June 24, 2021

Stewart Back in Court in Contract Dispute

Nine years after being sentenced to prison for lying about a stock sale, Ms. Stewart took the stand on Tuesday in New York State Supreme Court in a very different trial, this one concerning which retailers have the right to sell her sheets, towels and other home goods.

Ms. Stewart, who never testified in her insider trading trial, seemed at ease on the stand. She presented cool, crisp testimony meant to support her attempt to sell her home merchandise not just through Macy’s, with which she has an exclusive contract in some categories, but also through its rival J. C. Penney.

Ms. Stewart stayed on point and reinforced her brand during her four-hour testimony. Discussing her deal to sell goods at Kmart, starting in 1997, she said, “I paid the price for going mass very early on: the garden club of Greenwich canceled my speaking engagement.”

She added, “That was a very difficult deal for me to sign — I lived in a pretty house with a pretty garden; I wrote about upscale things.”

But, she said, the home products for the less affluent at the time were unappealing. “They were buying polyester; they were buying designs that were really, really sad,” she said. She recalled critics telling her, “Oh, poor people don’t do their laundry as often as rich people, so they don’t want light colors,” but the top-selling towel color her first year at Kmart was white.

The proceedings were part of lawsuits first brought by Macy’s in 2012 against Martha Stewart Living Omnimedia and J. C. Penney. The main allegation is that Ms. Stewart’s company violated a contract with Macy’s when it agreed to provide similar merchandise to Penney’s.

Despite the declining financial picture at her company, which reported last month that it had lost $56 million in 2012 as revenue fell, Ms. Stewart seemed confident.

“Why do you think the headlines are pitting me against J. C. Penney’s and Macy’s?” she asked. “They’re fighting over something, and it’s not just home. It is our amazing product.”

She touched briefly on her time in prison. In 2003, Ms. Stewart was indicted on charges of securities fraud and obstruction of justice having to do with insider trading of shares in the drug maker ImClone. A trial followed in 2004, and in October of that year, she went to prison for a five-month term.

“I had a terrible time personally, and that could have taken down the company; it did not. It could’ve taken down the brand; it did not,” Ms. Stewart said on Tuesday. “But I must tell you that rebuilding is a lot harder than building.”

In 2006, as Macy’s considered doing business with Ms. Stewart, it had a public relations firm research her reputation. “Lots of people don’t like her, but they like her products and will happily buy them from Macy’s,” the retailer’s chief executive, Terry J. Lundgren, wrote to other executives.

Macy’s began selling Martha Stewart products in 2007; at the end of 2009, when her contract with Kmart expired, it was the only retailer to sell her products in categories like home décor, bedding and bath.

Until Penney’s came along. As part of an ambitious — and, so far, faltering — plan to turn the retailer around, its newly appointed chief executive, Ron Johnson, decided in 2011 to woo Ms. Stewart and devote big sections of Penney’s stores to her product.

Ms. Stewart testified that she was “flabbergasted” by Mr. Lundgren’s reaction when she tried to tell him about the Penney’s deal in a phone call.

“I don’t know if I got through even half the points before he hung up,” she said.

Ms. Stewart said on Tuesday that she was “disappointed” with parts of the Macy’s relationship: she had expected her products to sell $400 million a year there, and they are only selling $300 million. “They have really kept us, I think, pretty static, where we could’ve been bigger,” she said.

She seemed sporting about the media attention — during a break, she took pictures of the courtroom with a small camera — but her comments about how this lawsuit had blown up recalled remarks from nine years ago.

“I’ve spent the entire episode of this lawsuit wondering what — it’s a contract dispute, an understanding of what’s written on the page,” Ms. Stewart said on Tuesday. “It just boggles my mind that we’re here sitting in front of you, judge. It’s a real problem for a company like ours.”

In 2004, while she did not testify, she read a statement before the judge that similarly deplored the frenzy. “A small personal matter” became “an almost fatal circus event of unprecedented proportions,” she said then.

During questioning from a Macy’s lawyer, Theodore M. Grossman, on Tuesday, Ms. Stewart often spoke over him as she looked into the middle distance. Mr. Grossman, trying to make a point that competition from another store could reduce demand for Martha Stewart products at Macy’s, displayed a picture of a casserole dish on a video screen and asked whether someone who bought a Dutch oven at one store would be less likely to go to the other end of the mall and buy another Dutch oven.

“No,” Ms. Stewart said.

Mr. Grossman posed a similar question, this time using a knife set. Ms. Stewart first said that shoppers, with access to smartphones, QR codes and Amazon, are “really going to buy that knife set where they feel comfortable shopping, where the price is the best and where they feel they’re getting the very best quality.”

When Mr. Grossman rephrased the question, Ms. Stewart remained firm. “They might have two houses,” she said. “They might have two kitchens.”

With a lawyer for her company, Eric Seiler, Ms. Stewart was more relaxed.

Mr. Seiler, trying to indicate how Ms. Stewart split her day between the publishing and merchandising divisions of her company, asked her, “How do you do your time?”

“I did my time,” she replied, as the courtroom broke into laughter.

Article source: http://www.nytimes.com/2013/03/06/business/contract-dispute-brings-martha-stewart-back-to-court.html?partner=rss&emc=rss

Common Sense: At Martha Stewart Living, Martha May Be the Problem

Among America’s corporate leaders, there are surely few whose interests are more closely aligned with their shareholders’ than the homemaking icon Martha Stewart. She owns 26 million shares and controls nearly 90 percent of the voting rights of Martha Stewart Living Omnimedia. She’s the company’s nonexecutive chairwoman and serves on the board. Martha Stewart, the company, is inseparable from Martha Stewart, the person.

Her net worth is inextricably tied to the value of the shares. That would seem obvious to everyone except, perhaps, Ms. Stewart herself. She continues to collect lavish multimillion-dollar compensation and perks while her company teeters under the weight of huge losses, its shares trading for a fraction of their former value. The paradox is that if the stock had risen even $1 a share in recent years, Martha Stewart would be wealthier now than if she had taken only nominal compensation from the company.

“You’d think there’d be very little need for board oversight because of the strong alignment of the company’s interests with her personal wealth,” Paul Hodgson, a compensation expert and senior research associate at GMI Ratings, told me this week. “Everything should be pushing her to make sure the company succeeds. For some reason, that’s not happening.”

Last week, Ms. Stewart’s company reported a $50.7 million quarterly loss, a staggering amount considering it exceeded total revenue, which was just $43.5 million. That was a 17 percent drop from revenue in the same quarter last year. Although the loss included a $44.3 million noncash write-down related to the shrinking value of two of its magazines, the company until recently has been bleeding cash, which dropped from $38.5 million to just $17.4 million in the quarter. The company said it would lay off about 70 employees, 12 percent of its work force, and discontinue its stand-alone print version of the magazine Everyday Food.

None of this bad news has made much of a dent on Ms. Stewart’s own compensation. Her base annual pay rose from $1.7 million in 2009 to $2 million in 2010 and 2011, and she received a $3 million retention bonus when she signed her new contract in 2009. She gets an additional minimum of $2 million a year under an “intangible assets license agreement,” which gives the company the rights to “Martha Stewart’s lifestyle and the public perception of Martha Stewart’s lifestyle,” including such details as how she arranges her outdoor furniture.

Her corporate perks are well known, and she has long blurred the line between business and personal expenses. She submitted as a business expense the $17,000 cost of her now-infamous holiday trip to the Mexican luxury resort Las Ventanas al Paraiso. She arrived at the resort the day she dumped her shares in the biotechnology company ImClone upon learning, en route, that the company’s chief executive was trying to sell his shares ahead of a negative Food and Drug Administration decision on the company’s principal drug. (She settled charges of insider trading brought by the Securities and Exchange Commission after being convicted of making criminal false statements to cover up the reason for the sale.) Then she had her accountant tell her companion on the trip that she’d have to pay her “fair share” of the costs, according to testimony in her 2004 trial.

The company doesn’t break out Ms. Stewart’s reimbursed expenses, but general and administrative expenses amounted to a lofty $11 million in the last quarter. That number, of course, includes many expenses besides Ms. Stewart’s, like other executives’ salaries.

The company does reveal what it calls other compensation for Ms. Stewart, which in 2011 included a personal trainer and other expenses for personal fitness; a weekend driver; security services; fees for on-air appearances; unspecified personnel costs not otherwise reimbursed by the company; insurance premiums; and an unidentified charitable contribution, which added up to over $1 million.

Ms. Stewart also receives stock options, nearly $1.8 million worth in 2009 through 2011, though she has not received any options so far this year. Still, as Mr. Hodgson put it, “Why is she even getting stock options? Her interests are already thoroughly aligned with the company, given her ownership stake.” Moreover, the intangible license agreement “is very unusual,” Mr. Hodgson said.

All told, Ms. Stewart’s compensation was $9.8 million in 2009, $5.9 million in 2010 and $5.5 million in 2011, or $21.2 million over the last three years, even as the company was in a downward spiral. Just before Ms. Stewart got out of prison in 2005, her shares were trading at over $34 and she was a billionaire. After plunging during the financial crisis, they were above $8 a share in September 2009. They traded this week at about $2.80.

Asked about the issues raised in this column, a spokesman for Martha Stewart Living Omnimedia declined to comment and said Ms. Stewart had no comment.

Article source: http://www.nytimes.com/2012/11/10/business/at-martha-stewart-living-martha-may-be-the-problem.html?partner=rss&emc=rss