Suffice it to say that Starboard was not happy with these outcomes and made their displeasure abundantly clear by stating that they planned on replacing the entire board of directors for ignoring the will of shareholders. Not just 1 or 2 guys like most of these situations, but the ENTIRE board. Game on.
With the deal closed, the board’s posture appears to be changing though. CEO and Chief Antagonist Clarence Otis announced that he would step down as CEO and Chairman at the end of the year, and, in a nod to Barrington Capital, the company would subsequently separate the Chairman and CEO roles. Charles Ledsinger, Darden’s lead independent director, will become Chairman of the company and also head the new CEO search committee. Mr. Ledsinger is a former Choice Hotel executive. As an additional appeasement step, the company announced that it would only nominate 9 members to the board of directors at the next meeting, effectively ceding 3 board seats to the activists’ nominees. Furthermore, the company announced that it was actively negotiating with Starboard in order to reach a proxy settlement.
If the plan was to make Starboard feel better then the company most certainly failed as the investment firm replied to the news with a statement that it was going to file preliminary proxy materials and seek ‘at least a majority of the available seats on Darden’s Board at the 2014 Annual Meeting.’ Starboard’s CIO, Jeffrey Smith, issued a long statement on the subject including:
The overdue retirement of Clarence Otis is obviously in the best interest of Darden and its shareholders. It is surprising to us that it took this long. It is a shame for all Darden shareholders that this change happened only after the Board sanctioned the destruction of a billion dollars in shareholder value by approving the Red Lobster sale against the vehement objections of its shareholders.”
…We also do not believe it is a coincidence that Darden announced that Mr. Otis is stepping down and that the Board has conceded three seats at this early stage of the proxy contest on the very day that the Company announced the closing of the irreversible and value-destroying Red Lobster sale. Unfortunately, Mr. Otis leaving represents just one small step in the transformation that is urgently needed at Darden. To be clear, the Company still requires a major overhaul at the Board level. This Board has proven over an extended period of time that it is unable to respectfully and capably represent the best interests of the shareholders they were elected to represent and cannot be trusted to make the incredibly important decision as to the selection of the next CEO of Darden. There needs to be a true and complete process to vet both internal and external talent in order to find a truly great, transformational, operationally-focused restaurant leader. This Board has a history of repeatedly making the easy decision, rather than the decision that is best for shareholders. Darden needs a majority change to the Board as soon as possible to jumpstart and complete the process of recruiting a truly great leader…
Oh, it is on alright. This has played out rather interestingly with the company taking an act now, ask forgiveness later approach. Presumably, Mr. Otis had support for his plans to sell the business, but perhaps the pressure from Starboard became too much to handle? Even though the spinoff was scrapped, this should be a fun one to watch.
Disclosure: Author holds no position in any stock mentioned.