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January 28, 2004
Martha?s cautionary tale
As the trial of Martha Stewart gets underway, it might be wise to look beyond the surface a bit. Yes, this is can be viewed as a story of greed, elitism, class warfare gone mad, jealousy, or simply corporate corruption. All of these spins have already been put on Martha?s case.
But I think it is also an important cautionary tale about becoming a publicly traded company. When a company goes public all of the rules of how the company has been managed change. It is no longer a private asset. Sadly, people like Martha sometimes never quite understand what that means to a business.
As a private entrepreneur doing deals, information can be one of your main currencies. Investors are secured, smaller companies are purchased, and businesses are started all with confidential information that offers some competitive edge. When a business goes public, it becomes a public good. It is no longer the entrepreneur?s to manage as she sees fit. It is no longer her private good. She is no simply a steward for the public which can buy and sell ownership in her business. And for this system to work, information must be a relatively level playing field for all participants in the transactions.
So is this something that Martha knew when her own firm went public? Did she simply have an innocent lapse in judgment in the case of her trading of ImClone Systems shares? Well her own history is not on her side. Her own company had a class action suit filed against it based on the trading practices of insiders during her own IOP.
For Martha, this may indeed be a tale of greed and arrogance. And that is a good lesson for all of us. But it should also be a lesson to all entrepreneurs that the kind of practices that they may be used to in running their company as their company change the moment their business goes public. They must understand that what was once their company is now simply a company that the public owns and which they now run for that public.
Martha never has understood that lesson. She seems to view her company and start-ups she invests in as still her company, with the IPO just being some form of financing. Going public is so much more than a simple financing technique. It is the transformation of what was a private good into a public good. It is the transformation from being an entrepreneur into being a manager and a steward for a publicly owned business.
Posted January 28, 2004 12:35 PM
Comments
I agree with your assessment that private entrepreneurs should learn from Martha's story before they plan to go public. However, I believe many educated entrepreneurs realize many of the differences between owning a private company and a public-held company. I believe Martha definitely knew her role in a public company versus a private company. Martha simply chose to overlook her role as a manager and steward. Martha was once a broker so she knows what insider trading is and that it is against the law. Martha let her ego and greed take over. As a result she is now facing jail time and quite frankly I hope she is convicted. If there is adequate proof to prove that she is guilty she should not receive a slap on the wrist because of who she is. An example needs to be made that will deter others from following her led.
Posted by: Ashley at February 5, 2004 08:05 PM
If Martha Stewart can convince a jury that she is innocent of insider trading and did not act in her own interest, I will be greatly disappointed in the intelligence of society. Martha Stewart was previously a stock broker. There is no possible way that she did not know the risks associated with taking her company public and the spotlight that her actions would then be under. I agree that an antrpreneur with a privately held company becomes a steward for a publicly owned business when the business is taken public. It is ridiculous to think that Martha Stewart did not realize this. With a business background, especially as a stock broker, Stewart knew what she was doing. Her greed consumed her, and for a nominal amount, her reputation has now been ruined. Publicly owned companies remain in the spotlight, and those who run them should be reminded of the consequences of their actions. These actions affect not only the perpetrator, but now affect all investors in the company.
Posted by: Brandy at February 26, 2004 04:48 PM
at Belmont University in Nashville, Tennessee. He consults with a variety of businesses on start-up and growth related issues, and with larger corporations on re-establishing entrepreneurial cultures within their organizations. Dr. Cornwall's current research interests include entrepreneurial finance and entrepreneurial ethics. He has authored or co-authored four books.
