Martha Stewart: A Brand in Crisis

1. Stewart repeatedly denied any wrongdoing, despite the conviction and failed appeal, yet she still says she did nothing wrong. Is this the right strategy? Yes, admit your mistakes, learn from them and move on but don’t continue to make them over and over again. Stewart demoed that she engaged in any improper trading when she sold her shares of ImClone stock (Ferrell, Fraedrich, & Ferrell, 2007, page 345). Stewart claimed she had previously issued a “stop-loss” order to sell her 3928 shares; she also called her friend Sam Waksal, but could not reach him.

However, Stewart’s explanation that she unloaded her stock because of a pre-arranged sell order collapsed when Douglas Faneuil, the broker’s assistant who handled the sale of the ImClone stock for Stewart, told Merrill Lynch lawyers that his boss, Peter Bacanovic, had pressured him to lie about a stop-loss order. 2. Did Stewart’s actions justify the subsequent sentence to her and those around her? Despite her reputation and business successes, Stewart was indicted in 2003 on criminal charges and faced several civil lawsuits to her sale of the ImClone stock (Ferrell, Fraedrich, & Ferrell, 2007, page 344).

Stewart sold the stock on December 27, 2001, one day before the Food and Drug Administration (FDA) refused to review ImClone System’s cancer drug Erbitux; the company’s stock tumbled following the FDA’s announcement. On June 4, 2003, a federal grand jury indicted Stewart on charges of securities fraud, conspiracy (together with Bacanovic), making false statements, and obstruction of justice (Ferrell, Fraedrich, & Ferrell, 2007, page 346).

At her trial, the indictments for securities fraud were dropped, but the other indictments were prosecuted (Ferrell, Fraedrich, & Ferrell, 2007, page 347). Stewart faced humiliation and some prison time but examples have to be set when running a company. You just can’t do what you please because you own it and not face the consequences. 3. Compare other executives’ wrongdoings versus Stewart’s. Discuss why MSLO is or is not different from what happened at companies such as Enron and Tyco.

Enron’s demise caused tens of billions of dollars of investor losses, triggered a collapse of electricity-trading markets, and ushered in an era of accounting scandals that precipitated a global loss of confidence in corporate integrity (Ferrell, Fraedrich, & Ferrell, 2007, page 328). Now companies must defend legitimate but complicated financing arrangements, even legitimate financing tools tainted by association with Enron. Executives in these positions have a duty to protect the investors and shareholders of the company. Consumers put their trust in them for results and their ethical standards should be top priority.

Enormous evidence of book-cooking and scandals involving WorldCom, Enron, Andersen Consulting and now Xerox, combined with Martha Stewart’s embroglio over dumping ImClone stock last year, have caused growing skepticism among consumers about big brands in an already shaky economy that’s trying its best to rebound. “The overall impact of the corporate financial scandals are going to cause consumers to question the ethics and the corporate behavior of many corporations,” said Lynne Doll, president of Rogers & Associates, a crisis communications firm in Los Angeles. (Hein & Cassidy, 2002). The investigation of Ms. Stewart’s trading of ImClone stock continues. But at issue is perhaps less the outcome of the investigation than the more mystical question of what this does to the brand-a subject on which brand experts are more pessimistic than marketers. “An important element of the brand is authenticity,” said Don Pettit, president-CEO of brand identity firm Sterling Group. “A lot of Martha’s credibility is built on her integrity and authority, and that’s exactly what’s being called into question. “