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The Comeback That Wasn’t

Stewart had invented the category of lifestyle publishing and branding, but by 2008, she had a lot of younger, leaner rivals. Plus, the recessionary economy of the late aughts was far removed from the bubbly millennial environment in which Martha Stewart Living Omnimedia had gone public, and what had thrived as an aspirational brand at times seemed out of touch.

At the flagship magazine, Martha Stewart Living, one editor after another would come in and try to Real Simplify it, to make it more about hamburgers and chocolate-chip cookies and less about tassel-strewn, Venetian-themed dinners for twenty. A Thanksgiving story shot at Stewart’s stables in Bedford featured a long table and was so complicated that it became almost a comedy of errors. A child’s hair caught fire. Stewart sliced her thumb and was sent to the hospital. At the table, Stewart was flanked by Brooke Astor’s son, ­Anthony Marshall, and his wife, hardly avatars of the simple life. (By the time the story was published, Marshall was on trial for misappropriating his mother’s fortune, and the pictures had to be blurred out.) “There was an incredible divide between what Martha was interested in and what the reader wanted,” a then-editor says. “As Martha got fancier, readers were going in the other direction.”

In the boom years, Stewart’s ­extravagances could reasonably be seen as the cost of doing business. But with MSLO losing money, the clash between business imperatives and Stewart’s perfectionist aesthetic became increasingly problematic. “The entire workday would come to a halt so we could discuss the virtues of sea-foam green over more of a blue-green, and would take literally 30 minutes,” remembers an editor. “Susan [Lyne] would say, ‘I’m sure you guys can make this decision.’ ” Despite the cash crunch, Stewart would not hesitate to send staff members to, say, India, to obtain a certain piece of fabric. The company kept three separate test kitchens. Stewart herself retained “nine personal assistants,” says a former executive. “Nine. That number is untouchable. I broached it with her, and I almost lost my job that day.” (A source close to the company calls the number “highly exaggerated.”)

Part of the disconnect had to do with the fact that Stewart’s own lifestyle was becoming more luxurious. In 2008, shortly before Lyne left as CEO, Stewart asked the two board members seen as being most assertive in challenging her compensation and expenses to resign. At the same time, the ­Koppelman-led board replaced Lyne with two co-CEOs, a structure that observers noted left Koppelman, who assumed the titles of executive chairman and principal executive officer, firmly in control. Since then, the board has changed from one dominated by seasoned corporate executives with diverse board experience to one liberally salted with friends. (Frédéric Fekkai, Stewart’s former hairdresser, sits on the compensation committee.) Stewart’s annual compensation package grew from $2 million in 2007 to $10 million in 2009. That year, Stewart also received a $3 million onetime “retention” and “noncompete” payment, preventing her from leaving her own company and competing against it. Koppelman, in 2008, received $8 million in compensation.

There was also the matter of Stewart’s ­personal expenses—long the subject of titanic struggles between her and her CFOs. It has never been clear where ­Martha Stewart the person ends and Martha Stewart the brand begins, nor how either is distinct from Martha Stewart Living Omnimedia. She lives and breathes her business and anything she does (or buys) in her personal life can become fodder for the magazine, or the TV show, or a product, or a tweet. But between her farm in Bedford, her home in Maine (Skylands, the former Edsel Ford estate), a house in East Hampton, and an apartment on Fifth Avenue, Stewart has steep personal bills to pay. And that isn’t including her car and driver, personal trainer, home-security system, and other amenities that come with being Martha Stewart. She expenses an extraordinary amount of them.

The company’s porous boundary between personal and professional extended to other personnel. Koppelman hired his daughter, Jennifer Koppelman Hutt, to be his assistant, and later she became co-host, with Stewart’s daughter, Alexis, of the television show Whatever, Martha! Koppelman Hutt was paid $350,000 last year, while Alexis Stewart made $400,000. Koppelman’s fiancée, Gerri Kyhill, who had been his late wife’s manicurist before becoming his assistant, runs the New York outlet of the pole-dancing-exercise chain S Factor, in which Koppelman is an investor. In 2008, ­MSLO’s ­human-resources department sent an e-mail to employees offering pole-­dancing classes at S Factor as a company-paid benefit. Kyhill and S Factor’s founder, Sheila Kelley, also led Stewart through a pole-dancing routine on her television show.

The outsize compensation, the board’s composition, the aggressive expensing—this is exactly the kind of corporate governance that can depress a stock. James Berman of hedge fund JBGlobal put 10 percent of the fund into shorting MSLO from September 2009 to June 2010. He was drawn to it because of the company’s “excessive compensation and ‘related-party transactions,’ ” among other apparent conflicts of interest, and successfully rode the stock down from $7 to $5. “It’s one of the few successful shorts we’ve had during this bull market,” he says.