Martha's Endgame

ANTOINE CAU/ABACA
BRAVE FACE: Stewart leaves the courthouse after her sentencing

Near the peak of her company's success, Martha Stewart inadvertently summed up both the strength and the vulnerability of the empire she had built. At an advertising-industry conference in Detroit in 2001, she was speaking to a crowd of starstruck ad executives when somewhere in the crowd, a voice piped up with a fawning question. "Someone asked her, 'You dispense all this advice. Who taught you all these things? Who's your mentor?'" recalls Samir Husni, a magazine consultant who also spoke at the meeting. "She said, 'Me. Me. I did it all by myself.'"

That unyielding self-reliance helped build Martha Stewart the millionaire, but the future of Martha Stewart Living Omnimedia, the company, will depend on a very different kind of corporate chemistry now that its founder has been sentenced to serve time in prison for conspiracy, obstruction of justice and making false statements to federal investigators. It took 26 months and a bruising federal trial to break, if just for a moment, Stewart's stony resolve. She stood before Judge Miriam Cedarbaum last week in a lower-Manhattan courtroom, her voice faltering as she begged for leniency. "My hopes that my life will not be completely destroyed lie entirely in your competent and experienced and merciful hands," she said. Stewart asked the judge to consider her decades as an icon to women, the suffering she had already endured, and the fate of her employees--200 of whom have lost their jobs.

LATEST COVER STORY
Mind & Body Happiness
Jan. 17, 2004

SPECIAL REPORTS

Coolest Video Games 2004

Coolest Inventions

Wireless Society

Cool Tech 2004

PHOTOS AND GRAPHICS

At The Epicenter

Paths to Pleasure

Quotes of the Week

This Week's Gadget

Cartoons of the Week

More graphics >>
More photos >>

MORE STORIES
Advisor: Rove Warrior
The Bushes: Family Dynasty
Klein: Benneton Ad Presidency

More Stories >>

CNN.com: Latest News

The judge must have been listening. Cedarbaum gave her the most lenient sentence possible under federal guidelines five months in a minimum-security federal prison and five months of house arrest. Was Stewart surprised? "Not at all," she said defiantly as she left the courtroom. But Wall Street was impressed, sending the stock surging 37%, closing at $11.81, on news of the light sentence.

Yet, while Stewart plans to appeal her conviction and remains free on bail until the appeal is exhausted, the likelihood that she will play only a peripheral role in the company means that it must now figure out how to move forward without its most important product. Stewart owns about 61% of the company's stock, and its business is indelibly marked with her name. While brand experts have criticized the new CEO, Sharon Patrick, for moving too slowly to separate the company from the convicted felon, the seeds of that transformation are already in place.

They begin with Patrick, a longtime confidant of Stewart's. A former McKinsey consultant, she helped Stewart craft a multimedia lifestyle conglomerate out of her cookbooks, television specials and endorsement deals. Patrick stood by her side when Stewart rang the opening bell at the New York Stock Exchange on Oct. 19, 1999, the day the company went public. At its peak, the stock reached nearly $40 a share, but it has dipped close to $5 since news of Stewart's sale of ImClone, a biotech-company stock, surfaced in June 2002. That sale triggered a federal investigation and her subsequent conviction last March.

Patrick's challenge is to find a way to regain the confidence of advertisers, many of whom have abandoned Martha Stewart Living, the company's flagship magazine. Ad revenue dropped 54% in the first quarter, and over the past 18 months the magazine has lost about 500,000, or 22%, of its subscribers. In an impassioned statement delivered outside the New York City courthouse where she heard her sentence, Stewart made a sales pitch on behalf of her "beloved company." Standing in a sober black suit with her daughter Alexis behind her, she thanked fans for sending thousands of letters and e-mail messages and asked them to show their support by "subscribing to our magazine, by buying our products, by encouraging our advertisers to come back in full force to our magazines."