Friday June 1, 12:35 pm Eastern Time
FEATURE-Madden heading to jail, company stepping up
By Steve James
NEW YORK, June 1 (Reuters) - The only fashion statement shoe designer Steve Madden is likely to make in the next few years will be whether he uses twin-needle pintucking or free-motion stitching for the mailbags he could end up piecing together in prison.
ADVERTISEMENT
Or maybe which orange jumper he'll wear to to the dining hall.
But what of the trendy footwear company that bears his name? How will it carry on while its founder, former chief executive, and creative force sits behind bars?
Business school experts said Steven Madden Ltd. (NasdaqNM:SHOO - news) has played it by the book, making needed management changes and replacing Madden as CEO with Jamieson Karson.
In fact, negative headlines have barely seemed to touch the company's stock as its price has slipped only about $3 on the Nasdaq from $18.11 since Madden was arrested last year. The company's net income rose 40 percent to over $16 million in fiscal 2000 on sales of over $205 million.
Last week, the disgraced designer pleaded guilty to federal charges of securities fraud and money laundering for helping manipulate 22 initial public offerings, including his own firm's 1993 IPO. He faces 41 to 51 months in prison and fines totaling $8 million when he is sentenced in September.
As part of a plea agreement with prosecutors and the Securities and Exchange Commission, Madden, 44, also agreed he would not hold office in a publicly traded company for seven years from July 1.
Madden, a University of Miami dropout who sold shoes on Long Island, New York before becoming a designer, is now officially ``Chief Creative Officer'' of the company -- a title he will have to relinquish when he is behind bars.
The crux of the matter is whether the creativity of an imprisoned man remains free. Federal authorities will not only lock up Madden, the man, for manipulating stock prices, but also Madden, the creative force behind a company adored by millions of teenage girls tottering around on his trendy platform soles.
NONE OF HIS BUSINESS
Traci Billingsley, a spokeswoman for the federal Bureau of Prisons, said inmates may not conduct any form of business. Madden would only be able to design shoes as a hobby and could not send out the designs.
``Once he sells them, that constitutes conducting a business,'' she said. But she could not say whether passing on ideas for shoe designs constituted carrying on a business.
Billingsley said authorities provided material for inmates' hobbies and paper was ``easily available.'' But no inmate has access to the Internet or e-mail. They may make up to 300 minutes of phone calls each month, but they cannot receive calls.
Prisoners perform a variety of jobs, such as janitorial services, landscaping, painting, food service, or working in the prison library. Federal prisoners do not make license plates, although Madden could end up making mailbags, depending on where he is incarcerated, she said.
As for making shoes, there is only one style standard-issue shoe for federal prisoners and they are purchased by the bureau, said Billingsley.
It's a safe bet that standard-issue prison shoes bear little resemblance to Madden's Izzy, Amyy, or Jasper brands.
For his part, Madden is not speaking publicly, although he did give an interview last week to the fashion industry bible Women's Wear Daily. ``I'm a cobbler, not a hardened criminal. I think I will be resting,'' he said when asked if he could contribute to the company from jail.
An SEC spokesman could not say if passing along ideas for designs constituted acting as an officer of the company.
But Charles Koppelman, Steven Madden Ltd chairman said the board ``decided it would be in the best interest of the company for Steve to continue to create and design for the company.''
Koppelman said Madden will act as ``creative officer'' until July 1 and ``is expected to return to this position upon completion of any time he serves.'' A spokeswoman for the company told Reuters that Madden will return as ``creative and design chief'' -- a position that is not a company officer -- after serving his sentence.
In the meantime, a 15-member team under design director Rachelle Watts, will work on its Steve Madden, Stevie's, LEI, David Aaton, and men's lines.
SURVIVAL FIRST
Fred Talbott, a business professor at the Owen Graduate School of Management at Vanderbilt University, said the company's strategy was sound since a CEO's indictment or conviction raises serious concerns for a company's reputation.
``People at the company become disgruntled or disillusioned and it affects products and payments and services.''
Such a scenario requires management to develop a contingency plan, he said, asking questions like ``What's the negative of using his name?'' and ``Do we want to survive?''
``Someone has to focus the company and develop a solid vision,'' said Talbott.
Professor Michael Useem, of the University of Pennsylvania's Wharton Business School, said a company should act quickly to control damage. ``An indictment is serious enough to bring in a new CEO. It's inexcusable for the board to sit it out.''
biz.yahoo.com |
