Yet Stewart did not sever all ties to her namesake company. Stewart, 62, will assume the non-executive title of founding editorial director, reporting to Chief Executive Officer Sharon Patrick.
The announcement came 10 days after Stewart was convicted on four felony criminal counts of perjury and obstruction of justice. Citing federal guidelines, legal experts estimate Stewart could face as long as 16 months in prison. Her sentencing is scheduled for June 17, at which time her lawyers have said they plan to appeal.
Observers said the company, which produces TV programs, magazines and household products, faces a difficult decision in determining whether--or by how much--to distance itself from its widely known founder.
"I think they're in danger right now," said Courtney Reeser, managing director of Landor Associates San Francisco. "I believe Martha is the brand, and without her name and her endorsement, they lose so much."
In a statement Monday, Stewart said, "I am taking this action today because it is in the best interests of MSO and because I think it's the right thing to do. I am heartsick about my personal legal situation--and deeply sorry for the pain and difficulties it has caused our employees."
Stewart is the company's largest shareholder with about 30 million shares of stock.
In an SEC filing made late Monday, the company said that the negative publicity caused by Stewart's conviction could force employee layoffs and the rebranding of certain products.
Stewart, who built her many businesses from a catering company she started in 1972 from her family's Connecticut home, is expected to maintain offices at both of the company's Manhattan offices, one on 42nd Street and the other in SoHo. The company said she plans to complete a book on Homekeeping and another on baking while taking part in various brand and strategic issues.
However, if Stewart is sent to jail, her involvement in the company could be limited--or eliminated--by telephone restrictions and work requirements.
In coming months, said observers, the company will be forced to consider how much to emphasize Stewart in its promotions, or whether to change the name of the business.
The case of shoe designer Steve Madden demonstrates that even if a company's most public personality goes to jail, it can survive and even prosper. Madden was sentenced in 2002 to 41 months in prison for stock fraud and money laundering, yet sales at his New York company, Steve Madden Ltd., rose from $243.4 million in 2001 to $324.2 million in 2003.
Analyst Douglas Arthur, who follows Martha Stewart Living Omnimedia for Morgan Stanley, argues the company may be better off not having to turn to Stewart for every decision.
"I maintain that the company runs on its own," Arthur said. "You have 500 people, many who are terrifically talented, who produce a wide variety of products of high quality. As long as she is somehow tangentially involved in the company, people will continue to buy those products."
Stewart also faces charges of insider trading in a civil case brought last year by the Securities and Exchange Commission. Like the recent trial, the SEC's case revolves around Stewart's December 2001 sale of nearly 4,000 shares of stock in ImClone Systems Inc., a company founded by her friend Sam Waksal.
While Stewart maintains the sale was prompted by an agreement she had with her stockbroker Peter Bacanovic, the government contends it was related to a tip Waksal received that the Food and Drug Administration was about to issue a negative report about the company's cancer-fighting drug. Bacanovic, Stewart's co-defendant, also was convicted of four criminal counts, including conspiracy and perjury.
Shares of Martha Stewart Living declined 36 cents Monday to $9.97.