Darden Restaurants, Inc., an Orlando-based holding company that owns and operates more than 1,500 restaurants -- including the Olive Garden and LongHorn Steakhouse chains -- is under new control after its entire 12-seat board of directors was ousted at the company's annual meeting on October 10, 2014. The ouster of the incumbent directors followed a highly contentious nine-month battle with activist investor fund Starboard Value LP, which had been pushing for major changes at Darden since December 2013. The battle only intensified after Darden's controversial sale of the money-losing Red Lobster chain for $2.1 billion in July 2014.
The Darden board may have seen the writing on the wall, but its efforts to appease its shareholders ultimately were too little, too late. Back in July, Clarence Otis, CEO and chairman of the board, announced that he would step down. And, the board nominated only four incumbent directors for re-election at the annual meeting. In the end, however, that was not enough to quell investor dissatisfaction. Instead, investors voted to accept the slate of 12 new directors that had been put forward by Starboard in May. That slate brings to Darden several restaurant industry veterans, including former senior executives at Smith & Wollensky Restaurant Group, Inc.; Burger King Worldwide, Inc.; Checkers Drive-In Restaurants, Inc.; and IHOP (DineEquity, Inc.). Analysts expect Starboard to sell some of Darden's estimated $4 billion in real estate assets and to focus on improving Olive Garden sales.
The voting result at Darden is significant because it is extremely rare to see the entire board of directors replaced as the result of a single shareholder vote. Shareholders generally find value in at least some level of continuity in public company boards. The fact that Darden shareholders elected every Starboard nominee not only speaks to the effectiveness of Starboard's highly organized campaign to generate and capitalize on shareholder discontent, but it highlights the importance to public companies and their boards of directors of maintaining an ongoing and open dialogue with shareholders in order to avoid the sort of massive board/shareholder disconnect that occurred at Darden.