Starboard Value’s Jeff Smith: The investor CEOs fear most
The most feared man in corporate America these days is not named Icahn, Ackman, Loeb, or Einhorn, but rather Smith, as in Jeff Smith, the boyish-looking 42-year-old co-founder and CEO of a previously obscure $3 billion activist hedge fund called Starboard Value. In October, Smith accomplished something that even his more flamboyant, better-known activist peers can’t boast about: He took effective control of a Fortune 500 company—Darden Restaurants, the owner of Olive Garden and Longhorn Steakhouse, which ranked No. 319, with some $8.5 billion in sales last year—while owning less than 10% of the company. Thanks to his success in running a highly contested proxy contest, Smith replaced the entire 12-member board of directors and assumed the role of chairman. Along with his handpicked board, he will soon choose a new CEO to run Darden. Welcome to the new world of corporate takeovers.
Smith is well aware that his stunning victory represents a landmark moment in a long-running debate: What is the correct balance of control over publicly traded companies between management and shareholders? After a brilliantly executed campaign that included both withering public criticism of Darden’s (DRI) leadership and careful courtship of the company’s other major shareholders, Smith now professes that his focus is on improving the performance of Darden, not celebrating his coup. But he also knows that he has fired a shot over the bow of directors everywhere. Shareholders, particularly noisy ones running activist hedge funds, are ascendant—and managers ignore them at their peril. “It was really amazing how many people reached out to me in the days following to say that they had a conversation with a CEO who said, ‘The world has just changed,’ ” says Smith.
