Martha Stewart Omnimedia Corporate Governance Case Study Essay

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Martha Stewart



Stewart's control of shareholder voting rights disrupted the functioning of the board because Stewart was able to exercise control over the board. She put her hairdresser on the board, and clashed with the board over her compensation. Her involvement, combined with terms of her release, led to a convoluted management structure that undermined both governance and board function, in terms of being able to set the direction of the company. The directors found it difficult to act in the best interests of MSO, when those interests clashed with the best interests of Stewart herself, such as when she vetoed the desire of the board to take the company private, because she took personal offense to the idea.

The board functioned better with more external directors. Many of the governance issues as MSO started when a clash over pay in 2004 led to key external directors leaving. The board composition should be focused on external directors, with only one or two internal roles, and none for Steward proxies, only Stewart herself. Further, the board members who quit at the time had experience needed to perform their duties well, and their replacements lacked the experience needed in media to fully understand the business -- they were inherently weaker in dealing with Stewart.

3. Changes in corporate bylaws would improve governance if those changes reduced the control that Steward had over the company. The bylaws could have been written so as to define roles, and powers, essentially reducing the opportunity for conflict. In particular Stewart's role seemed ill-defined in terms of her role in governance, and she exercised her voting control where need to be influence high-level corporate decision-making.

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4.Risk management could have avoided several situations, including the prison term. The company was overly reliant on Stewart personally, which ended up disastrous for the company, and its stock price plummeted. Succession planning is another major risk factor -- adequate risk planning would have built in a strong leadership pipeline, which in turn would have helped the company in a lot of areas.

5. The advantage of having Stewart as controlling shareholder and face of the brand is that she knows that everything is tied to her, which gives her strong incentive to maintain the best public image possible. The downside is that the company has little fallback should there be any issues with Stewart -- it was very exposed. Her prison term may not have completely destroyed the company, but it did damage. Further, there are governance issues with this set-up, and there appears to be situations where Stewart's ego contributed to needless, damaging conflicts.

6. MSO failed to move quickly on the web, and also stuck too long with Stewart's tried-and-true formulas, such as "stand and stir." The creative team wasn't strong enough to be a trend-setter, which exposed the brand to substantial risk of competitors whittling away at its market. Further, it struggled with diversification for lack of good ideas, further weakening the brand and resulting in job losses. Governance issues and lack of creative leadership pipeline were clearly causes.

7. Management could have done a couple of things. One is to have a plan in place and communicate that plan.….....

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