Case study - Corporate Governance at Martha Stewart Living Omnimedia: Not “A Good Thingâ€
Case Synopsis: "The case opens with Martha Stewart's 2005 release from prison following her conviction for obstructing an insider-trading investigation of her 2001 sale of personal stock. The scandal dealt a crippling blow to the powerful Martha Stewart brand and drove results at her namesake company, Martha Stewart Living Omnimedia (MSO), deep into the red. But as owner of more than 90 percent of MSO's voting shares, Stewart continued to control the company throughout the scandal. The company faced significant external challenges, including changing consumer preferences and mounting competition in all of its markets. Ad rates were under pressure as advertisers began fragmenting spending across multiple platforms, including the Internet and social media, where MSO was weak. New competitors were luring readers from MSO's flagship publication, Martha Stewart Living. And in its second biggest business, merchandising, retailing juggernauts such as Walmart and Target were crushing MSO's most important sales channel, Kmart. Internal challenges loomed even larger, with numerous failures of governance while the company attempted a turnaround. This case can be used to teach either corporate governance or turnarounds. "
Case Study Question:
· What might management have done to stabilize revenue and reassure investors after Stewart’s legal troubles surfaced? (1page)
· What were the internal and external symptoms of trouble in the years following Stewart’s 2005 return to the company? (1page)
Sample Solution
Martha Stewart's legal troubles were a major blow to Martha Stewart Living Omnimedia (MSO). The company's stock price plummeted, and revenue and profits declined. In the immediate aftermath of the scandal, management needed to take steps to stabilize revenue and reassure investors.Full Answer Section
Martha Stewart's legal troubles were a major blow to Martha Stewart Living Omnimedia (MSO). The company's stock price plummeted, and revenue and profits declined. In the immediate aftermath of the scandal, management needed to take steps to stabilize revenue and reassure investors. Here are some of the things that management could have done:- Communicate openly and honestly with investors. Management should have been transparent about the situation and provided investors with regular updates on the company's progress. This would have helped to rebuild investor confidence.
- Focus on the company's core businesses. MSO had a number of different businesses, but the Martha Stewart brand was its most important asset. Management should have focused on strengthening the brand and growing its core businesses.
- Invest in new products and services. MSO needed to innovate and find new ways to reach consumers. This could have included launching new products, expanding into new markets, or partnering with other companies.
- Strengthen corporate governance. The scandal highlighted some weaknesses in MSO's corporate governance. Management should have taken steps to strengthen the company's governance practices. This would have helped to improve the company's reputation and make it more attractive to investors.
- Corporate governance problems. The company continued to have problems with corporate governance. This included allegations of nepotism and conflicts of interest.
- Lack of innovation. MSO failed to innovate and keep up with the changing marketplace. This led to declining sales and profits.
- Ineffective management. The company's management team was ineffective. This led to poor decision-making and a lack of focus.
- Changing consumer preferences. Consumers' preferences were changing, and MSO was not keeping up. This led to declining sales of traditional Martha Stewart products, such as cookbooks and magazines.
- Mounting competition. MSO faced increasing competition from other home-and-lifestyle brands, such as HGTV and The Home Depot.
- Economic recession. The economic recession of 2008-2009 had a negative impact on MSO's business. This led to further declines in sales and profits.