Corporate Governance at Martha StewartLiving Omnimedia:Not “A Good Thing”

GROUP 4Abhimanu Singh - 15020841004Ashita Negi - 15020841014Jayasuryaa H - 15020841024Nainika Jain - 15020841035Rohan Bharaj – 15020841046Tushar Bengani - 15020841056

Early Life• Born on August 3, 1941 in New Jersey

• She grew up in a Polish American household where the traditional arts of cooking, sewing, canning and preserving, housekeeping, and gardening were practiced

• Quest for perfection

• Worked part-time as a model in high school

• Worked as a stockbroker at Wall Street after graduation from 1965-72

• Married Andy Stewart in 1961

• Completed a degree in history and architectural history from Barnard College, Manhattan.

After marriage, both of them bought and restored an old farmhouse dubbed “Turkey Hill.”

At age 32, Martha opened her first catering business with her partner, Norma Collier‘Uncatered Affair’

Famous books published 1982-Entertaining 1987-Weddings

Signed on with Time Inc. to produce her own magazine, “Martha Stewart Living.” Circulation reached about 1.2 million.

RISE

MARTHA

OF

STEWART

Birth of MSO• In 1997, she acquired control of her business from Time Inc. and formed

Martha Stewart Living Omnimedia and named herself the Chairman and CEO.

• Signed a deal with Kmart, then the second largest retailer in USA and created a line of “Everyday” products for the retail chain raking in millions of dollars.

• Compared to the likes of Calvin Klein, Tommy Hilfiger and Ralph

Lauren

• Listed on NYSE in 1999 making her the first self-made female billionaire

Competitors

Vision

• Management strategic vision was called synergia

• Unite all the businesses under one umbrella

• Plans to sell more multimedia packages, develop new T.V shows

• Strengthen their online business platform

A Crippling Blow

2002- Insider trading in ImClone Systems Inc.( Samuel D. Waksal) as her broker Peter Bacanovic, tipped her off that ImClone was about to drop.

Stewart sold about $230,000 in ImClone shares on December 27, 2001, a day before the announcement of the FDA decision on Erbitux, an

experimental monoclonal antibody drug.

Stewart's involvement would have never come to light had Doug Faneuil, Bacanovic's assistant, not disclosed it to investigators.

Although Stewart maintained her innocence, she was found guilty and sentenced on July 16, 2004 to five months in prison, five months of home

confinement, and two years probation for lying about a stock sale, conspiracy, and obstruction of justice.

Consequences of the Scandal

Cable channels dropped her

shows

63% drop in ad pages at Martha

Stewart Living

Patrick layed off 40% MSO’s employees & slashed 60%

product offerings

Profits sank, and by 2003 the company

was under loss.

Efforts made to distance the company from Stewart

MSO launched non-Martha magazine (Everyday Food) and a TV show featuring pet expert Mark Marrone.

Company also bought Body + Soul Magazine & Dr. Andrew’s Self healing newsletter for their new “natural living” brand of lifestyle.

Size of Stewart’s name on the magazine cover was reduced and few directors also considered changing the name of the company.

Restructuring of the Board of Directors

• Chairman- Jeffery Ubben, 2nd largest shareholder• Ubben recruited 2 new directors- Thomas Siekman,

counsel at Compaq & Bradley Singer, CFO of American Tower Corp.

• Former Sears CEO Arthur Martinez was promoted to lead director.

• To regain the control & rights of 94% shares, on advice of Koppelman, Stewart began remaking the board.

Susan Lyne, head of Walt Disney’s

ABC Entertainment

Wenda Harris Millard, Chief Sales

officer at Yahoo!

Rick Boyko, co-president and creative officer at

Ogilvy & Mather-assigned to compensation

committee

Former Sears CEO Martinez, stepped

down.

Ubben also left the board.

Managing Losses• Newly constituted board renewed Stewart’s employment

contract. Her base salary continues to be $900,000, with a bonus of up to 150% of salary. Her pay was withheld while she was in prison.

• Reduced the fees for use of Stewart’s home and image from $2.5 million to $750,000.

• When Patrick reported losses in Oct 2004 and predicted a further steep in next quarter, she was fired. Lyne replaced her.

Stewart assumed the title of “Founder”• Prison rules didn’t allow her to take management decisions for the

company but still Lyne & Koppelman used to update her as to what was going in MSO.

• Also she was barred from serving as a director as part of settlement with the SEC, so she assumed the title of founder and could work 48 hours a week during her home confinement.

• Kmart’s purchase by Sears spread the rumor that Martha Stewart products would be sold at Sears stores, shot the share price to a new high.

• Half the American women supported Stewart and In June 2005 Koppelman was declared as the chairman to the board.

New association with NBCTwo major associations:-1. The Apprentice: Martha Stewart- A

prime time reality TV show on NBC from Mark Burnett

2. A new syndicated daytime TV show hosted by Stewart.

Glimmers of Hope

BLUEPRINT

Web Platform MarthaStewart.com(Relaunched in 2007)

MSO Revenues rose 54% between 2005-2007 to $327.9 Million

Lost Competitive Advantage in MerchandisingMeredith Corp- Walmart

MSO-Kmart

2008 recession hit MSO Market

Dispute over Stewart’s compensation

Lyne’s Resignation

In 2009: MSO Loss-14.6 MillionStewart’s Compensation: 9.8 Million

From 2009-2012MSO total loss: 96 MillionStewart’s Compensation: 27 Million

Narrowing Options

Co-CEO Wenda Millard resigned.

Co-CEO, Robin Marino returned as

Head of Merchandising.

Koppelman became Executive Chairman

and Principal Executive Office.

Stewart took a new title: Chief Editorial, Media and Content

Officer.

MSO shares dropped to a new low of $1.60.

Appointed Stewart’s sister-in-law as

senior vice president.

Brother-in-law as Property manager. Sister as a Blogger.

A Turning Point

• The ban on Stewart’s serving as corporate officer expired

• Management wanted the company to go private but Stewart did not liked the valuation

• Recruited Lisa Gersh, as president

• Gersh transformed the company

• Conflict in the Penny agreement

Crossroads

Marthastewart.com traffic among young do-it-yourself customers rose

Martha published her 79th book and landed cameo roles in popular TV shows

Resurgence of popularity and revival of cult media status

Crossroads

The magazine Martha Stewart living barely kept pace with rest of the competition

The CEO job of MSO remained open well into 2013

Martha took a pay cut which was more or less an eyewash

Lost brand equity and brand identity by wandering into product lines that damaged its image.

MYERS BRIGGS PERSONALITY

TYPE

Strengths Weaknesses

Dedicated and Strong-willed Inflexible and Stubborn

Direct and Honest Uncomfortable with unconventional situations

Loyal Patient and Reliable Too focused on Social Status

Enjoy creating order Difficulty expressing emotion

Excellent Organizer Judgmental

Extraverted

Sensing

Thinking Judging

Key Takeaways

• Unethical Leadership leads to employees and customers lose trust in the capacity of the organization

• Losing employees’ trust and confidence results in less productivity

• Brands built intimately close to a single personality will suffer when the individual’s popularity suffers

Ethical Learnings• A corporation is lot bigger than any individual, stakeholders

and shareholders are more important for sustainability.

• Nepotism has no room in a public corporation.

• Unethical corporations caught in public scrutiny takes a lot of time to stabilize and earn back public trust that drives revenues.

• Corporate governance should extend to scrutiny of the pay of top management for unfair practices.

THANK YOU