Business Ethics And Martha Stewart

THE TALE OF TWO MARTHAS

"I'll be back Ð'....I'm not afraid. Not afraid whatsoever. I'm very sorry it had to come to this." (Gasparino, 22). Those were the words that Martha Stewart said on the courthouse steps on July 16, 2004, as she had just been sentenced to five months in prison. A defiant Martha Stewart was trying to instill confidence in her stock holders and save a sinking ship, her company, Martha Stewart Living Omnimedia Incorporated (MSO). That day her companies stock closed at $ 12.25 a share a 36 % jump. (www.forbes.com) Therefore as one asks the question; as a CEO did Martha Stewart handle the indictment responsibly; you could easily argue that at least on that day she did. She made her shareholders a bunch of money. Isn't that the bottom-line, isn't that what a CEO is supposed to do? If you take Martha Stewarts's actions from when she got indicted to the day she walked out of prison and ask the same question again you will find out the answer is yes and no. Now I'm not trying to ride the fence here but I will take this question and ask it again and again in chronological order and you will start to notice "a tale of two Marthas" as she goes from saving her skin to trying to save her company.

BACKGROUND

Since this is an ethics course one might ask, did Martha do right or wrong? I can absolutely say that she did some very very bad things: alleged insider trading and obstruction of justice. She was tried and convicted for obstruction of justice and she served her time. She should have been thrown under the jail. She belongs in the same boat as the Tycos and Enrons, the law is the law and she tried to get away with it. She tried to cover-up evidence in a very "NIXON-esqe" way by erasing phone longs and concocted a story with her broker on why they sold the stock when they did. Her actions as a CEO and as a human were horrible, despicable and yes very irresponsible. She tarnished her image forever, cost her company jobs and millions of dollars. But the question asked wasn't, "As a CEO did Martha Stewart handle herself responsibly", or "were her actions ethical?" That would be an easy answer absolutely not. But did she handle the indictment responsibly? In the long run yes she did. Her job title was CEO, she was in charge of making the company money and at that she did. If you look at figure 1 in the middle of the page entitled "MSO Stock From 2002-2005", you can derive a direct correlation to its CEOs actions and stock price. Once Martha Stewart started acting on behalf of the company MSO stock went up. However in the beginning Martha wasn't thinking like a CEO she was running scared and her actions in 2002 and 2003 on the way she handled the indictment lost the company and its shareholders lots of money.

THE INDICTMENT

In June of 2002 Sam Waksal CEO of ImClone was indicted for insider trading for tipping off friends about his stock, one of those friends was Martha Stewart. Later that month, Martha Stewart issued a statement to the press insisting she had done nothing wrong and protested her innocence. She also gave an explanation for her timely ImClone stock sale. ("Stewart on defense" 4; Masters E2). That day her stock jumped 14 percent. By these statements and results one could argue that Martha Stewart as a CEO acted responsibly that day, she made everyone money and she tried to distance herself from Waksal. Unfortunately, she was lying. This was the start of her cover up scheme which once prosecutors vetted; used it as evidence to indict her on securities fraud. Later these charges got dismissed due to lack of evidence, but this was start of her stocks downward death spiral which hit an all time low of just under $ 6 a share in October 2002. Throughout the rest of that year and next year leading up to her indictment, Martha Stewart acted completely irresponsible. She started running scared not thinking about her company but thinking about her own skin and her company lost millions in revenue and sales and her actions actually got her into more trouble.

On June 4, 2003 Martha Stewart was indicted on nine counts of insider trading. One day later Martha responded back to the world by taking a full page add out in The USA Today and starting a new website, www.marthatalks.com. On the website Martha explained that the charges brought against her were entirely unrelated to the business of her company. She claimed her innocence and that she would fight to clear her name. (Lauerman 6) Sixteen hours after the website was up in running Martha Stewart's lawyers claimed that the site had over a million hits and about 12,000 email messages, including one from a federal agent who encouraged Martha not to settle. (Hays C). Martha Stewart was trying to refresh her image. She was the face of this multi-million dollar company; down with her goes the company. Now was she completely innocent, of course not but she was winning the court of public opinion and slowly but surely her companies stock prices started to go back up.

In the fall of 2003, MSO stock started to dip again as the prosecution started to build its case and info was leaked to the press. Martha stepped down from the company as CEO and went on a public relations spree topping it off with a Barbara Walters interview on 20/20. Now traditionally during high profile cases most people don't show up on the evening news right before the trial. How many times did we see Andrew Fastow, former Eron CFO, or Scott Sullivan, former WorldComm CFO, on the news. You didn't, that's because Enron and WorldComm were completely dead and they were trying to save their skin not the company's. (Johnson E1) Martha Stewart was trying to save her company that she had built with her own two oven mitts, and a good PR campaign was needed because "she" was the company. So at the risk of her own detriment Ms Stewart did this interview. By the time the trial started, 20 Jan 2004, MSOs stock had more than doubled from it's all time low. At this point as a CEO did she act responsibly? You bet she did, she sacrificed herself for the good of the company.

ACTIONS AFTER THE TRIAL

As soon as the last gavel fell on March 4 2004 and Martha Stewart was convicted shares of MSO plunged 23% closing at just under $ 11. CBS immediately pulled the syndicated show Martha Stewart Living from eight of its stations. (Earnest C1). The company Martha Stewart had started was dieing, the board of directors and her included immediately started to come up with a game plan, which was executed flawlessly once the sentencing