NEW YORK, N.Y. – Darden Restaurants CEO and Chairman Clarence Otis is stepping down as the company fights to fix its flagship Olive Garden chain following its contested sale of Red Lobster.
The company, based in Orlando, Florida, also said Monday that it’s changing its corporate policies to split the CEO and chairman roles. It appointed lead independent director Charles Ledsinger Jr. as independent non-executive chairman, effective immediately.
Darden shares rose $2.03, or 4.5 per cent, to $46.95 in after-hours trading.
Otis joined Darden in 1995, ascended to the CEO spot in late 2004, and became chairman a year later. His departure isn’t entirely a surprise, given Darden’s troubles. The company has been pressured to turn around declining sales at Olive Garden and Red Lobster. Customers had begun turning away from those chains as they cut back on spending during the recession.
Darden Restaurants Inc. earlier on Monday announced that it had completed the sale of Red Lobster to investment firm Golden Gate Capital. Activist investors Barington Capital and Starboard Value had objected to the nature of the breakup.
Barington had also said in March that it was time for Darden to start looking for a new chief executive, citing the company’s “rapidly deteriorating financial performance.” Last week, Starboard said it was suing Darden for documents related to Red Lobster’s sale.
The company also said Monday that it expects to nominate nine of its independent directors for its board, meaning that at least three Starboard nominees would be elected. But Darden said it failed to reach an agreement with Starboard over the investment firm’s pending proxy contest after settlement discussions.
Starboard said in a statement: “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.”
A new CEO and an independent chairman were “positive steps,” but three Starboard board seats were not enough, said Barington CEO James Mitarotonda in an emailed statement.
“Significant change is required in the Darden boardroom that can only be accomplished through the election to the board of a new slate of independent directors,” he said.
Starboard has nominated 12 directors for Darden’s board.
Otis will serve as CEO until a successor is named or Dec. 31, whichever comes first. The company said it will start looking for a replacement for him.