Eugene D. Fanning Center for Business Communication
Mendoza College of Business
University of Notre Dame
Martha Stewart Living Omnimedia, Inc.
An Accusation of Insider Trading
TEACHING NOTE
Purpose of the Case Study
1.
To convey factual information in context so that the reader
can assess the situation and develop thoughtful insights
regarding the relevant issues.
2.
To heighten awareness of insider trading, its ramifications
and the conflict of interest that brokers struggle with
when client relationships overlap.
3.
To evaluate the role of brand equity as an asset for a
company, and the risks that accompany defining a brand
around one individual.
4.
To contemplate the best course of action for a high profile
individual to take when dealing with the court of public
opinion and to learn how to mitigate damage incurred by
media portrayals of a particular event or situation.
Identify the Problem
The issue of this case is two-fold. First, the possibility
of illegal or unethical conduct by a prominent business figure
is of primary concern in an era known for multiple incidents of
corporate corruption. Second, there is the problem of brand
equity for Martha Stewart Living Omnimedia and the impact of her
situation on the profitability and of the company.
02-15 TN
This case was prepared by Research Assistants Arianne R. Westby and Mary P. Moulton under the direction of
James S. O’Rourke, Concurrent Professor of Management, as the basis for class discussion rather than to illustrate
either effective or ineffective handling of an administrative situation.
Copyright ©2002. Eugene D. Fanning Center for Business Communication. All rights reserved. No part of this
publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form by any
means – electronic, mechanical, photocopying, recording, or otherwise – without permission.
Forecast the Most Desirable Outcome
The most desirable outcome is for Martha Stewart to be
cleared of all allegations and for her company to regain the
losses it suffered as a result of this incident. In addition,
Martha Stewart Living Omnimedia, Inc. will hopefully be able to
devise a strategy to “insure” the brand through diversification
by moving away from reliance on a sole individual.
Identify the Critical Issues
1.
Brand equity is the promise of an experience, but when a
brand is tied to one individual, it impacts a company’s
ability to make good on this promise.
2.
As the center of a brand, Martha Stewart herself has some
level of responsibility to her customers and shareholders.
3.
Martha Stewart Living Omnimedia, Inc. has suffered
significant losses as a result of this incident and will
need to devise a strategy to provide a buffer from further
problems.
4.
Martha Stewart Living Omnimedia, Inc. may be so dependent
on Martha Stewart, the person, that the company may not
survive in its current form without her.
5.
The two areas of public relations and legal advice can have
conflicting agendas, and it is vital to know what
concessions to make in each area. In essence, one must
decide how to coordinate a strategy to win in both the
court of law and the court of public opinion. Martha chose
to ignore the court of public opinion.
6.
Securities brokers are sometimes confronted with nonpublic, material information. In such cases, the
possibility of a conflict of interest is significant. Given
his or her responsibility to multiple individuals, the
timing and specific details of information shared is of
critical legal and ethical importance.
7.
America is faced with another situation in which a wealthy,
prominent business-person allegedly took advantage of her
position for personal gain.
Stakeholders in this Case
1.
Martha Stewart.
2.
Martha Stewart Living Omnimedia, Inc., its employees,
its shareholders.
3.
4.
Kmart Corporation.
Customers of Martha Stewart branded products.
5.
Competitors of Martha Stewart Living Omnimedia, Inc.
6.
The CBS Television Network’s
media outlets.
7.
The image of Corporate America, business leaders and the
investing public.
8.
Peter Bacanovic, Douglas Faneuil and Merrill Lynch.
9.
All other individuals featured, directly or indirectly, in
the case.
and
“The Early Show” and other
Possible Solution to the Problem
Martha Stewart Living Omnimedia, Inc. can redefine its
brand so the company is not reliant on any one individual. In
addition to brand issues, the company needs to change its
internal structure to better protect shareholders and improve
both its profitability and sustainability. At this time, Martha
is the sole holder of Class B shares of stock in MSO, which give
her ultimate decision making power. In order to alter the
direction of the company, something must be done to dilute her
authority to direct the course of MSO. One possibility is for
the company to buy her out of her majority ownership. Martha
will also have to confront the public once the investigations
are complete and make a decision about her communication
strategy.
How Should Martha Stewart Move Forward From Here?
At this point it is reasonable to assume that Martha will
remain silent until all investigations into her sale of ImClone
stock are complete. Ideally, if she is truly innocent, she
should have addressed the public by now. This is critical to
her success in the future, with or without Martha Stewart Living
Omnimedia. She needs to act as the business leader she has
historically been touted to be, and take responsibility for her
actions and the far reaching impact they have had on various
stakeholders.