Retail Campaigning: Why Mom and Pop Make a Difference in Proxy Fights

NEW YORK (The Deal) -- This past October, Starboard Value founder Jeffrey Smith scored a landslide victory at restaurant-chain owner Darden Restaurants (DRI), overturning the company's entire board.

Key to that bitterly fought proxy fight was not only persuading institutional investors to back Starboard's board nominees, but also winning the support the retail investors who represented fully one-third of Darden's investor base.

"I would not dismiss the retail viewpoint and support," said Bruce Goldfarb, CEO of proxy solicitor Okapi Partners, who worked with Starboard on the fund's Darden campaign. "Many of these investors are also customers that care about the brand."

The overwhelming success of Smith and other proxy fighters comes as activist investors and their corporate opponents pay more attention to retail investors whose votes can make the difference between a win, a loss or -- as in the Darden case -- an overwhelming victory.

The extent to which activists and their targeted companies are aiming their campaigns at retail voters counters the perception that a handful of large institutional votes is all that is needed to wrap up a proxy battle one way or another.

The retail vote that can be engaged when an activist mounts a campaign is substantial. Roughly one-third of U.S. shares of publicly traded companies in 2013 proxy fights are held by retail investors, and about half of those shares were voted, according to investor communications advisory company Broadridge Financial Solutions. That's in contrast to the approximately 30% of retail shares that voted the same year at companies that did not have proxy fights. Broadridge estimates that roughly one-third of U.S. shares overall are typically held by retail investors.

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