Public Relations Review 30 (2004) 447–457

Martha Stewart Living Omnimedia Inc.:the fall of an American icon

James S. O’Rourke∗

The Eugene D. Fanning Center, Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556, USA

Received 9 April 2004; received in revised form 30 July 2004; accepted 20 August 2004

Abstract

Domestic advice, entertainment, and home products icon Martha Stewart has been convicted of lying to gov-ernment investigators following the sale of nearly 4000 shares of ImClone Systems Inc. Following accusationsof insider trading, stock price manipulation, and perjury during a government investigation, the share price in hercompany tumbled, her award-winning television show was cancelled, advertising revenues in her magazine haveplunged, and corporate officers have resigned. Can Martha Stewart Living Omnimedia Inc. survive the downfall ofits namesake? Is it safe or rational to build a publicly traded brand around the name of a living person?© 2004 Elsevier Inc. All rights reserved.

Keywords:Pharmaceutical salesman; Accountant; Farmhouse

It was early afternoon on December 27, 2001, when a chartered private jet touched down in SanAntonio, Texas to refuel before heading on to San Jose del Cabo, Mexico. Martha Stewart, the well-known and much admired designer of home decorating supplies and entertainment needs, flipped open acell phone to check her messages. After discovering a call from someone at her brokerage firm, MerrillLynch, she returned the call.

Within minutes, Ms. Stewart placed a sell order on her entire holding of ImClone shares. Her call wasmade at 1:41 p.m., Eastern Standard Time. Just two minutes later, at 1:43 p.m., Merrill Lynch tradingassistant Douglas Faneuil executed the order, selling 3928 shares of ImClone Systems Inc. common stockfor $58 per share (Hayes & McGeehan, 2002b, p. C1).

∗ Tel.: +1 574 631 8397; fax: +1 574 631 5255.E-mail address:jorourke@nd.edu.

URL: http://www.nd.edu/∼fanning.

0363-8111/$ – see front matter © 2004 Elsevier Inc. All rights reserved.doi:10.1016/j.pubrev.2004.08.009

448 J.S. O’Rourke / Public Relations Review 30 (2004) 447–457

This seemingly innocent transaction – small stuff, really, considering the size and volume of othertransactions in Ms. Stewart’s portfolio – was the beginning of what has become a living nightmare forthe management of Martha Stewart Living Omnimedia, the company she founded and still heads, andfor Ms. Stewart herself. In the three years since that cell phone call, her stock value has plunged, herreputation has been tarnished, her status as a director of a publicly traded company imperiled, and hersocial life virtually extinguished.

In an age when insider trading, stock market collapse, increasing unemployment, and multiple businessfailures are in the headlines daily, public tolerance for executive misconduct may be at an all-time low.What follows is the story, as yet unfinished, of a brand name and corporate fortune built around the imageof a living person, and the consequences that have resulted from her perceived insensitivity to the rulesof the game.

1. Martha Stewart: the person

Martha Kostyra was born in Jersey City, New Jersey in August of 1941. She was the granddaughterof Polish immigrants and the second of six children (Grossman, 2002, p. A8). Early in life, Marthadeveloped a passion for helping around the house. Her mother, a schoolteacher and homemaker, taughther the basics of cooking, baking, canning, and sewing. Her father, a pharmaceutical salesman and avidgardener, introduced her to gardening at the age of three in the family’s small, but orderly, backyard(Byron, 2002, pp. 21, 24).

During her days at Nutley High School she modeled ready-to-wear at the Bonwit Teller departmentstore on Fifth Avenue in New York. She was also a member of the Honor Society and active in the school’sArt Committee. After graduating from high school in 1959, she entered Barnard College in New York.During her freshman year, she met her future husband, Andy Stewart, on a blind date. At the time, Andywas in his second year at Yale Law School. His family background seemed to Martha to be far moreglamorous than her own. His father, George, held a seat on the New York Stock Exchange but was forcedto give it up in 1957. Midway through her sophomore year, Martha and Andy were engaged, and a yearlater in July of 1961, they were married. As Andy graduated from law school in June of 1962, Marthacontinued her education to finish her Art History degree at Barnard. In September of 1965, Martha gavebirth to daughter Alexis, their only child (Byron, pp. 30–36).

2. Martha Stewart: the professional

In 1968 Martha attended a brokerage course at the New York Institute of Finance, and on August 14thof that year, she was licensed to conduct securities transactions with the public as a member of the NewYork Stock Exchange. She joined the firm of Perlberg, Monness, Williams and Sidel, where she workedfor five years before moving to Connecticut with her husband, Andy. From the start, Martha was on thefast track and threw herself into her work with enthusiasm. Within two years, she was among the firm’stop sales representatives (Byron, pp. 44–47).

Once the Stewarts moved to Westport, Connecticut, Martha stepped off the fast track and adjusted tosuburban living. In January of 1977, though, she was eager to get back into business and partnered witha friend to form a company calledAn Uncatered Affair. Their business was a huge success, which led

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Martha to launch another venture named theMarket Basket, a store in Westport that sold a variety ofprepared dishes and desserts. As her success gained momentum, she opened Martha Stewart Inc., basedout of her home in Westport. As the business grew, Andy helped Martha orchestrate a book contract withCrown Publishing. The publisher later launched her best-selling book,Entertaining. Martha publishedseveral more book titles between 1983 and 1987, when her marriage of 25 years ended in divorce (Byron,pp. 75–82).

That same year, discount retailer Kmart was searching for a brand affiliation to ignite its lagging sales.Joseph Antonini, the soon-to-be president of Kmart Corporation, approached a friend and savvy businesswoman named Barbara Lonen-Snyder for advice. She devised a plan to convince Martha Stewart, bythen a nationally recognized figure in decorating and lifestyle issues, to liven up the aisles at Kmart.On July 6, 1987, Stewart signed a contract with Kmart in which she agreed to create and oversee themanufacture of a line of bedding and bath products. In return, Kmart paid royalties on all Martha Stewartbranded products. By 1990, Martha Stewart’s line accounted for 3% of the company’s revenue and $1billion in sales. Just over a decade later, in January of 2002, Kmart filed for bankruptcy (Byron, pp. 116,121).

3. The making of Martha Stewart Living Omnimedia Inc.

In July 1991, Martha Stewart and Time Publishing Venture Inc. printed the first issue ofMarthaStewartLiving, a monthly lifestyle magazine. Martha later teamed up with Sharon Patrick, a graduate of StanfordUniversity and the Harvard Business School. A business plan for Martha’s company emerged during anadventurous trip in which the two climbed Africa’s Mount Kilimanjaro. The plan included a strategyto buy back her magazine with a combination of cash and stock (unregistered stock at the time of thearrangement). Within two years, on October 19, 1999, Martha Stewart Living Omnimedia was born. Asshe stood on the balcony overlooking the main trading floor of the New York Stock Exchange, Marthawatched her net worth soar instantly from $614.7 million to $1.27 billion (Byron, pp. 219, 316).

Martha Stewart Living Omnimedia became a leading creator of “how to” content and related productsfor homemakers and other consumers. It was valued at $295 million in 2001 and produced $21.9 millionin profit. Leveraging the well-known “Martha Stewart” brand name across a broad range of media andretail outlets, the company provided consumers with ideas, products and other resources to raise theirquality of living. Martha Stewart Living Omnimedia (commonly known by its ticker symbol as MSO)owns and manages multiple media, including four core magazines, an Emmy award-winning domesticarts television program, a weekly segment onCBS This Morning, and 34 book titles, which togetherhave sold more than 10 million copies. Additionally, MSO manages a weekly AskMartha® newspapercolumn, syndicated in more than 230 newspapers; a radio program, airing on more than 330 stationsthroughout the United States, and a website,marthastewart.com, with more than 1.7 million registeredusers (www.marthastewart.com).

From 1994 to 2002, Martha earned countless accolades ranging from winning six Daytime EmmyAwards to being counted among “America’s 25 Most Influential People” inTimeMagazine’s June 1996issue. The most relevant accomplishment in light of the issue at hand, however, was when Martha Stewartwas elected to the New York Stock Exchange Board of Directors on June 6, 2001 (www.nyse.com).Known widely as the “Diva of Domesticity” or “Domestic Doyennes,” Martha combined the attributesof a skilled businesswoman with the culinary instincts of Julia Childs by the 1990s.

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With such notoriety, however, come both admirers and abhorrers. She appeals to some as the girl nextdoor, while others think she will do literally anything to get ahead. Proxy statements filed in April 2001show that Martha Stewart Living Omnimedia paid about $2.7 million to Martha in salary and bonuses. Inaddition, she received another $2 million in royalties for allowing her name to appear in various companypublications and television programming. And then there are the $30.6 million in Class B shares of whichMs. Stewart is the sole owner, giving her ultimate control of the company (Hayes & Oppel, 2002, p. C1).

4. Merrill Lynch

Peter Bacanovic joined Merrill Lynch Pierce Fenner and Smith as a broker in 1993. He had previouslyworked for two years as a Marketing Director at ImClone Systems Inc. His personal and professionalcontacts quickly grew, as Peter used his good looks and social savvy to gain entree into the fast-paced,heady world of New York’sSocial Register. By the mid-1990s, his client list featured a number of NewYork’s social elite, including members of the Waksal family and Martha Stewart, whom he had metshortly after coming to New York (Hayes & McGeehan, 2002b, pp. C1, C9). In 2001, Bacanovic hireda young man named Douglas Faneuil as his assistant at Merrill Lynch. Faneuil, who graduated fromVassar in 1997, was also visible in another of New York’s social scenes. He fit Bacanovic’s requirementfor an assistant who understood both the financial and social needs of his clients (Kuczynski, 2002,p. ST6).

On December 27, 2001, Douglas Faneuil executed a trade for Martha Stewart, selling 3928 shares ofImClone Systems Inc. The sale was based on what Stewart claimed was a standing stop-loss order of $60(Hayes & McGeehan, 2002b, p. C9). Mr. Faneuil changed his official statement to Federal investigators onJune 19, 2002, contradicting the prior claim of a stop-loss order. Two days later, Merrill Lynch suspendedboth Faneuil and, Bacanovic, with pay and declined to comment on the details of the internal investigation(Kuczynski, p. ST6).

5. ImClone Systems Inc.

ImClone Systems Inc. was founded by Dr. Samuel Waksal in 1984 as a bio-pharmaceutical companydedicated to developing breakthrough biologic medicines in the field of oncology (www.imclone.com).In addition to his role as Chief Executive Officer of ImClone Systems, Dr. Waksal founded ScientiaHealth Group in late 2000, an incubator for biotechnology firms (Pollack, 2002, p. C3). During 2001,two issues were emerging concurrently at ImClone and Scientia. At ImClone Systems, a promising newcolon cancer drug, Erbitux, was under review by the United States Food and Drug Administration (FDA).And at Sciencia Health Group, leadership issues were tearing at the structure of the firm.

On December 4, 2001, Lily Lee, an ImClone employee, met with the FDA to discuss issues facingthe company’s new oncology drug, Erbitux. After her meeting, Lee wrote an internal memo detailing herdiscussions with FDA officials, suggesting that the drug might not receive approval. At this point, news ofthe decision was neither official nor public, and some within the company still held out hope for Erbitux(Hayes & McGeehan, 2002bpp. C1, C9). ImClone CEO Harlan Waksal was apparently not among them.He sold his shares for $50 million just two days later. He later claimed that the Board of Directors knewof his intention to sell those shares weeks before he executed the trade (Markon, 2002, p. A4).

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6. The case unfolds

Harlan Waksal learned on Christmas Day from Brian Markison of Bristol-Myers Squibb that therejection of Erbitux was “99% likely.” He waited until Wednesday, December 26th to share the news withhis brother because he “did not feel it was appropriate to wreck Christmas for the people of the company.”(Hayes & McGeehan, 2002b, p. C9)

Sam Waksal flew home immediately from his vacation in the Caribbean. Knowing that he could not sellthe shares himself without approval from the ImClone General Counsel, Sam instructed his accountant totransfer 79,797 shares to his daughter, Aliza. That night, he also called his father. He also knew that thecompany did not plan to announce the FDA rejection until after the markets closed on Friday, December28th. According to a Federal complaint filed later against Dr. Waksal, he also knew there would be a“blackout” that day, a period during which no insiders could sell their shares before the news becamepublic (Hayes & McGeehan, 2002b, p. C9).

It is not clear how quickly the accountant reached anyone at Merrill Lynch or to whom he spoke. Publicdocuments show that Dr. Waksal, his daughter Aliza and his father, Jack, raced to unload more than $15million of the company’s shares in trading on December 27th. Merrill Lynch was unable to executeDr. Waksal’s trade order without specific authorization from the ImClone General Counsel, however.Desperate to save his investment, Sam then shifted his 79,797 shares of stock to Bank of America, onlyto find that they, too, would not execute the trade. One bad decision led to another, and Sam forged thesignature of the ImClone General Counsel in a last ditch effort to sell his shares, which later led to aconviction on charges of bank fraud (Hayes & McGeehan, 2002b, p. C9).

That same day, Martha Stewart and some friends, en route to San Jose del Cabo, Mexico, landed in SanAntonio to refuel before continuing on to their destination. Ms. Stewart responded to a message from herbroker, Peter Bacanovic, who was in Miami at the time. His assistant Douglas Faneuil was in the MerrillLynch office in New York City. Martha placed a call at 1:41 p.m. (EST), and her trade of ImClone stockwas executed by Douglas Faneuil at 1:43 p.m. for $58 per share (Hayes & McGeehan, 2002b, p. C9).

Ms. Stewart contends that the sale was in response to a $60 stop-loss order that she claims to haveplaced in November of 2001 with her broker, Bacanovic. If this is true, why was her stock not soldimmediately when the share price dipped below $60 for the first time since placing the order, to $59.98at 11:07 a.m. that same morning? At the same time that her shares were being sold, Stewart placed acall to Sam Waksal and left a message, which was recorded on his phone log as “something is going onat ImClone and she [Martha] wants to know what.” Her call was never returned (Hayes & McGeehan,2002b, p. C9).

6.1. Hands in the cookie jar

In early June 2002, news broke of the investigation into Martha Stewart’s ImClone trade. On June12th, Martha released a statement asserting that she had no insider information and sold the stock simplybecause of a pre-existing agreement with Merrill Lynch and broker, Peter Bacanovic. She claimed thatthe sale was “entirely proper and lawful.” (“A statement from Martha,” 2002)

At about the same time, information emerged regarding sales of $79 million worth of MSO stock byboth Martha and her associates (Pollack, p. C3). Some shareholders became disgruntled because thesetrades were made prior to information about Stewart’s investigation being made public. MSO stock begana steady fall and closed on June 25, 2002 at $13.60 per share, an all-time low since her company went

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public in 1999. Her paper losses were approximated at nearly $200 million (“Martha’s Survival is on theChopping Block,” 2002).

6.2. “I just want to focus on my salad”

Soon after news of the investigation was made public, Stewart made her regularly scheduled appearanceon the CBS Television Network’sThe Early Show, in a segment on how to prepare appetizing summersalads. Jane Clayson, the show’s anchor, asked her a pointed question about ImClone. Stewart continuedto chop cabbage in between gestures made with a knife in hand. She replied that she hoped “the scandalwould be resolved soon” and that she would be “exonerated of any ridiculousness.” After this appearance,she canceled future segments on the show (Hayes & McGeehan, 2004a, pp. C1, C2).

By mid-July 2002, Martha Stewart was the subject of three separate investigations. The United StatesDepartment of Justice was looking into the possibility of obstruction of justice, which carries a maximumprison term of five years. The Securities and Exchange Commission was investigating the possibility ofinsider trading, with securities fraud carrying a prison term of as many as 10 years. A separate investigationbegan in the U.S. House of Representatives Committee on Energy and Commerce. Prosecutors wantedto know precisely what Stewart knew when she sold the shares. The Committee had already combedthrough phone logs, cell phone records and a flight log for Stewart, as well as transaction documents(Gasparino & Markon, 2002, pp. A1, A5).

6.3. Dr. Waksal indicted and sentenced

On August 7, 2002, Samuel Waksal, ImClone’s former CEO, was indicted on charges of securities fraudfor trying to sell shares and for tipping off others to sell stock on non-public, market-moving information.Dr. Waksal was also charged with bank fraud, perjury, and obstruction of justice for allegedly ordering thedestruction of documents which were subpoenaed by the SEC as part of the ImClone probe. Accordingto the indictment, Dr. Waksal also conspired with two people he allegedly tipped off about the FDAannouncement to testify falsely before the SEC (Gasparino & Markon, August 9, 2002, pp. A1, A5).Then a week later, on August 14, ImClone Systems Inc. sued Samuel Waksal in an attempt to recoverthe $7 million severance which was paid in the Fall of 2001 when he resigned as CEO (Atlas, 2002, p.C3). Waksal eventually pled guilty to six of the 13 charges and was sentenced to serve 87 months in U.S.Federal Prison and pay a $3 million fine. He was also ordered to make restitution in the amount of $1.2million to the State of New York (Levine, 2004).

7. Stewart under investigation

That same month, Martha Stewart’s lawyers delivered various records totalling approximately 1050pages to the House Energy and Commerce Committee. The documents were received on the day ofthe deadline, August 20th at 4:00 p.m., with only an hour to spare. Later that month, on August 21,2002, Martha Stewart Living Omnimedia share price reached $8.91, down some 54% from June 6, 2002(Rozhon, 2002, p. C1).

To add insult to injury on August 22, Howard Rosen, an MSO shareholder, sued Stewart and severalof her associates for selling stock in MSO before the investigation of her ImClone sale became public.

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John Doerr, a well-known venture capitalist, his firm (Kleiner Perkins Caufield & Byers), and six othertop MSO executives were also named in a suit for selling shares prior to the June announcement ofthe Stewart investigation. In addition, a class action lawsuit was filed by MSO shareholder, ConradHahn. Mr. Hahn claimed that his loss from stock depreciation was a result of brand equity damage dueto Martha Stewart’s personal conduct (BBC News). By the end of August, both ImClone and MSOstock had endured a beating and closed the month at $8.30 and $7.45, respectively (Yahoo Finance,2002).

7.1. The government closes in on Ms. Stewart

As events unfolded in early 2002, Ms. Stewart tried gamely to defend herself, first on television inher CBSMorning Showsegment, and then in tightly scripted public statements from Susan Magrino, herspokeswoman. Between March of 2002 and March of 2003, however, Ms. Stewart’s only contact with thepress came in the form of a lunchtime interview with writer Jeffrey Toobin ofThe New Yorkermagazine.The two met at Turkey Hill, Ms. Stewart’s 200-year-old farmhouse in Westport, Connecticut. Clearlyfrustrated by continuing bad publicity, Martha blamed literally everyone from the media to her brokerageto public detractors for her spate of bad luck.

“Schadenfreude?” she was asked. “That’s the word,” she said. “I hear that, like every day.” She wenton to describe the reaction to her plight, saying, “Well, that’s puzzling to me, OK, that’s puzzling andalso confusing, because my public image has been one of trustworthiness, of being a fine, fine editor,a fine purveyor of historical and contemporary information for the homemaker. My business is abouthomemaking. And that I have been turned into or vilified openly as something other than what I reallyam has been confusing.” She said, “I mean, we’ve produced a lot of good stuff for a lot of good people.And to be maligned for that is kind of weird.” When asked if she might consider stepping down fromher role as chief executive officer in the company she founded, her reply was quick and direct: “Quit abusiness that is my life? Impossible.” (Toobin, 2002, pp. 38–44)

7.2. The company’s fortunes plunge

By Spring of 2003, the MSO stock ticker flirted with the $7 mark, less than a third of what it had beenjust a year earlier. Some press reports placed her personal losses from failed marketing ventures, decliningmagazine revenues, the loss of her CBS televisionMorning Showsegment, and her plunging companyfortunes at more than $400 million. When she sold 3928 shares of ImClone stock on December 27, 2001,she realized $229,002. Had she waited until the news of the Erbitux rejection by the FDA became publicknowledge just a few days later, she would have received $189,495. Her overall saving was just $39,507.The value of her continuing as chief executive of the company she founded may be immeasurable to herand others around her.

8. An indictment and trial

More than a year after federal authorities announced their investigation into Ms. Stewart’s sale of nearly4000 shares of ImClone stock, a federal grand jury released a nine-count indictment. The June 4, 2003document included charges against Stewart and her former broker Peter Bacanovic. Five of the counts

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were criminal charges against Ms. Stewart, accusing her of securities fraud, obstruction of justice andmaking false statements. Mr. Bacanovic was charged with obstruction of justice and perjury (Factbox,2003).

That same day, the Securities and Exchange Commission filed securities fraud charges against Ms.Stewart and Mr. Bacanovic in a Manhattan federal court. The civil complaint alleged that Ms. Stewartsold shares of her ImClone stock on an unlawful tip from Bacanovic. The complaint also alleged thatsubsequently, Ms. Stewart and Mr. Bacanovic “created an alibi” for the sale and “concealed importantfacts during SEC and criminal investigations into her trades” (U.S. Securities and Exchange Commission,2003). In addition, the SEC sought an order to have Stewart barred from acting as a director of, and limitingher activities as an officer of any public company.

On November 18th, United States District Judge Miriam Goldman Cedarbaum ordered a trial to beginin January of 2004. Jury selection began on January 6th and both Stewart and Bacanovic arrived in courton January 20th. Just six days later, a jury of eight women and four men was selected, and openingarguments began the next day (Timeline, 2004). Government prosecutors took six weeks to meticulouslyreview the smallest details of the case against Stewart and Bacanovic, calling numerous expert witnesses.On February 10th, Stewart’s assistant Ann Armstrong testified that Stewart personally altered the log of amessage Bacanovic left on the day she sold her ImClone stock. Nine days later, Stewart’s friend MarianaPasternak told a stunned courtroom that Stewart confided to her days after the ImClone sale that she knewabout Dr. Waksal selling his shares, adding: “Isn’t it nice to have brokers who tell you these things?”(Timeline, 2004)

9. The verdict and the sentence

After just two-and-a-half days of deliberation, the jury forewoman sent a note to Judge Cedar-baum, saying they had reached a unanimous verdict. Moments later, as jurors filed back into the Fo-ley Square courtroom in lower Manhattan on Friday, March 5, 2004, an uneasy hush fell over thegallery and assembled teams of lawyers. At exactly 3:00 p.m., Judge Cederbaum reviewed the juryworksheets before her, looked up and said “Guilty.” Three times she repeated the verdict in connec-tion with each of the charges against Ms. Stewart, and four times again for her co-defendant, PeterBacanovic, who was cleared on just one charge. An audible gasp went up from the crowded specta-tors’ section as the judge spoke. Ms. Stewart’s daughter, Alexis, who watched from a front-row seat,slumped and began to weep. The jury of eight women and four men sat stone-faced as each was polledby Judge Cedarbaum, and each said that he or she agreed with the verdict (Hayes & Eaton, 2004,pp. A1, B4).

Just 10 days later, Ms. Stewart resigned from her company’s board of directors but retained the title of“founding editorial director.” In that role, she says she will provide creative advice for product design anddevelopment, work on two books and provide advice on the evolution and branding of Martha StewartOmnimedia (Timeline, 2004).

On July 8, 2004, just a week after her bid for a new trial was denied, U.S. District Court JudgeMiriam Goldman Cedarbaum sentenced Martha Stewart to five months in prison and five months ofhome confinement for lying about her stock sale. Just before her sentence was pronounced, Stewart askedthe judge to “remember all the good I have done.” Judge Cedarbaum rejected a defense request to sendMs. Stewart to a halfway house and fined her $30,000. Former Merill Lynch stockbroker Peter Bacanovic

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was also sentenced to five months in prison and two years’ probation, in addition to a $4000 fine. Hisassistant, Douglas Faneuil, was ordered to pay a $2000 fine but was spared jail time and probation inexchange for his cooperation with prosecutors (Hayes, 2004, pp. A1, B2).

Moments later, on the courthouse steps, Ms. Stewart, spoke to the press, invoking the name of NelsonMandela, South Africa’s persecuted anti-apartheid hero, saying, “many, many good people have goneto prison.” She also railed against the press and the judicial system, saying “Today is a shameful day.It’s shameful for me, for my family, and for my beloved company, and for all of its employees andpartners. What was a small personal matter became over the last two years an almost fatal circus event ofunprecedented proportions.” She concluded her statement with a brief sales pitch, saying “Perhaps all ofyou out there can continue to show your support by subscribing to our magazine, by buying our products,by encouraging our advertisers to come back in full force to our magazines.” She paused and then added,“And I’ll be back. I will be back.” (Crawford, 2004)

10. What’s next for MSO?

The guilty verdict and jail term dismissed not only Ms. Stewart’s credibility, but her position asChairman and Chief Executive Officer of the company (which she had resigned at the time of indictment),her future as a director of a publicly traded firm in the United States, and about $400 million in stock value.In her rise as an arbiter of American good taste, Stewart built an enviable business empire. The company’svalue, following the IPO in 1999, rose to a peak of more than $2 billion. Following the conviction of thefirm’s founder, namesake, and public face, that value tumbled to $539 million, just a quarter of what itwas four years earlier. And the future of the firm looks uncertain, at best (Irwin, 2004).

Already advertisers have deserted the company’s flagship magazine,Martha Stewart Living, drivingdown revenue for the publishing division by 26% in 2003 (Irwin, 2004). On May 18, 2004, Ms. Stewart’stelevision show was suspended by King World Products after 11 seasons in 52% of local U.S. televisionmarkets. The company said it would take a charge of up to $2 million as it restructures its televisionbusiness (“Martha Stewart TV Show Suspended Next Season,” 2004). And, in a survey by a marketingfirm conducted after the verdict was announced, consumers viewed the Martha Stewart brand even morenegatively than Enron Corporation. Brand Keys Inc., a marketing consultancy in New York, surveysconsumers to learn how they view different brands. In its index, numbers greater than 100 indicate apositive impression, while numbers less than 100 indicate a negative view. At its lowest point, scandal-tarnished Enron polled 71. In a survey conducted in July of 2004, the index value for Martha Stewartwas 64. “I think the brand as we know it is dead,” said Morris L. Reid, managing director of marketingconsultancy Westin Rinehart (Irwin, 2004).

Many outside analysts have advised changing the firm’s name and that of key products. The magazineMarthaStewart Livingcould becomeEveryday Living. Even before her legal troubles began, the companysaid it intended to reduce its dependence on Ms. Stewart and her name and, in fact, successfully launcheda new magazine entitledEveryday Foodin January of 2003. Another publication entitledOrganizingGood Thingsscheduled for launch in 2004, and a television program known asPetkeeping with MarcMarronenow runs in many American cities via syndication under the MSO label.

Can the brand survive without Martha? That’s an open question at this point. Jeffrey Ubben, aninvestment manager whose firm is the company’s largest shareholder after Martha herself, resigned aschairman in July of 2004, clearing the way for Thomas Siekamn, a former Compaq Computer executive

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to assume the job. By late 2004, the company had about $170 million in cash, no debt, and a verycapable and creative group of people at the helm. Outside directors include Arthur Martinez, formerChairman and CEO of Sears Roebuck and Company and, for more than a year, they’ve received advicefrom well-regarded public relations counsel, George Sard.

Survival of the brand is possible, though, just as Chanel, Bill Blass, Versace, and others have survivedthe deaths of their creators and namesakes. Steve Madden Ltd. has done well, despite the convictionof its founder on money laundering and stock fraud charges in 2002. But Martha Stewart is different.The brand is about much more than fragrance, gowns, designer eye wear, or shoes. It’s about an aspira-tional lifestyle that so many American women sought. If the television program falters because broad-casters are unwilling to carry it, advertising revenues and subscriptions in the magazines will plunge.Without those essential promotional vehicles, home decorating, gardening, and cooking merchandise islikely to fail, as well. Brands have been pronounced dead in the recent past, including Tylenol in the1980s and Firestone in 2000. But they were well-funded, robust brands that belonged to large, 100-year-old industrial giants. Martha Stewart is an 11-year-old lifestyle brand that may no longer be “a goodthing.”

Acknowledgements

The author wishes to acknowledge the research assistance of Arianne R. Westby, Mary P. Moulton,Heather G. Zorn, and Carrie M. Householder in the preparation of this article.

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