CHICAGO -- Darden Restaurants, owner of the Olive Garden, lost a more than nine-month battle against Starboard Value, which persuaded investors to replace the company's entire board at its shareholder meeting Friday.
Investors voted for the 12 directors at Darden's annual meeting in Orlando, where the company is based, according to a statement. They include Bradley D. Blum, a former chief executive officer of Burger King, and Jean Birch, a former IHOP president.
"We have an epic fail, the entire board replaced, which almost never, never happens," Steven Davidoff Solomon, a professor of law at the University of California, Berkeley, said Friday in an interview on Bloomberg Television.
Starboard's victory followed a carefully orchestrated campaign against Darden that included an almost 300-page list of recommendations for improving the business. Starboard
criticized the company for selling off the Red Lobster chain and lobbied instead for Darden to separate its real-estate assets. The investment firm also knocked Olive Garden for giving out too many breadsticks to customers and not selling enough wine.
"The Darden board had to know that the shareholder backlash from selling Red Lobster would be quite heavy," Davidoff Solomon said.
Starboard has been pushing for changes at Darden since December. Barington Capital Group, another activist shareholder, had also lobbied Darden to consider other options to boost value.
"We are extremely pleased that necessary changes have been made to Darden's board and senior management team to pave the way for the implementation of new measures to enhance shareholder value," James Mitarotonda, chairman and CEO of Barington, said in a statement today.
Last month, proxy advisers Institutional Shareholder Services Inc. and Glass Lewis & Co. backed all 12 of New York-based Starboard's nominees for Darden and supported the activist's turnaround plan for the company, which also owns LongHorn Steakhouse. Investor-advisory firm Egan-Jones Ratings Co. recommended that shareholders vote in favor of Darden's nominees.
Starboard announced the board slate in May, saying Darden's management had shown "contempt for shareholder interests." The directors voted in Friday include Steve Odland, the former CEO of Office Depot Inc.; Enrique Silva, the CEO of Checkers Drive-In Restaurants Inc.; and Alan Stillman, the chairman and CEO of Smith & Wollensky Restaurant Group Inc.
Friday's result is "extraordinary" because shareholders typically shy away from replacing an entire board because of concerns over continuity, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
"Following the Red Lobster sale they seem to have lost touch with their investors," Elson said in an interview. "You shouldn't get to this point. Obviously the dissatisfaction level was so significant."
In an attempt to stave off the proxy fight, Darden in September submitted eight new director candidates for its board -- including four of Starboard's picks. CEO Clarence Otis, who had been criticized by the activist, also has agreed to step down later this year. The concessions didn't placate Starboard, which owned a stake of about 8.8 percent as of Sept. 9.
Starboard last month submitted its plan to boost Darden's earnings by as much as $326 million. The proposal included culinary details such as asking diners if they want wine, salting pasta when it's cooking and making sure breadsticks are served warm.
Darden said earlier this month that sales trends at Olive Garden are starting to improve. Same-store sales rose 0.6 percent at the Italian dining chain in September, compared with a 2.6 percent drop a year ago. They also improved at LongHorn, the company's largest brand after Olive Garden.
-- With assistance from Beth Jinks and Craig Giammona in New York.