ImClone CEO Sam Waksal's receptionist took the message from his good friend Martha Stewart at 1:43pm on December 27, 2001: "Martha Stewart (called to say) something is going on with ImClone and she wants to know what. Something was indeed going on at ImClone. Waksal had just learned that the FDA was going to reject ImClone's much-hyped cancer-fighting drug, Erbitux, the next day.
Before the close of the market that day, Stewart sold nearly 4,000 shares of ImClone (using the same stockbroker as Waksal's daughter), the day before the stock took a mammoth nose-dive when the FDA's rejection became public. Earlier this month, the media learned that Waksal's father and his daughter also sold $6.7 million and $2.5 million, respectively, that day. Waksal has been arrested for insider trading.
So, the questions being asked in the media are what did Martha know and when did she know it? Stewart steadfastly states she has done nothing illegal. However, CNNfn (June 18) told audiences that both investors and consumers were presuming her to be guilty until proven innocent.
The Martha Stewart case is interesting in that the she is finding out that her personal stock trades are directly impacting her namesake company, Martha Stewart Living Omnimedia (MSO), whose shares are down 20% from when the story broke.
As branding expert Mark Di-Massimo explained to CNBC (June 17), "Being too closely identified with one individual is a greater risk than advantage for most companies. He elaborated on this particular case, "When people buy into the Martha Stewart brand, they truly are buying into Martha Stewart, the persona, and therefore, it's all the more serious."
MSO has earned coverage for being downgraded by Merrill Lynch and Davenport & Co., in large part due to the uncertainty regarding the legality of her stock transaction. A Davenport & Co. analyst explained to the New York Daily News (June 14) that while the company's fundamentals remain strong, "it's just hard to pound the table on (MSO) when the leader is suspected of criminal activity."
And the suspicions of criminal activity have been giving her squeaky-clean reputation quite a wallop.
Time magazine (June 24) wrote that the entire episode has generated "horrendous publicity for Stewart, both as an individual and as a businesswoman. Meanwhile, unofficial biographer Christopher Byron told ABC's Good Morning America (June 17), "Her handling of the flap has been a public relations disaster."
A number of PR and branding experts have urged Stewart to come clean, by producing evidence that substantiates her claims of innocence. They stated that the cloud of uncertainty will continue to impact her reputation, and, by extension, her company, until all questions are answered. But coverage also noted that there might be a conflict between that advice and counsel received from lawyers, who are advocating a low profile.
The prognosis for Martha Stewart does not look encouraging. Media reports are suggesting that there is too much circumstantial evidence for something not to be amiss in her stock trading. Furthermore, the consensus seems to be that having one person be the personification of a company's brand is a risky strategy in general, but even more so in the current business environment, where there is a heightened sensitivity to anything remotely unscrupulous.
- Evaluation and analysis by CARMA International. Media Watch can be found at www.carma.com.