Monday, November 9, 2009

Crisis Management: Martha Stewart


Our Class Presentaion:

Class Handout
Martha Stewarts Personal Blog

Martha Stewarts Recipe For Crisis Management

On December 27, 2003, Martha Stewart sold 3,928 shares of ImClone Stock. The next day, the stock dropped around 18%, saving Stewart around $46,000. It was later learned that ImClone founder, Sam Waksal, had tipped off Stewart. Stewart kept her innocence even after she was indicted of nine federal counts. In July of 2004, Stewart was sentenced to five months in prison and an additional five months of house arrest. She was also required to pay a $30,000 fine. This all looks very bad in a PR aspect. How could "the perfect stay-at-home mom" be involved with insider trading and be going to prison? Stewart's team now needed to come up with a plan and a way to bring her audience back.

After Martha Stewart was convicted and sentenced to five months in prison and soon after she was forced to another five months of house arrest, she was faced with many objectives in order to get her life back on track. Although it was tough for Martha and she faced many challenges, she stayed strong and worked hard in order to accomplish these objectives. At one point, Martha even stated to fans, “I will be back,” (Martha Comes Clean) to show her true determination. Amongst her many objectives after being released from prison, Martha had to be willing to work hard to win her fans back. She also needed to work hard to jump start the Martha Stewart Organization and make changes to redirect the organization in the right direction. In order to take part in this redirection, Martha needed to expand products, and even re-brand and repackage them. In addition, Martha needed to put forth much effort to get back into the public eye through TV shows, books, press conferences, and much more.

The real question to Stewart’s regrouping after her arrest was whether she could return to her throne as homemaking queen. With Stewart's public image tainted, she would have to strategically attempt to make her way back into the public’s eye, and make sure that they were willing to trust and accept her again. Stewart's own home-cooking show had been taken off the air and new episodes were no longer airing, so a strategic move would be to film new episodes and have new special guests appear in order to have people start viewing again. With sales dropping and the Martha Stewart Living Organization’s image in doubt, the company would also have to come up with strategies in order to jump start their organization. With Stewart as the CEO, they would likely have to start by demoting her or firing her from her position as head of the company, if they were to redirect their company in the right direction. Another strategy that the Martha Stewart Living Omnimedia (MSLO) company would need is the expansion of the products into other retail outlets in order to get the brand name out in more places. The company would also need to re-brand their image again to make sure people would not hesitate to purchase one of Stewart’s products because of Stewart’s legal woes. Not only could the company re-brand and repackage their products in new and efficient ways, but they would also have to find ways to separate themselves a bit from Stewart’s name to compel the public to realize that Stewart’s legal troubles were separate from the operations of the company. This would help the companies image and ultimately sales, despite people thinking that Stewart was a convict. Gaining the trust back from the consumers and viewers would allow Stewart and her company to run efficiently and smoothly.

Overall, Martha Stewart had her company respect at all times for building a business empire. According to The Wall Street Journal, consumers don't care about Stewart's personal moral decisions because they still rely on her expertise. MSLO created a supportive relationship with Martha Stewart during her trial. They knew that they were not going to survive without her expertise, knowledge and image. Although, Chief Executive Susan Lyne helped stabilize the company during the legal travails of the company's founder, having a specialized and wise executive chief was crucial for the company to survive during Stewart's trial. MSLO executives had the opportunity to support their founder and also take care of business by not involving Stewart's legal aspects with the company daily business performance. They continued selling their products in K-Mart Stores and they also introduced them in stores such as Wal-Mart, Macy's,, Costco Wholesale Corp. and Michael Stores.

Before going to prison, Martha Stewart gave a press conference in New York. She persuaded people and advertisers to keep loyal to her products. By giving this press conference she clarified that her legal situation should not make a negative impact on her products sells. The five months sentence imposed by the courthouse allowed her to be released on time to film her show "The Apprentice." She also signed a major contract with Sirius Satellite Radio to broadcast a show aimed for women lifestyle. The life experience gained at the prison inspired her to publish her book "Martha Rules".

Her position in MSLO changed. According to Kessler Robert in his news article "Stewart paying up in trading case", she continues working in to work in creative and other non financial areas.

Even though Stewart made an attempt and has still been making attempts to meet her objectives of winning back her audiences, many did not even find this effort necessary. There are a large number of fans who supported Stewart throughout her whole experience with prison. In fact, many traveled to greet her in West Virginia to welcome her home when she was released. According to an article entitled "Fans trek to prison to say goodbye to Stewart", one woman named Kathy Herrmann who was going through chemotherapy at the time, traveled across the country from Washington to see Martha when she was released from prison. “I’m tired but it meant enough for me to come out here anyway,” Herrmann said. “It’s all about support." Herrmann who had always been a fan of Stewart, did not allow Stewart’s distressing situation get in the way of her dedication to Stewart. Another woman by the name of Lisa Huff stated that she was never a fan of Martha; Huff actually became a fan of her after she was sentenced to her five months in prison. “When she went in, I thought she was mean. But when she decided to go to jail, now she looks more contrite. I think jail has been great for her,” Huff said.

Although there is no documented calendar for Stewart (Gannt chart or written evaluation), here is a compiled a list of both her corporate and personal losses throughout the years she experienced her troubles. In July 2002, not even a year after she was indicted on her federal charges, MSLO's third quarter earning were cut in half. In 2003, Stewart's publishing revenue for her magazine, "Martha Stewart Living," fell 26%. As a result, MSLO reduced the circulation of their magazine from 2.3 million people to 1.8 million. Shortly after this happened, MSLO's partnership with K-Mart, their largest partner and distributor of products, didn't want to be associated with Stewart. K-Mart filed a lawsuit against Stewart for being overcharged for their services. Because of this, MSLO's merchandising unit fell 16.6%. On June 4, the day Stewart was found guilty and charged, her New York damage control firm, Citigate Sard Verbinnen, launched a new website, From a PR perspective, this was the beginning and probably most crucial part of her crisis management. The website was one of the biggest steps Stewart took to reviving her image as the wholesome person she was originally perceived as. The website posted open letters from Stewart herself, along with fan mail, legal briefs and case updates. This was a way for Stewart to actually communicate with her fans and supporters and show that she could and would overcome the situation she was in. The first day the site was launched, it obtained 2 million hits. On her damage control firm's part, this was the perfect PR plan to recovering her image and career. In 2004, immediately after her verdict was announced, the shares of her company, MSLO fell 23%. In March, after Stewart stepped down as the Director, CEO and Chief Creative Officer of MSLO, she lost $95 million. As a result of this, the company devised a new plan to try and recover Stewart's company and image. They got rid of the "Martha Stewart Living" magazine and completely re-designed it and renamed the magazine to "Everyday Food." In September and October, Stewart made a personal choice, and "strictly business" decision; she requested to start her prison term early, against prosecutors desires to appeal. "I must reclaim my good life," she said to a federal judge. People felt as if they won since Stewart went to jail. They saw her as s humble and well-grounded person for making such a decision. In 2005, right before Stewart was released from prison, MSLO posted their yearly losses for the first time since the company was founded in 1998. Since the stability of a company is a public record, the company probably never sustained a loss. However, since the scandal, the public opinion probably caused their losses. However, in February, when NBC announced its new version of "The Apprentice," featuring Stewart as the host, her companies stocks hit the highest they had hit in 5 years. According to crisis management professionals, this was "a remarkable turnaround."

After being sentenced and put in jail many did not know where Stewart’s career was going to take her. Little did the world know that Stewart had plans to be right back on top where she left off. After being released from prison, it was all about the positives for Stewart. She wanted to retain her fan base and continue to be a model citizen for America. Stewart stayed away from the negative media and thrives to make the positives show. For example, stepping down from CEO of her company, going back on the air for her TV show and releasing a new book. All of these things brought Stewart publicity and that is exactly what she was looking for. She wanted to clear her public image and that is exactly what Stewart did. Today Martha Stewart is worth over $600 million dollars; yes, people will always remember her scandal but the world has moved forward.

In conclusion, Martha Stewart has gone through all 8 PR Elements and this is the reason why her public image and fan base is positive again. Stewart and her PR team set objectives and tactics and stuck by them all the way to the end. The 8 basic PR elements run in a full circle, if you complete each stage you will end up with your overall goal at the end. In the case of Martha Stewart, she accomplished all 8 stages of the PR elements and salvaged her public image. Through out her process, Stewart kept her fan base and we believe this is one of the major reasons why Stewart has salvaged her career. We do not believe you can salvage ones image any better than Stewart did. She followed the stages of the PR elements and got everything she deserves. Now America can move past the scandal and look at Martha Stewart with new eyes.

Timeline of Martha Stewart Scandal: By USA Today

A timeline of relevant events in the Martha Stewart stock trading scandal:

•Oct. 31, 2001: ImClone Systems asks the government to review Erbitux, its new cancer drug.

•Dec. 26, 2001: ImClone founder Sam Waksal is tipped that the government will deny the company's Erbitux application, then tips his daughter to sell her ImClone stock and tries to sell his own.

•Dec. 27, 2001: Stewart sells all 3,928 shares of ImClone stock she owns. The government later contends she was tipped that Waksal was trying to sell his shares.

•Dec. 28, 2001: The FDA makes its decision public. On Dec. 31, the first trading day after the news, ImClone drops 18%.

•Jan. 7, 2002: Stewart's broker, Peter Bacanovic, tells Securities and Exchange Commission attorneys that he and Stewart had agreed on Dec. 20, 2001, to sell ImClone if it fell below $60.

•Feb. 4, 2002: Stewart gives the SEC, federal prosecutors and the FBI the same information about the $60 stop-loss order.

•June 12, 2002: Waksal is arrested and charged with insider trading. Stewart issues a statement repeating her assertion that she had a $60 stop-loss order.

•June 18, 2002: Stewart insists she is "fully" cooperating with authorities.

•Oct. 2, 2002: Former Merrill Lynch & Co. assistant Douglas Faneuil pleads guilty to taking a payoff to keep quiet about the Stewart stock trade.

•Oct. 15, 2002: Waksal admits tipping his daughter to sell ImClone ahead of the government decision and trying to sell his own shares.

•June 4, 2003: Stewart and Bacanovic are indicted on nine federal counts in the ImClone scandal. Both plead innocent. Stewart resigns as chairwoman and CEO of her company but remains chief creative officer and a board member.

•June 5, 2003: Stewart unveils a personal Web site in which she proclaims her innocence and insists she will fight to clear her name.

•June 10, 2003: Waksal is sentenced to more than seven years in prison.

•Nov. 7, 2003: Stewart tells ABC News she is scared of prison but "I don't think I will be going to prison, though."

•Nov. 18, 2003: U.S. District Judge Miriam Goldman Cedarbaum refuses Stewart's request to toss out two of the five charges against her, including a securities fraud count.

•Jan. 6, 2004: Potential jurors fill out a questionnaire that reportedly asks whether they have visited Stewart's Web site or cooked with her recipes.

•Jan. 26: Jury of eight women and four men is selected.

•Jan. 27: Prosecutor claims in opening statements that Stewart sold ImClone stock based on a "secret tip," then lied to cover it up. Stewart's attorney compares case with the Big Brother novel "1984."

•Feb. 3-4: Faneuil testifies that Bacanovic ordered him to tell Stewart that Waksal was selling stock. Faneuil claims Bacanovic pressured him repeatedly to cover it up.

•Feb. 10: Stewart assistant Ann Armstrong testifies Stewart personally altered log of a message Bacanovic left on day she sold ImClone. But Armstrong says Stewart ordered the message changed back and never asked her to lie.

•Feb. 19: Expert testifies ink Bacanovic used on worksheet of Stewart's portfolio to make an "(at)60" notation next to ImClone is different from other inks on the document. Stewart friend Mariana Pasternak says Stewart told her days after ImClone sale that she knew about Waksal selling and says Stewart added: "Isn't it nice to have brokers who tell you those things?"

•Feb. 20: Under cross-examination, Pasternak backtracks on "Isn't it nice" remark, saying it could have been something she herself thought. Government rests its case.

•Feb. 23: Jeremiah Gutman, former Faneuil lawyer called as witness for Bacanovic, instead backs up Faneuil testimony. Defense ink expert says "(at)60" ink may match ink from a dash mark elsewhere on the worksheet. Heidi DeLuca, a Stewart business manager, says she has a memory of Bacanovic discussing plans to sell Stewart's ImClone shares at $60.

•Feb. 25: Stewart lawyers call just one witness — a lawyer whose notes raise question about what questions Stewart was asked in interviews with the government. Government plays tape of Bacanovic saying he never discussed $60 plan with DeLuca.

•Feb. 27: Judge throws out securities fraud count against Stewart. The charge accused her of deceiving investors in her own media company by claiming she sold ImClone because of the $60 agreement.

•March 3: Jury begins deliberations.

•March 5: Stewart convicted on all charges; Bacanovic convicted on all but one charge, making a false statement.

Managing Crisis Management:


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