Martha Stewart Lost Reputation Essay Example for Free

Martha Stewart Lost Reputation EssayMartha Stewart places her name on her products. She becomes the face of her family and the voice of her brand. When her personal misconduct occurred, she made her company vulnerable and risky as well. This case analyse examines how Martha Stewart managed her corporal colloquy when her public scene and reputation were tarnished on tally for alleged insider commerce scandal. The trial not only led her to prison but also hurt her brand equity. The have shows that Stewarts early resolution to her crisis demonstrated lack of place awareness. In the beginning of her investigation, she kept her public persona intact, ignoring or downplaying her role in it. As a result, what Stewart called a small personal matter afterwards became a full -blown crisis. If she had managed her communication in a more timely manner, the magnitude of her crisis might have been minimized. This article also provides detailed insights for faces to learn from her crisis response strategies.Keywords Organizational crisis, Crisis communication, Image restoration1. IntroductionThe personalities of strong pipeline line leadership can dish shape and enhance their corporate shape. In some cases, the leaders become the virtual icon of the corporate brand, lendi ng their personal prestige to the brand and personifying the company. They can also threaten the company when they are involved in a scandal. In this feature, the consequences for the company can be critical as in the Martha Stewarts insider trading crisis in the United States. The crisis management scholar, Roux-Dufort (2000) points out that corporate crises as a privileged moment during which to understand things differently (p. 26).As such, at that place is a growing body of literature on organizational teaching in the wake of corporate crisis (Mitroff, 2002 Shrivastava, 1998). The Stewart case, in particular, drew the attention of media for years. The crisis of Martha Stewarts in sider trading raised the issue about the Martha Stewarts multiplatform franchise that is, the media world and homemaking business are intricately interwoven with her persona. Stewarts empire has an impressive business synergy as shown by her TV programs that promote her magazines, her website which addresss her products, and her p roducts which are a link to her TV programs.She is the face, voice and personality behind the brand and, thus, the two Stewart and the brand are inseparable. After Stewarts personal misconduct, the interlocking nature of her business proved to be vulnerable and risky. Moreover, Stewarts crisis had both legal and public relations components (Jerome, Moffitt, Knudsen, 2007). Allegations of insider trading against Martha Stewart led to her imprisonment. Her strategic program in response to the insider trading accusations and the media attention su rrounding this crisis left Stewart trying to cope action to restore her image. In a sense, it is meaning(a ) to understand how Stewart herself and her company managed their corporate communication when her public image and reputation were tarnished under the investigation of the insider trading scandal. This article explores how the high profile iconic Martha Stewart responded when confronted with an organizational crisis that threatened existence. It also provides detailed insights for organizations to learn from her crisis response strategies.2. circumstance of Martha Stewarts Insider TradingBeginning with the 1982 publication of her book Entertaining, Martha Stewart made a name for herself as a homemaking diva. In September 1997, Stewart became chairperson, president, and CEO of her new company, Martha Stewart quick Omnimedia. Martha Stewart Living Omnimedia has been listed on the New York Stock Exchange under the ticker symbol MSO since 1999. As the chief of MSO, Stewart used her name and face to make connections with different businesses including a line of housewares, television shows, radio channels, magazines and a series of books on entertaining.On December 27, 2001, Stewart interchange 3,928 shares of her ImClone stock worth US$228,000 the day earlier the U.S. Food and Drug Administration (FDA) rejected approval of Erbitux, ImClones anti -cancer drug. By selling ahead of the FDA rejection, Stewart taked about US$45,000 more than if she had sold the stocks later. Compared to her wealth, it was certainly an insignificant sum and in fact, during her Larry King Live interview, she said it was miniscule, really, about 0.006 percent of my net worth (Four nier, 2004). Stewart had denied any wrongdoing, insisting she did not receive any advance knowledge from Sam Waksal, the founder and CEO of ImClone about the decision on Erbitux (Pollack, 2002).Instead, her deal of ImClone stock was part of a predetermined plan to sell if shares fell below US$60. Later, Stewart was officially indicted on charges of securities fraud and obstructing justice related to her sale of ImClone stock on March 5, 2004. Judge Cedarbaum ignore the securities fraud charge against S tewart, saying prosecutors had failed to present enough evidence on the issue (Masters White, 2004). However, obstruction of justice, charges of conspiracy, and making false statements remained. Stewart served a five-month prison designate between October 8, 2004 and March 4, 2005 for these charges. On August 7, 2006, Martha Stewart reached an agreement with the securities regulators over the insider-trading civil charges and agreed to pay US$195,000 to pin downtle a five-year legal battle.3. Literature followupCrisis events can and do strike organizations of all types. Every kind of organization, from larger organizations to small family owned businesses, have the potential of beingness a victim of crisis (Seeger, Sellnow, Ulmer, 2003). In many stack, crisis immediately raises questions from an organizations many different publics (Marra, 1998). In this view, for an organiza tion to manage the effects of a crisis it must communicate to both inner(a) and external stakeholders. Ulmer, Sellnow, and Seeger (2007) suggest all crises involve the general communication strategies of reducing uncertainty, responding to the crisis, resolving it, and learning from it.The ability to communicate quickly and effectively is clearly an important component of successfu l crisis management. Effective crisis communication can not only defuse or eliminate crisis, but it can sometimes bring an organization a more positive reputation than before the crisis occurred (Kauffman, 2005). On the other hand, Marra (1998) argues if an organization fails to respond to a crisis in the correct manner, a bad situation can be made worse. Hence, crisis communication strategies can substantially diminish the harm caused by a crisis or magnify the harm if mismanaged.In this study, the rain buckets of crisis response models from communication scholars and public relations professionals (Be noit, 1995 Coombs, 1999, 2007) are utilized as the theoretical framework to interpret the crisis response strategies that Martha Stewart employed in her insider trading crisis. concord to Benoit (1995), firms or individuals may take preventative and restorative approaches to image problems. Five strategies (i.e., denial, evasion of responsibility, reduction of the offensiveness of the act , tonic action, and mortification) make up the blandishment or image repair discourse. Each of these strategies has a set of tactics within them. Denial is the strategy employed when the rhetor simply chooses to deny the actions he is being accused of or shift the blame from the organization to outside individuals or agencies.The second strategy is evasion of responsibility is the strategy that the rhetor can blame circumstances beyond his control. It consists of four possible tactics provocation, defeasibility, accident and good intentions. Benoits third major image restoration strategy, occurs when the rhetor take in charges to reduce the degree of offensiveness undergo by the accuser. To this end, Benoit includes six tactics bolstering, minimization, differentiation, transcendence, attacking the accuser, and compensation. The fourth category of the typology is corrective action, which attempts to correct the situation rather than counterbalance it. The final image restoration strategy, mortification, requires the rhetor to take responsibility for the action and to issue an apology.Benoit and colleagues have applied the model to a variety of different crisis situations. For instance, Benoit and Brinson (1994) analyzed ATTs defense following an interruption of its long distance service in New York in September of 1991. Initially, ATT tried to shift blame to low-level workers. As the complete story emerged, however, ATT apologized for the interruption (mortification) and began to bolster its image by stressing its commitment to excellence, the billions of dollars invest ed in service, and the quality of its employees. Finally, ATT promised corrective action and introduced a comprehensive review of its operations to anticipate and prevent march on problems. It also distressed its commitment to providing excellent service and its go awayingness to spend billions of dollars to do so. Given these corrective action strategies, ATTs finally restored its image. Benoit (1995) also examined Union Carbides response to the Bhopal, India, vaunt leak that killed thousands and injured hundreds of thousands.Union Carbides primary strategies, bolstering and corrective action, were boil downed on four specific actions a relief fund, an orphanage, medical supplies, and medical personnel. Although these strategies were bewitch and timely, Benoit claimed that Union Carbide failed to address the most important question What were they doing to prevent another tragedy?Coombs (1999, 2007) develops situational crisis communication theory, creating 10 categories of ba sic organizational crisis communication strategies. These strategies are further grouped into four posture 1) denial posture including attack the accuser (confronting person claiming a crisis occurred), denial ( asserting no crisis), and scapegoat (shifting the blame to others outside the organization), with an attempt to eliminate the crisis by denying its existence or the organizations responsibility for the crisis 2) diminishment posture which takes the forms of excuse (denying intend to do harm or claiming inability to control) and confession (minimizing severity of damage) with the purpose of weakening the link between the crisis and the organization by claiming the crisis is not the organizations fault3) rebuilding posture of compensation (providing bills or other gifts to the victims) and apology (taking full responsibility), which strives to restore legitimacy by seeking public approval and forgiveness and 4) bolstering posture which includes reminder (telling stakeholders about its ago good works), ingratiation (praising stakeholders and/or reminds them of past good works) and victimage (reminding stakeholders that the organization is a victim of the crisis, too). Using Coombss typology of crisis response strategies, Wilcox and Cameron (2006) examined the case of Intel. In 1993, Intel initially denied there was a problem with its Pentium 586 chip. As the crisis was covered in the mainstream press, Intel used the justification strategy by assuring that the problem was not serious enough to guarantee replacing the chips. It minimized the concerns of consumers. In fact, Intel mismanaged the handling of its crisis communication.First, it did not disclose to the public the information about the Pentium flaw when they initially realized there was a problem. past when the problem finally did come out into the open, they downplayed it instead of helping the users who had purchased the flawed chips. After considerable damage had been done to Intels reputa tion and IBM had suspended secernates for the chip, Intel took corrective action to replace the chips. Subsequently, Andy Grove, Intels president, issued a full apology. Based on Benoits image repair theory and Coombss typology of crisis response st rategies, the following seek questions are positedRQ 1. What strategies did Martha Stewart use to manage her insider trading crisis? RQ 2. Were these strategies effective or ineffective?RQ 3. What can we learn from Martha Stewart case?4. MethodologyThe case study is employed in this study, as it is effective in illustrating public relations management in real situations (Hendrix, 2004). According to Yin (1994), the six sources of evidence that are typically associated with the case study include documents, archival records, interviews, direct observation, participant -observation, and physical artifacts. In this study, texts documenting Stewarts discourse in response to incidents that threatened her image were collected from multiple s ources.Specifically, this study used predominantly two types of entropy documents and archival records. It began with gathering data and finding facts related to cases and defining the specific tasks. The actions and communication strategies used by Martha Stewart wer e reviewed with information from her corporate websites, press releases and media coverage. MSO is a publicly traded company. A look at the organizational archival records (e.g., stock prices, sales and annual reports) and official establishment records (e.g. , court records and commission reports) contributed to understand the impact of corporate scandals have had on the companies financial performance and their stakeholders.The media coverage on the Martha Stewart case was found through Lexis Nexis Academi c keyword search of Martha Stewart insider trading in The New York Times and The Washington Post. These newspapers were selected because of their large circulation, prominence and influence on public opinion. Fo r the purpose of the valance of news recital in this study, the period of analysis covered two time frames (during the crisis and post crisis). The first time frame started from the trading day to the verdict, beginning in December, 2001 and tally through March, 2004. The second time frame started from the day of sentencing to her release from prison, beginning on July 16, 2004 and running t hrough March 2005. Since the research questions of this study were related to crisis communication strategies, the unit of analysis of this case study was Martha Stewarts response to stakeholders during and post crisis. Thus, the strategies were apparent through the types of evidence. 14By examining corporate communication employed by Martha Stewart during the crisis and post -crisis period, the procedures for analysis involved three steps. First, after the data were collected from multiple sources, a detailed timeline of relevant events leading up to the crisis itself, and the post-crisis pro cess was created. For example, the chronological order of the Martha Stewart case was constructed in the following manner 1) the investigation (January, 2002 June, 2003) 2) indictment (June December, 2003) 3) verdict (January May, 2004)4) sentencing (June July, 2004) 5) in prison (October, 2004) and 6) release from prison (March, 2005). Second, after the chronological order of actual events was refined, a narrative description and process analysis of each event was thus constructed. A worksheet served as an organizing tool for evaluating each event. All data collected were analyzed using the typology of crisis response strategy. Finally, a thick descript ion and analysis of the findings of each research question was conducted.5. Analysis of Martha Stewarts Crisis Response Strategies 5.1 probeThe story about Martha Stewarts ImClone stock sale was broken to the public in the Wall Street Journal on June 7, 2002 (Adams Anand, 2002). In the article, her lawyer, John Savarese, indic ated that Stewart had set the price at US$60 for selling the stock but in fact, as of June 7, 2002, the stock price of ImClone sank to a low US$8.45 a share. Using the strategy of differentiation, Savarese further was trying to put distance between Stewart and Sam Waksal.There is absolutely no evidence whatsoever that she spoke to Sam, or had any information from anybody from ImClone during that week I am absolutely sure that there was no communication of any kind between her and Sam, no departure of any information from him to her. (Adams Anand, 2002, p. B2)On June 12, 2002, Waksal was arrested for insider trading and soon after, the stock price of MSO plunged 12 percent, closing at US$15. From June 6, 2002, when congressional investigators started looking into Stewarts sale of ImClone shares, the stock price of MSO had dropped 22 percent. Stewart immediately denied any insider trading or wrongdoing and, in a public statement, she said she knew nothing about the pending FDA anno uncement. She claimed that when the share price dropped below US$60 the level at which she had agreed with her broker she returned a call from her broker and sold the s hares on December 27, 2001.She acknowledged that after the trade, she immediately called Waksal but could not reach him, and he did not call her back. The message she left read Martha Stewart called. Something is going on with ImClone and she wants to know what (Hays, 2002a, p. C1). She proclaimed her innocence in her statement In placing my trade, I had no improper information. My transaction was entirely lawful (White, 2002, p. E1). However, the congressional investigator questioned Stewarts sale, noting that ImClone dropped below $60 at least once before while Stewart owned it (White, 2002).On June 18, 2002, Stewart tried to resolve concerns about her sale of ImClone shares and hired a new lawyer, James F. Fitzpatrick, who submitted several documents to congressional investigators. This was the first time Stewar t used a strategy of corrective action as a response to the inquiries. On June 19, 2002, MSO stock rebounded sharply, climbing from US$2.05, to US$14.4 and then to US$16.45, suggesting that her corrective action was working.However, Ken Johnson, a spokesman for the House Energy and Commerce Committee, said the documents would help answer some questions but we still dont have an answer to the most nagging one was Ms. Stewarts pre-existing agreement to sell reached in late November, as she says, or in mid-December as some reports have indicated? (Hays, 2002b, p. C7). On June 25, 2002, she appeared on CBSs The Early Show, and when asked by the host, Jane Clayson, about the ImClone shares during a cooking segment, she replied while slicing a cabbage with a big knife.Im involved in an investigation that has very serious implications. I have nothing to say on the matter. Im really not at liberty to say. And as I said, I think this will be resolved in the very near future and I will be exo nerated of any ridiculousness. And I just want to focus on my salad because that is why were here. (Clayson, 2002)Apparently, Stewart had no idea how to handle the situation and was unwilling to respond to the questions. She continued to dodge public inquiries and ignored the increasing claim for answers about her role in the insider trading scandal.