In a significant move to address shareholder concerns and improve its corporate governance structure, Southwest Airlines has announced a board shakeup that includes the imminent retirement of Executive Chairman Gary Kelly. This decision comes in the wake of increasing pressure from activist shareholders, particularly Elliott Investment Management, who have been vocal about the need for strategic changes within the airline's leadership.
Kelly's retirement is set to take effect immediately after the company's 2025 annual meeting, a development underscored in his correspondence to shareholders where he emphasized the importance of appointing new independent directors to the board. He stated, "Our board will decide a new chair at that time," signaling a pivotal transformation in Southwest's governance. Additionally, the airline revealed plans to appoint four new independent directors soon.
Notably, Kelly mentioned that among these new appointees, up to three could be nominees from Elliott, reflecting a willingness to engage constructively with the activist investor. This announcement comes on the heels of a challenging trading session for Southwest Airlines, with shares dropping by 3.8% on the day of the news release, further highlighting the company's need to address its operational performance and governance structures. The relationship between Southwest and Elliott Investment Management has been characterized by tension, especially after Elliott communicated their intention to nominate a slate of ten independent directors.
The activist firm has called for substantial changes, including the termination of the executive chairman role, and requested that Chief Executive Bob Jordan step aside. Despite these calls for change, Southwest's board has reaffirmed its unanimous support for Jordan, emphasizing that his leadership is crucial for the execution of their transformative business plan.
Kelly noted in his letter that the current executive leadership team is "vital to executing the transformative business plan," reinforcing their commitment to steady leadership during this transitional phase. As part of the upcoming board modifications, several directors, including Lead Director William Cunningham and other notable members such as David Biegler, Veronica Biggins, Senator Roy Blunt, Thomas Gilligan, and Jill Soltau, will also be stepping down this November.
Following these departures, the board size will be adjusted to 13 members, with further reductions anticipated once Kelly officially retires in 2025. In a statement released separately, Elliott characterized the resignations from the Southwest board as "unprecedented" and expressed satisfaction with the company's budding recognition of the significant changes necessary for its future.
The activist investor had previously issued a warning regarding a potential proxy fight if Southwest did not show signs of cooperation in implementing these vital changes. Currently, Southwest Airlines operates under a stock price of $28.62, reflecting a decrease of $1.11 or a total percent change of -3.73.
This financial context adds another layer of urgency for the airline’s leadership to align with shareholder interests and address governance issues that have arisen in recent months..