Though certainly not a new concept, shareholder activism has reached a fever pitch in the past few years. Observers of activist situations will typically analyze the issues from the perspective of a potentially struggling company or as an opportunity in the investor’s eyes. In these activist transactions, there is often a focus on the board members who get replaced, but rarely on what happens years down the road with the new board after the dust settles.
C-Suite sat down with Cindie Jamison, who was recently added to boards at Office Depot and Darden Restaurants, to hear her success stories after being added as a director in activists’ attempts to take these companies to the next level. She also shared her experience as a long-standing director at Tractor Supply Company, where she is now Chairman, and Big Lots, where she was one of four women added to the board last year.
Cindie Jamison: The areas of focus for public company boards have certainly changed, and while it was never easy work, now it is even more work. In the last 5 to 7 years, the amount of board material to review has gotten really voluminous. We used to have board books that were a couple of hundred pages, and now some of my board books are 700+ pages.
When I first came on boards in the early 2000s, the audit committee did the heavy lifting after Sarbanes-Oxley. That demanded a ton of extra hours. Then after Dodd-Frank, the focus shifted to compensation—everyone was focused on executive pay and measuring pay for performance. There were debates about performance metrics and defining total shareholder return, and that took over the spotlight. Neither of those things have gone away, but now the spotlight is progressively shifting to nominating and governance because of things like activism, board composition, proxy access and preparing for dealing with shareholder communications, friendly or not friendly.
Jamison: I joined Tractor Supply and Big Lots through traditional avenues. I was put on the other two boards through Starboard. Darden was a complete replacement, and then with Office Depot, Starboard ended up getting three board seats. I wasn’t involved in the early part in either case—they approached me once the process was well underway.
With Office Depot, I got a call out of the blue. I can’t speak to how Starboard identifies companies to target or how they plan their campaigns—I have never been involved with that in any way. But I can say that when they wage a campaign, I believe they are looking for experienced board members who are affiliated with high-performing companies. I have been extremely fortunate to be involved with successful companies like Tractor Supply, Horizon Organic and B&G Foods. As a result, I came on their radar screen. Initially I didn’t really want to talk to them. I was hesitant.
Jamison: I was intrigued less by the activism angle, that was just sort of the venue. I was intrigued by Office Depot. I came from a turnaround background, I was really intrigued by whether or not they could merge with OfficeMax at that point. I thought it would be fun and up my alley.
But the activism angle was new to me, so I was careful to try to understand the situation thoroughly. After a few calls, they invited me to meet with Jeffrey Smith at Starboard. I was already in New York, and I agreed to the meeting. I went in expecting him to show me a definitive “Starboard” plan for the company and see what I thought of it. So as I sat in Jeff’s office, he walked in, introduced himself and said: “What do YOU think we should do”? That is where it turned for me. I was fascinated by that. No decisions were made, and they were open to looking at the company and trying to figure out the best answers with the best people for the job. As a matter of fact I did most of the talking in that first meeting.
Jamison: Starboard is very thorough and very serious, and since they are the only ones I have been associated with, I can’t make broad assumptions. But I will say that activism has come a long way in a short time, and today it doesn’t have the stigma that it used to. There’s also a broad range of activists, and you can’t lump them all together. Some are short-term, some look to rip the company apart and sell the pieces. That’s not what Starboard is.
A lot of times activist campaigns get a stronger trajectory when the company doesn’t want to talk or the concerns get stronger when they do talk. After several rounds of not having a satisfying conversation, activists may want to go after some additional board seats because they’re not comfortable that what’s being discussed in the boardroom is going in the right direction. When it gets to that step, they’ll propose six seats and get three, for example. And that’s what happened at Office Depot.
Jamison: Once again, I wasn’t involved at the early stages. But from what I understand, at Darden, things started out the same way but the experience went the opposite way. With every conversation the tone and tenor was getting worse, and Starboard eventually asked for the whole board. It was really unprecedented.
Darden is a study in how not to respond to an activist. It could have been negotiated far less publicly and with far fewer board seats lost. It was a very public and very embarrassing fight to lose and somewhat destructive for the company at the time.
It’s since rebounded amazingly. The company and management and the board have come together beautifully, and it’s a tremendous story to be a part of. But at the time, the company was beleaguered. It’s hard to have a proxy fight and have disappointing results, and hard to not know if your board is going to stay or leave. It was tough on management, and I applaud them for working with the new board so enthusiastically.
Jamison: Once Starboard had the slate proposed, even before they knew they were going to be successful, they had all of us come together for half-day meetings to talk about the company and get to know each other. So by the time we assembled as a board, it wasn’t the first time we’d been together.
But it was still the first time we interacted with management, and the first meetings were a little odd. The stress level was high for management, understandably, but they did a fantastic job. The first thing we wanted to do was detail a strategic plan, and through working on that everyone got to know each other better. As Audit Chair, I called probably 15 people one-on-one just to talk for an hour on the phone. I asked questions like, “What’s your career path,” and “How do you feel about resources?” I think that was an important outreach and one that I hope built some trust. It also aligned everyone to march in the same direction and not for or against each other.
Jamison: Kudos to the Big Lots team. Led by their Nominating and Governance Committee, they looked at composition of the board, and they decided to focus on diversity in their board refreshment. The CEO, who has been there for three years now, came in and came up with the concept of “Jennifer,” the Big Lots shopper. Jennifer decides to go there or Target or Walmart or whatever. And they have put a lot of effort into understanding who Jennifer is and how she makes decisions. They have an extremely detailed profile of her, who she is, where she shops, what she watches on TV, in other words deep consumer intimacy. Tying this back, ultimately, they decided they wanted “Jennifers” on their board. I believe they initially wanted two women, but were pleased with what the search turned up and so ended up adding four.
As an aside, my very first board seat was at Horizon Organic, and a lot of people buy that milk for their kids. The consumer base is largely moms, and I was brought on that board because in addition to my financial expertise as a CFO, they preferred a mom. In both cases, the idea is to have someone at the board table who is also the customer.
Jamison: It’s the basics, but it’s not easy. You have to have the ability to juggle a lot while thinking through things practically and communicating thoughts clearly.
You have to be willing to work hard and be extremely ethical. You have to have good judgment, and not only technical judgment and functional expertise but also knowing when to elevate an issue, when not to, when to let management make a decision, and when the board needs to step in. Some discretionary matters can be less than clear, and honing those skills and becoming a more mature board member takes more time and experience. The problems that get to the board level are often complex problems without clear solutions. If they were simple, someone would have figured them out.