Print

Email story

Comment

Email editor

The rehabilitation of Martha

Prison gave Martha Stewart the two C's consumers want from fallen stars: closure and contrition.

By Times Wire
Published March 2, 2005

About the time Martha Stewart was sentenced to jail last summer, her company's stock was trading for just more than $10 per share, her syndicated TV show had been canned and a marketing firm found that consumers viewed her brand name more negatively than Enron's.

Now, with Stewart set for release from federal prison in Alderson, W.Va., as early as Friday, stock of Martha Stewart Living Omnimedia Inc. has been trading at more than $36 per share, NBC is hyping her two new TV shows and public opinion, though not back to its all-time high, is trending there.

Overall, a turn in the pen has turned out to be shrewd strategy for Stewart.

Stewart is the latest example of a long line of accused celebrities, brand name characters from Wall Street to Hollywood who have run afoul of the law or social custom in an extraordinarily high-profile fashion. From the Chicago Black Sox accused of throwing the 1919 World Series to "junk bond" king Michael Milken, from Jeffrey Skilling to Hugh Grant, each has endured scrutiny and prosecutions that have affected their businesses, for good or bad.

The key, say image and brand experts, is how they have handled the situation.

The smart, like Stewart, seize control and move on, minimizing the damage.

"Consumers want the two C's: closure and some contrition," said Robert Passikoff, founder and president of Brand Keys Inc., a New York research firm that has tracked the marketplace perception of Stewart since 2002, when she was accused of obstruction and lying during an investigation into her sale of shares of ImClone Systems shortly before the Food and Drug Administration rejected one of the company's drugs.

"We had the closure, with the sentencing, and some contrition, given her own particular brand of hubris," Passikoff said.

"I must reclaim my good life. I must return to my good works," Stewart said in September when she asked a federal judge to send her to prison right away rather than waiting for the outcome of her appeal. She managed to navigate the five-month, minimum-security prison sentence, during which she taught yoga, decorated and crocheted, and emerge with her image enhanced.

Stewart's company hasn't yet proven as resilient as her image. A week ago, the company reported a loss of nearly $60-million for 2004 and predicted another tough quarter ahead.

Passikoff judges the "brand strength" of companies and people by asking customers if they will continue to buy certain brands as they cycle through good and bad news. Neutral brands receive a score of 100; those below have lost customers and typically profits.

Stewart's brand strength peaked at 120 shortly before the ImClone scandal broke. By March 2004, it was down to 62. In late January, it had risen to 95, according to Passikoff's research.

Milken followed a strategy similar to Stewart's, accepting setbacks but refusing to admit defeat. He pleaded guilty to securities fraud in 1990, making his name synonymous with avarice and exploitation. After serving a reduced sentence of 22 months in prison and paying $220-million, he became a business consultant. The Securities and Exchange Commission charged that his new job violated his probation, and he settled for $42-million. He then focused on raising money for cancer research and now is a major investor in early childhood education, buying a chain of day care centers in December for $1.1-billion.

Milken contemporary Ivan Boesky, who turned state's evidence, informed on Milken and copped a plea, is a good example of the "not" case in image-rehabilitation. Lacking a second act, Boesky is now remembered for saying, "You can be greedy and still feel good about yourself," and being the model for Gordon Gekko, unrepentant raider of the 1987 film Wall Street. Same for indicted Enron Corp. player Skilling, who so far has appeared defiant after telling Congress he did nothing wrong. He was taken to a hospital last year after accusing fellow bar patrons in Manhattan of being FBI agents.

Successful business executives are less likely to be halted by adversity, as they are not prone to excessive brooding over their troubles, said one business professor.

"You've got to stay on top of what's going on. That doesn't leave time for introspection or reflection," said Stefan Nicovich, assistant professor of marketing at the University of New Hampshire.

In contemporary Hollywood, talent forgives much; witness the continued movie career of Robert Downey Jr., a habitual detox dropout but Oscar nominee. Hugh Grant became America's charming new heartthrob after the 1994 movie Four Weddings and a Funeral, got caught with a prostitute the next year, sheepishly apologized on The Tonight Show, went away for a couple of years, then stormed back with Notting Hill and a string of other successes like Love Actually.

Stewart, 63, continues to fight the verdict a jury reached nearly a year ago. She is being hailed from many quarters as a hostess-goddess returning to claim her rightful place at the head of the table. Because of the surge in her company's share price, the inking of lucrative TV deals and the sense voiced by some that she has paid a heavy price compared with the rats from bigger corporate scandals still running free, the bad times seem a distant memory.

"I think she's going to be bigger than ever," said Rande Coleman, a real estate broker in Manhattan who describes herself as a longtime admirer. "She's going to become like Oprah. A lot of people want to see her do well."

After Stewart's time in prison - playing Scrabble, teaching yoga, making things in pottery class and championing the plight of female inmates while taking shots at the federal sentencing guidelines - the founder and creative piston of a media empire is expected to report to her office on Monday morning, one of the few activities permitted under the terms of the five-month home confinement portion of her sentence.

Her influence, never subtle, is likely to be felt immediately. "Martha will get involved with whatever she wants to get involved with," said Charles A. Koppelman, the vice chairman of the board, who also serves as a paid consultant to the company and owns about a half-million shares. "And by the way, everyone can't wait for that involvement."

In some ways, it is almost as if the various humiliations (investigations by federal agencies and Congress, having to step down as a director of the New York Stock Exchange, a trial documented around the globe) never happened.

But happen they did, and a crucial question is whether the company and Stewart, who is its public face and majority shareholder, really learned anything from the last three years, when advertisers headed for the hills, TV stations pulled Stewart's program from the airwaves and merchandisers lost business because of what she has insisted on calling "a small personal matter."

To Koppelman, the vice chairman, and Susan Lyne, the company's chief executive, Stewart has been transformed from a mere personality, warts and all, into "the brand," a kind of supernatural defining force willing to be kneaded and redefined according to the company's goals.

Television is likely to consume much of Stewart's time, at least at first, once she leaves prison. Under the rules of her home confinement, she will have to wear a monitoring bracelet and will not be able to work outside her 153-acre estate in Bedford, N.Y., more than 48 hours a week. But she can be filmed on the grounds of her home, which has been hastily prepared for just such activity: appliances, for instance, have been delivered and installed.

Still, Stewart, the brand and the individual, carries a taint. "The biggest challenge for us is shaking off the last few years," Lyne said. "Everybody here obviously has been distracted by what we've gone through since 2002, and we're still being asked about it constantly. It still takes an enormous amount of my time to deal with the past, and what we need to be able to do is just reset the company so we can completely focus on future business."

Information from the Washington Post and the New York Times was used in this report.

[Last modified March 2, 2005, 00:46:17]