This paper mainly focuses on the importance of maintaining good public relations and the implications of violations of the principles of public relations. It also focuses on the overall effects on the performance of the company after the publication of such violations in a company. The paper also expounds on the implications of these violations of public relations principles on the society and why the society is affected. It also aims at providing solutions on how a company may avoid such occurrences in the future. The paper is based on the case involving Martha Stewart in her scandal of the sale of her stock at ImClone Systems.
In 2001, the stock price of ImClone Systems reduced by a huge margin. The fall was due to the lack of approval of one of its drugs by Food and Drug Administration. There was a case to determine whether or not it would be approved. However, it was established that many executives had sold their stock upon the announcement of the disapproval. This was investigated and there were cases of insider trading that were initiated by top executive Samuel Waksal. He had leaked the information to his family and friends and they had sold their shares. Martha Stewart, a media celebrity, was also found to have been among those who participated in the insider job. She was tried in a court of law, in which she pleaded innocent. However, the jury found her guilty of conspiracy and of giving false statements to a federal investigator. During the second hearing, motion was denied and she was sentenced to five months in prison amidst other minor sentences. The proceedings of her case were highly publicized owing to the fact that she is the founder of Martha Stewart Omnimedia. Her public image and that of her company was at stake.
Public relations principles violated by ImClone Systems
Public relations refer to the existing relations between the management and the public or the entire society (Treadwell & Treadwell, 2005). This is based on the actions that the company, through its management, displays in the public eye. The insider trading activities carried out by Samuel Waksal of ImClone Systems was a huge violation of the principles of public relations. This is because one of these principles states that the management ought to tell the truth at all times. This principle was violated because these top executives tried to go behind the company's back by leaking out information upon the realization that the company's stock price was going to reduce. By doing, they were not acting in utmost good faith towards the better performance of the company. When inquiries about the same were made by the federal investigation, they pleaded innocent to their fraudulent activities, only for the jury to prove otherwise. This is especially applies to Martha Stewart who continued to insist that she had already made an agreement with the company to sell her shares if they fell below $60.
The company's executives also violated the principle of agency. This is whereby they are supposed to carry out public relations related issues in such a way that works best to benefit the company. They are agents of the company in the public eye. By conducting the insider trading, the company violated this principle. This is because the public completely lost trust in the company and the reputation of the company was damaged.
Impact of the Company's Decisions
The company's decision executed by the top executives had huge negative impacts on the performance of the company. This was because the scandal resulted in huge publications because of the people involved. As a result the stakeholders lost trust in the company's dealings. In terms of the societal impact, this too was negative. This is because the company dealt in the production of drugs an d some of them had lacked the necessary approval. There was, therefore, the fear that their drugs were not fit for the health matters of the society.
As for media celebrity, Martha Stewart, her broadcasts in television station were moved. She was denied entry into Canada and visa to the Great Britain. This was because of the destruction of her public image. These organizations did not want any further dealings with her. This is an indication of how much significant maintenance of good public relations is to an organization or individual.
Use of 'spin' in the Public Relations Case
Spin refers to the disguise in presentation of information in order to safeguard the image of the corporation in question (Canfield & Moore, 2010). It is some kind of propaganda in the course of the proceedings of the case. In the case against Martha Stewart, this is seen when she holds public press conferences to plea not guilty to the public. It was also evident when she went as afar as opening a website with her innocence quotes and pleas. On the other hand, the company's executives stood strong pleading not guilty until the sentencing. This was a strategy to lure the public into believing that they were misunderstood and that they were telling the truth.
Society's response to public relations scandals in the corporate environment
The society is hugely affected by public relations scandals in the corporate environment (Sachdeva, 2009). This is mainly because they are affected by these scandals directly or indirectly. The society is the public that the company or firm ought to maintain good relations with. Therefore, in case of a scandal, they are involved. As a result, the society will tend to drift away from having any dealings with the company concerned. This is the case implied by The ImClone Systems scandal. Immediately the government announced disapproval of the drug, the stock price dropped. This was because the demand of the stocks reduced among the stockholders.
Considering the fact that these drugs are for human consumption the society would be directly affected. As a result, the sales from the company ought to decrease. This is because the aim of the society is to protect them. They, therefore, will not consume disapproved drugs because their health is a priority they must safeguard.
The effects of the scandal on the company and how to avoid such scandals in future
The scandal greatly affected the performance of ImClone Systems. This is because they were displayed as unjust individuals who were fraudulent. It was also established they were not keen in abiding to business ethics. This largely affected the stock price of the company and many stakeholders departed from the company.
From the proceedings of the case, it was established that the flaws resulted from the executives of the company. In future, the company's board of directors needs to hire competent individuals with clean records. They also need to run competency tests throughout the company's existence from time to time. Performing audits, both internal and external, is also important so as to ensure that the financial records tally with the declarations by the executives of the company.
Generally, the executives of any company should be held responsible for any fraudulent activities during their leadership. This is because it is their duty to oversee all activities in the company and if found guilty they should be punished accordingly. The case of ImClone Systems and Martha Stewart is a good example of such action.