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Stewart leaving company's board
Meanwhile, a majority of those polled feel the homemaking expert should go to jail.
March 12, 2004: 8:36 AM EST

NEW YORK (CNN/Money) - While Martha Stewart is expected to leave the board of the company she founded after her conviction on lying about a stock sale, a decision may come soon as to whether she keeps a creative role with the company, according to published reports Friday.

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Martha Stewart will leave the board of directors of the company she founded following her conviction. CNNfn's Allan Chernoff reports.

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A decision on Stewart's role with the company could come as early as today, the New York Times reported.

The New York Post reported that a decision has been made to keep Stewart on in a creative capacity and the announcement could come today or early next week.

Stewart's departure from the board of directors of her company Martha Stewart Living Omnimedia (MSO: Research, Estimates), is not a huge surprise. It has yet to be determined whether she'll resign or not run for re-election, the person with knowledge of the board's activities told CNNfn.

"There's no issue she's going to leave the board," this person said. "It would be inappropriate to be a board member. She would like to stay involved with the creative side of the business."

The company's board met Monday at the offices of law firm Fried Frank for several hours, but concluded its discussions without making any public statement.

"It's a delicate situation and somewhat unprecedented," the person said, adding there may be an announcement this week.

One complication is that the company's contract with Kmart requires Stewart to appear on behalf of the retailer up to 20 days a year and if the company fired her, that would violate the contract with Kmart, according to the source.

The board may be waiting to learn how much damage the Martha Stewart brand has suffered from Stewart's conviction on four counts of lying and obstructing justice regarding her sale of ImClone Systems stock in late 2001.

The 62-year-old Stewart also resigned from the board of cosmetics company Revlon after nearly eight years.

Sentencing could also complicate matters.

A majority of those surveyed -- 53 percent -- in a CNN/USA Today poll said the home decor expert should go to jail after being convicted of lying about a well-timed stock sale. Forty percent of those surveyed said Stewart should not do jail time.

When asked if Stewart was treated fairly, 66 percent of those polled said she was while 27 percent said no.

The survey also women more sympathetic to Stewart, with 57 percent of men surveyed saying she should go to jail, and nearly half of the women saying she should not.

And in other developments Tuesday, Sen. Hillary Clinton plans to give $1,000 that was donated to her by Stewart to charity, Clinton's spokeswoman said.

What's next for MSO?

Shares of Martha Stewart Living fell further Tuesday after sinking almost 9 percent Monday and 23 percent following Friday's verdict.

Credit Suisse First Boston analyst William Drewry cautioned that the stock "still has considerable downside potential from where it traded down late Friday."

In a research note, he added that the company is in danger of "significant losses going forward" from further declines in ad revenue at its magazine and TV divisions, as well as falling revenue from sales of its merchandise at Kmart.

A CBS spokesman who did not want to be identified told CNN/Money that 12 of Viacom's CBS local stations and "a few" UPN local stations would no longer air Martha Stewart's syndicated programs.

But at least one analyst called the outcome of the trial a positive, saying it "eliminated" some of the unknowns and could allow the company to move forward with "greater clarity."

"The harsh reality of the verdict in the Stewart case, we believe, will enable management and the board to make the necessary difficult strategic decisions," Morgan Stanley analyst Douglas Arthur wrote in a report.

Arthur boosted his forecasts for this year's earnings to 30 cents a share from 15 cents and also upped his 2005 forecast to 25 cents a share from 20 cents.

Martha, board plot strategy

While the company maps a contingency plan, industry watchers said the Martha Stewart brand might not survive, especially if she goes to jail.

"The brand as we know it is dead. Any brand that's built exclusively around a single personality can't survive something like this," said Howard Davidowitz, a veteran retail consultant.

"We're likely to see advertisers pull away" from her magazines and TV shows, Davidowitz said. "They would much rather invest in Oprah's media publishing empire rather than associate with the Stewart brand now."

Robert Passikoff, a New York-based brand consultant who has been tracking the Martha brand for nearly three years, agreed.

"This company, as it is configured today, is unsuited to compete in the marketplace with its brand taken away," said Passikoff. "Will the company survive? That remains to be seen. The immediate thing for MSO to do is distance the company from Stewart."

That process was already under way, analysts said, as the company's revenue, advertisers, readers -- and its stock price -- all were eroding because of Stewart's indictment and conviction. The stock had lost about half its value after Stewart was implicated in the ImClone scandal, though it later recovered some of that ground.

Over the past year, the company launched a new magazine -- Everyday Food -- that doesn't feature Stewart's name prominently on the cover, and a new TV show called "Pet Keeping with Marc Morrone" that excludes Martha entirely.

"We are confident that our assets -- our senior management team, our talented employees, our quality brand labels, our Omni business model and infrastructure, and our financial strength reflecting $169 million cash in the bank and no debt -- are more than sufficient to continue MSO's development as a leading 'how to' brand building company," the company said in a statement following Friday's verdict.

New York-based Martha Stewart Living, which runs publishing, television and merchandising divisions, last week reported profits that topped Wall Street forecasts for the latest quarter. But it also warned that its founder's trial would probably hurt ad revenue in the current quarter.

The company also recorded its first annual loss since going public in 1998.

Stewart, in a statement on her Web site Friday, said she will appeal the verdict and "continue to fight to clear my name." Stewart resigned as chairman and CEO of the company last year but remains on the board and serves as its "chief creative officer."  Top of page

-- CNNfn's Allan Chernoff and CNN/Money's Parija Bhatnagar contributed to the story

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