Many people believe that the term business ethics is an oxymoron. The truth may be that not being ethical in business dealings is simply moronic. Let’s evaluate the case of Martha Stewart.

Martha Stewart was, and arguably still is, the queen of home making. Females around the world looked to her when they wanted to make their homes more welcoming and at a relatively low cost. Martha had connected with these women and built a reputation of trust and goodness. This reputation was called into question in June of 2002 when Martha began her fight against the allegations of insider trading.

What is Insider Trading?

Insider trading is when an individual improperly uses inside information to sell investments (stocks, bonds, etc.) to an unsuspecting public. A common misconception with Martha’s case of insider trading is that she was selling some of her own company’s, Martha Stewart Living Omnimedia Inc. (MSO), stock. In fact Martha was selling some stock that she owned in a friend’s company. Her friends name was Samuel Waksal and the name of the company was ImClone.

The Scoop

ImClone was a company that was working on a drug that hopefully would help cure colon cancer; a worthy cause and a good thing for Martha Stewart to be investing in. The problems began when it was apparent that ImClone’s drug would not be getting approval from the Food and Drug Administration (FDA). Everyone in the pharmaceutical world knows that not being approved by the FDA is the kiss of death.

To keep the story short, Martha’s friend appears to have tipped her off to the fact that his company would soon be in the depths of despair. Martha sold her stock a day before the public realized that the company was essentially worthless.

This is a great example of the damage that insider trading can do to the public and to those who are the insider traders. Many people downplay insider trading, believing that someone who has useful information should be able to trade on it. But as the Martha Stewart case clearly shows, insider trading is not fair to those who are honest.

Martha’s Net Savings and Losses from the Deal

The sale of Martha’s stock a day before the public knew ended up saving her and costing the trusting investors $45,673. Not a bad chunk of change. However, Martha’s story teaches us that while being unethical may bring short term gains, it always brings long term losses.

Before Martha’s bout with insider trading, her net worth was over $500 million. After news of her actions were made public some experts estimated that she had lost around $250 million of net worth. While this number is debatable, there is no debating the fact that Martha’s personal and business reputation was seriously tarnished. Not only that, but she was sentenced to five months in prison and five months of home detention.

Was it Worth it?

This header should probably have read, “What Was She Thinking?”. Truth be told, I don’t know what it is like to have $500 million, but I’m pretty sure I wouldn’t be willing to sell my soul for $45,673. Of course I don’t know the whole situation and Martha still pleads innocence. Perhaps the biggest piece of evidence in her favor is that someone that rich wouldn’t do something that stupid for 45 grand.

Martha’s legacy is still undetermined. Will she be able to fully recover her reputation with the good mothers of this world? Or will she always be known as that home maker chick that committed fraud? Either way, we should thank Martha for teaching us not only how to make our homes look cleaner, but also that being ethical pays off in the long haul.