In Macy’s Legal Victory, a Black Mark for Martha Stewart

Martha Stewart Living Omnivision’s (NYSE: MSO) new CEO, Lisa Gersh, was  given a restricted stock unit award last week in respect of 64,395 shares of MSLO Class A Common Stock. The corporation announced:

In making such determination, the Compensation Committee considered Ms. Gersh’s performance over the past year, including her role in consummating the transactions with J. C. Penney Corporation, Inc.

What should Martha Stewart do now that the deal has been at least temporarily overturned in court? Claw back the award in all fairness.

A New York State Supreme Court decided that Martha Stewart Living Omnivision must suspend a deal with its major retail partner JCPenney (NYSE: JCP), because its program to sell kitchen and home products violates an earlier agreement to sell Martha Stewart products through Macy’s (NYSE: M). For now, the court’s decision is a preliminary injunction, but it bodes poorly for how MSO will do at trial.

The Wall Street Journal commented:

At issue was Martha Stewart Living’s right to create a fresh line of merchandise for Penney stores, a move that was seen as key by both companies. Penney looked to the Martha Stewart Living name to add cachet to its home-goods department, the company’s worst-performing segment. For Martha Stewart Living, placement in Penney’s 1,100 stores would be a welcome profile raiser.

The trouble comes not just on the heels of Gersh’s promotion and stock award. Martha Stewart Living Omnivision also extended Martha Stewart’s employment contract until 2017. Her new title will be “Founder and Chief Creative Officer.” Stewart recently has served as chairman of the firm’s board.

The entire MSO fiasco with Macy’s begs the question of how managements of public companies, particularly ones run by the people who founded them, can keep their positions despite poor performance. Martha Stewart is invulnerable in her position as the head of her company, and she likely will keep that role through her new contract. In the meantime, shareholders will continue to suffer.

Douglas A. McIntyre