The Role and Actions of Martha Stewart

Problem

The three main problems that shook Martha Stewart Living Omnimedia were related to poor corporate governance. The problems were apparent early in the company’s lifecycle, and if changes had been made before progressing out of hand, the company and shareholders would not have suffered as much as it did. First, Martha Stewart’s greed and belief that she herself was the company is the root of all problems. Second, lack of board structure and director independence drove the company into the ground. Finally, the lack of performance related compensation package put the needs of the directors above those of the shareholders they are suppose to represent. Ultimately, the inability of the company to quickly change with the market was the main cause of the company's downfall (Shein, 2014), all of which is the residual effect of poor corporate governance.

Key Facts & Analysis

Beginning first with the role and actions of Martha Stewart. Stewart’s behavior tarnished the company’s reputation and sustainability. The first example of this was when she was convicted for insider trading in 2004, and MSO’s stock price took a major hit. After serving her sentence, you would expect a reduced roll from Stewart to maintain the image of MSO, but this was not the case. She decided to continue working in the company in 2005, which was not the right decision to make after following a serious conviction. This sent signals to the financial market and the analysts. Her behavior can be attributed to her large percentage of the voting stock at MSO, and the personal belief that she was the company. Her decisions never appeared to promote the sustainability of the company, but instead only what was best for her interests.

The board of directors at MSO lacks structure and independence. Stewart has many personal relationships with directors, which raises the question of whose priorities come first: the firms or Stewart’s. The board of director of the company is unstable and has extremely high turnover– another red flag to financial analysts regarding company stability. The high turnover raises concerns about how the board is elected and composed. We have seen that Martha has put friends on the board even though