Southwest Airlines has recently announced plans to overhaul its board of directors in an effort to avoid a proxy fight with activist firm Elliott Investment Management. The company revealed that six out of its 15 board members will step down at the upcoming board meeting in November. Additionally, board chairman Gary Kelly, who has been with Southwest since 2004, will be stepping down after the company’s annual meeting next spring. Kelly, who has been serving as the board chairman since 2008, had initially planned to continue in this role until 2026. However, pressure from Elliott Investment Management, which acquired an 11% stake in the airline in June, led to his decision to step aside sooner than anticipated.
Elliott Investment Management has been a driving force behind the changes at Southwest Airlines, pushing for the removal of Kelly and other long-tenured board members. The firm has criticized Southwest’s leadership for declining margins in recent years compared to its competitors and a plummeting share price. Elliott has also raised concerns about the board’s close ties to Kelly and CEO Bob Jordan, advocating for a more diverse and experienced group of directors. In response to Elliott’s demands, Southwest has agreed to appoint four new board members, with up to three of them coming from a list of 10 nominees proposed by the activist firm.
Despite the mounting pressure from Elliott Investment Management, Gary Kelly expressed his full support for CEO Bob Jordan in a letter to Southwest shareholders. Kelly praised Jordan’s extensive experience in the aviation industry and his ability to lead the airline through a period of transformation and growth. However, Elliott has persistently called for Jordan’s ouster, indicating that the proxy fight may continue unless further changes are made within the company.
The ongoing discussions between Southwest Airlines and Elliott Investment Management have underscored the need for significant changes within the company. Southwest has already made substantial modifications to its commercial strategy, including the introduction of extra-legroom seats and transitioning from open-seating to assigned seating. In addition, the board of directors will undergo a major transformation, reducing its size from 15 to 12 members and decreasing the average tenure of board members from 7.3 years to 2.5 years. Long-standing board members such as lead independent director Bill Cunningham and David Biegler will step down in November, marking the end of their lengthy tenures at the company.
Southwest Airlines’ decision to revamp its board of directors signals a willingness to address shareholder concerns and adapt to the evolving landscape of the aviation industry. By acknowledging the need for change and embracing new leadership, Southwest is poised to navigate the challenges ahead and position itself for sustainable growth and success.