An activist investor has won all 12 seats on the board of Olive Garden's parent company, which has been struggling to win back customers at its flagship restaurant chain.
Starboard Value's slate of nominees beat out those nominated by Darden Restaurants Inc., according to preliminary results announced by the company at its annual meeting Friday. The hedge fund has criticized Darden's management of Olive Garden as well as how the company handled the sale of Red Lobster.
At the meeting in Florida, Starboard CEO Jeff Smith stood to introduce himself and the new board members before voting results had been announced. Smith noted Starboard has already begun "to work with the management team to ensure a seamless transition."
Darden's management has acknowledged the need for changes at Olive Garden, which has seen sales at established restaurants decline in each of the past three years. The efforts have included new marketing and menu items, including "small bites" like crispy risotto balls.
It's not clear what changes Starboard will push for right away, but the hedge fund issued a 294-page presentation last month saying Darden should spin off its real estate holdings. It also criticized Darden's management for a wide range of operational practices, such as its reckless distribution of breadsticks, use of pricey to-go bags and failure to salt its pasta water.
"This appalling decision shows just how little regard management has for delivering a quality experience to guests," Starboard wrote.
It also noted Darden could costs in a number of areas, such as by outsourcing the production of its soup base and reducing its ranks of full-time workers.
Sara Senatore, a restaurant industry analyst for Bernstein, said Starboard's board nominees may be in agreement with the firm on big matters, but likely won't rubberstamp its suggestions. She noted the nominees have respectable credentials and don't want to be seen as "patsies" for Starboard.
Although complete board turnovers are rare, the results in the Darden case aren't entirely surprising. Two large advisory firms, Institutional Shareholder Services and Glass, Lewis & Co. had recommended that shareholders vote in favor of Starboard's nominees.
Darden had already said it would cede four of the 12 board seats to Starboard, but warned shareholders that handing the entire board over would upend the progress it was making at Olive Garden.
In July, Darden also announced longtime CEO Clarence Otis would step down by the end of this year. A successor hasn't yet been named.
Representatives for Starboard didn't respond to requests for comment.