Activist investors from Carl Icahn to Daniel Loeb and Bill Ackman are ratcheting up their campaigns, increasingly targeting America’s biggest companies and seeking the ouster of chief executive officers.

Taking executive scalps has paid off for shareholders at companies such as Yahoo! Inc., Chesapeake Energy Corp. and Nutrisystem Inc., according to data compiled by Bloomberg. There have been flops, too, including Ackman’s CEO replacement efforts at J.C. Penney Co. Its stock has fallen 62 percent.

Targeting management adds to decades-old routine activist demands for mergers, breakups or dividends to boost equity prices. Just three days ago, Microsoft CEO Steve Ballmer said he’s retiring within a year — four months after activist fund manager ValueAct Capital Partners LP’s Jeffrey Ubben disclosed a $1.9 billion Microsoft stake. ValueAct has been seeking a board seat, a person with knowledge of the matter said earlier.

“Where activists are successful in getting a board to listen to them on a CEO search the track record is quite mixed,” said William Mills, a corporate lawyer at Cadwalader, Wickersham & Taft LLP, who has advised both companies and activists. “Yahoo and Chesapeake Energy so far are looking like successes. J.C. Penney is probably the most notable failure. There are several other situations where the jury is still out.”

The emboldened approach comes amid a general rise in activism. Assets managed by activist funds have more than doubled over the past five years, to about $73 billion as of the first quarter, from about $32 billion in 2008, according to data compiled by Hedge Fund Research.

Board Representation

So far this year, the most popular activist strategy was seeking board representation, followed by the removal of a CEO or director, according to data from Activist Insight, which tracks the industry. As recently as 2010, removing the CEO was sixth, the data show.

They are also tormenting bigger targets. Companies with a market capitalization of more than $10 billion rose to 5.7 percent of targets this year, from 2.6 percent in 2010. Companies with a market value of $2 billion to $10 billion represent 28 percent of the targets so far in 2013, compared to 12 percent in 2010, Activist Insight said in the report.

“The real new thing here is that they are going after companies with a market cap larger than $1 billion and targeting CEOs specifically,” said Steven Balet, managing director at FTI Consulting in New York, who has been advising on proxy fights for 19 years. “In the past they were seeking mergers or sales.”

Judging from recent stock performance, the strategy has been a good thing for shareholders in slightly more than half the campaigns included in Bloomberg’s analysis.

Outperformance

Among 23 companies where activists have either won executive or director changes in the past 18 months, 15 outperformed the Standard & Poor’s 500 Index and 8 fell behind since the change was completed, according to data compiled by Bloomberg. Another seven companies are in the midst of activist fights seeking management changes. All but one, Agrium Inc., North America’s third-biggest fertilizer producer, have so far outperformed the S&P, the data compiled by Bloomberg show.

Changing CEOs comes with risk, and new executives often take years to build credibility, said Ralph Whitworth, co- founder of Relational Investors LLC who’s been fighting for changes at companies for more than two decades.

“Situations where the shareholders become the most frustrated and where there is enough dissatisfaction to cause a CEO change — those are likely the ones that need it,” said Whitworth, 58. “It’s often an easy answer when things aren’t going well for people to default to, ‘Well, we need a new CEO,’ but it’s usually more complex than that.”

Second Overhaul

Whitworth has been Hewlett-Packard Co.’s chairman since April, part of the second board overhaul in two years while Chief Executive Meg Whitman struggles to turn around a business facing a historic industry slump in personal-computer sales.

The biggest gainer among targeted companies: Yahoo has outperformed the S&P 500 by about 56 percentage points since former Google Inc. executive Marissa Mayer was brought in a year ago following a campaign by Loeb, 51, and his Third Point LLC to oust her predecessor. Last month, Loeb left the board and sold $1.16 billion of his stake back to the Sunnyvale, California- based company, profiting from an almost two-year effort to revamp the Web portal.

Poor Performance

At health insurer WellPoint Inc., CEO Angela Braly stepped down after pressure from investors, including Royal Capital Management LLC, over poor financial performance. The stock has outperformed the S&P by 28 percentage points since her replacement, Joseph Swedish, took over in March 2013, as he raised the profit forecast twice.

Icahn, 77, whose activism grew from his days as a corporate raider in the 1980s, succeeded at Chesapeake. He and Southeastern Asset Management Inc.’s O. Mason Hawkins obtained changes that included hiring a new chairman, Archie Dunham, and pushing out CEO Aubrey McClendon in April after allegations of mismanagement.

The Oklahoma City-based natural gas producer has risen 45 percent under Dunham, compared with a 26 percent gain in the S&P 500.

Going after CEOs “turns out to be an effective way to improve companies and for activists to make money, so I would expect it to become more commonplace,” said Greg Taxin, whose Clinton Group Inc. prompted management changes at Nutrisystem and Wet Seal Inc. in the past year.

Rewarding Investors

Ackman, one of the most aggressive activists in seeking management changes, is among the best and worst in rewarding stockholders.

J.C. Penney, where his Pershing Square Capital Management LP is the largest shareholder, has slumped 62 percent since Ron Johnson, the former CEO Ackman recruited, was hired in June 2011.

On Aug. 13, Ackman, 47, stepped down from the board after his demand to hasten the search for a long-term replacement CEO was rebuffed by Chairman Tom Engibous and fellow directors.

Ackman has also delivered recent successes. Hunter Harrison, his candidate at Canadian Pacific Railway Ltd., took over in June 2012 and has since boosted profits, prompting a 72 percent gain in the shares.

Procter & Gamble Co. replaced CEO Bob McDonald less than a year after Ackman bought a $1.8 billion stake in the consumer- products company and began agitating to oust the chief executive.

Creating Value

Among the 8 companies that underperformed the S&P 500 in the data is Occidental Petroleum Corp., whose Chairman Ray Irani was ousted after a push from investors including First Pacific Advisors LLC and Livermore Partners. Stillwater Mining Co. is also underperforming so far, by 4 percentage points, after appointing a chairman in May under pressure from Clinton Group’s Taxin.

“It’s not like activists are coming out and saying all CEOs are bad, they’re saying there’s a small minority where we think we can create value by bringing in a new CEO,” said Ken Squire, whose 13D Activist Fund invests in targeted companies. “They’re targeting underperforming, bad CEOs.”

Some companies are fighting to keep their leaders in place. Office Depot Inc. and J.C. Penney both criticized campaigns by their respective largest shareholders — Jeffrey Smith and Ackman — as “counterproductive,” with mixed results.

New CEO

Last week Office Depot, in the midst of a merger with OfficeMax Inc., settled its battle against Smith’s Starboard Value LP and agreed to appoint three of the investor’s four candidates to the board, including Smith. Another, former Staples Inc. executive Joseph Vassalluzzo, will join the committee tasked with choosing a new CEO for the combined company.

During the time Office Depot was wrangling with Smith, the shares have gained 58 percent.

Clinton Group’s Taxin, 44, said his firm focuses on a small number of companies and can get to know them extremely well. In addition, they aren’t going to be around for the long-term the way that institutional investors are.

As a result, Clinton Group has a hands-on approach when trying to persuade a company, setting up meetings with the board and CEO, and giving them what often amounts to an “awkward” assessment.

“We’re willing to sit down and have the hard, adult conversation that’s a little too rare,” he said.

Editors: Cecile Daurat, Larry Reibstein