if the company does not take the issue of Risk Management seriously and incorporate Sarbanes Oxley into its daily operations.
The shareholders of the company have enjoyed success seeing the value of their investments growing by above average returns. By investing their money in the company and having the faith in the leadership, that faith must be rewarded by legal compliance and efficient leadership for the continuation of the company and its growth.
The employees of the organization are stakeholders with respect to the survival of the company. Livelihoods depend on the company remaining solvent, and this will only happen with the risk management issues being paid attention to and the company complying with the Sarbanes Oxley Act. In turn, the employees are also the ones who have the potential to have the most impact on the success of this new direction that the company must take. It is the individual employee that will make the restructuring and compliance a successful reality.
CareNetWest leadership has an enormous stake in the success of the company and will be the driving force for all risk management changes and all compliance issues. It is imperative that they be up to the task to ensure that all required implementations are accomplished.
Probably one of the most overlooked stakeholders in any governmental compliance issue is the federal government agencies involved. While the financial impact of the federal government is not usually stressed, the compliance with rules set by that government are stressed and the implications for non-compliance can be devastating to a company.
Problem Definition (Step 2)
CareNetWest will become compliant with the Sarbanes Oxley Act of 2002 within six months in order to structure the company within the guidelines set by the United States Congress and the Securities and Exchange Commission for publicly held companies.