Southwest Airlines recently announced a significant overhaul of its board of directors to fend off a potential proxy fight. In an effort to address growing shareholder concerns and pressure from activist firm Elliott Investment Management, six out of 15 board members are set to step aside at the upcoming board meeting in November. Additionally, board chairman Gary Kelly, who has been at the helm since 2008, will be stepping down after the company’s annual meeting next spring, earlier than he had originally planned.
The decision for such a massive shift in the board came after months of pressure from Elliott Investment Management, which acquired an 11% stake in the airline in June. The firm has been vocal about its dissatisfaction with Southwest’s current leadership and has insisted on significant changes to ensure the company’s future success. The recent meeting between Elliott and Southwest board representatives resulted in the agreement to bring on four new board members, with the possibility of up to three being nominees put forward by Elliott.
While Gary Kelly expressed his support for CEO Bob Jordan and his ability to lead Southwest through a transformation, Elliott has been calling for Jordan’s removal. The firm has criticized Southwest’s leadership for declining margins, lagging behind competitors such as United, Delta, and American, and failing to adapt to changing consumer preferences. Elliott’s slate of board candidates includes individuals with extensive experience in the airline industry, including former CEOs of other major airlines.
Southwest Airlines has made notable changes to its board composition in recent years, with eight new directors appointed since 2021 and five retiring. The concessions made by the company during the meeting with Elliott will lead to a significant reduction in the board’s size, from 15 members to 12, and a decrease in the average tenure of board members from 7.3 years to 2.5 years. Long-serving members, such as lead independent director Bill Cunningham and David Biegler, will be stepping down in November.
In addition to the changes in board leadership, Southwest Airlines has also announced significant shifts in its commercial strategy. The airline plans to introduce extra-legroom seats and transition from its traditional open-seating process to assigned seating. These changes are part of the company’s efforts to adapt to evolving consumer preferences and remain competitive in the market.
Southwest Airlines’ decision to revamp its board of directors reflects a larger trend of corporate governance changes driven by shareholder activism. The upcoming reshuffle in leadership, combined with strategic shifts in the company’s commercial strategy, signals a new era for Southwest Airlines as it navigates through a rapidly changing industry landscape. Only time will tell if these changes will lead to the desired outcomes and position the airline for long-term success.