Carenetwest Situation Analysis

CareNetWest Situation Analysis

CareNetWest Situation Analysis

TeamBMBA560

K. Porter

University of Phoenix

MBA/560 Enterprise Risk

R. W. Alden, Esq.

October 20, 2007

Introduction

CareNetWest Companies, Inc was founded by Dr. Tad Smith, to provide quality healthcare to the public. Being a relatively new company, many details have been overlooked in establishing the public healthcare company. CareNetWest has emerged into an industry that is heavily regulated and must comply with Sarbanes-Oxley Act of 2002 (SOX). Many challenges have been encountered in the establishment of the company. Some of the main challenges include: establishing a solid foundation for regulatory risk processes, enacting pending corporate governance, SOX requirements, and best practices. CareNetWest has recently lost its Chief Risk Officer causing the company to lack the internal expertise to address these challenges. Due to the lack of internal expertise, CareNetWest has decided to consult with experts in the industry to facilitate a strategic plan of action to resolve the issues.

Learning Team B will identify and benchmark several companies that have encountered compliance issues similar to CareNetWest. This paper will discuss the various concerns that each company faced, along with the response to the issue, and the outcomes that resulted from each situation.

Situation Analysis

Issues Identification

A situational analysis was conducted for CareNetWest, a newly established public healthcare company. The analysis outlined several risk management issues faced by the company which consist of the implementation and compliance to the Sarbanes-Oxley Act of 2002 ( SOX). The analysis also identified weakness in the company’s corporate governance for best practices and revealed the Board lacked qualified members with expertise needed for implementation and SOX requirements. In an effort to address proactively the internal issues faced by the company: the CEO consulted an industry consultant to review the status of the company in order to provide recommendations for corrective actions.

The industry consultant identified several key internal issues faced by CareNetWest. The three most critical issues faced by the company were risk management infrastructure, lack of key expertise, and a lack of accountability for implementation and execution of corporate governance and risk management. The consultant specifically noted the following challenges faced by the company. (1) “Risk management has failed from an infrastructure perspective due to lack of expertise, communication, and management and Board support” (CareNetNews, 2007, Ð'¶ 2). Based on additional issues identified, the company’s risk management failures were primarily contributed to the Board’s lack of expertise, significant business experience, and no existence of committee(s) in position to identify and resolve the risk management issues. (2) “The CEO does not understand governance and accounting control expectations; there is no internal healthcare risk expertise or SOX expertise” (Ð'¶ 2). As a result of the CEO’s lack of understanding of the importance of corporate governance best practices and accounting control expectations, the company currently had employed an incompetent CFO who possessed neither limited accounting control nor the necessary healthcare operations experience needed. (3) “There has been no accountability for significant pending risk management projects, including SOX implementation and the joint commission review” (Ð'¶ 2). The lack of accountability for risk management projects were primarily contributed to limited communication concerning the company’s risk and the nonexistence of Board member involvement in the enforcement of risk management and SOX requirements.

Opportunities Identification

In reviewing the status of CareNetWest, the industry consultant provided an observance of potential opportunities for the company. The observance revealed an opportunity for CareNetWest to develop an alliance with the company’s independent accounting partner Dawn Nelson. It was noted that Dawn was very knowledgeable of SOX and had the necessary expertise needed and CareNetWest and the independent accounting partner had a very strong working relationship. It was determined that within the organization was a very strong candidate with corporate governance resource; the company’s General Counsel, Dick Lusky. “CareNetWest has strong financial capable of absorbing the costs associated with upgrading personnel and infrastructure” (Ð'¶ 3).

Benchmark Opportunities

CareNetWest can learn from Wal-Mart the importance of complying with all laws. Wal-Mart failure to comply resulted in fallen shares, lost business, and negative publicity. CareNetWest should learn to comply with the laws timely and maintain compliance. This should guarantee the company the possibility for fewer issues, opportunities for business connection, and increase share value due to positive industry standing.

AutoZone’s planning and implementation can be an example for CareNetWest to address challenges and establish a resolution timely in an effort to achieve end state goals. By restructuring the organization CareNetWest can reduce risk, obtain a solid foundation, and increase communication. AutoZone proved that by restructuring and organizing, the company was able to obtain a productive system and increase growth. By CareNetWest adopting AutoZone’s risk reduction and organizational style, the company would be on the way to achieving the end-state goals.

CareNetWest has an opportunity to view the issues that impacted Gateway’s public reputation and their business integrity in the eye sight of its investors, in light of the lawsuit filed against the company’s CEO and two other executives. Effective December 7, 2005, Gateway published corporate governance guidelines which provide best business practices and rules of engagement. CareNetWest has an opportunity to adopt a portion or the entire below duties