Southwest Airlines announced changes to its board of directors on Tuesday, including the planned departure of its executive chairman Gary Kelly, following a meeting with a hedge fund that has called for sweeping changes at the company.
The board announced the changes while expressing unanimous support for the airline’s chief executive, Bob Jordan, who, along with Mr. Kelly, has been the target of sharp criticism from the hedge fund, Elliott Investment Management. In a statement, the airline said its board “believes there is no better leader for Southwest than Mr. Jordan,” who becomes chief executive in February 2022.
“Bob has decades of proven track record and, most importantly, has what it takes to lead Southwest through significant transformation and usher in a new era of profitable growth, innovation and industry leadership,” said Mr. Kelly, who was chief executive. Before Mr Jordan took over, a letter to shareholders said.
Southwest presented its plan to Elliott at a meeting in New York on Monday. It was not clear whether the overhaul would satisfy Elliott, which owns about 11 percent of the company. Elliott has called for both Mr Kelly and Mr Jordan to step down and has sought to replace most of the directors on the company’s board.
Shares of Southwest were down about 3 percent in morning trading Tuesday.
“We are pleased that the board is beginning to recognize the degree of change needed at Southwest, and we look forward to joining with the rest of the directors to align on more needed changes,” Elliott said in a statement. “The need for thoughtful, deliberate change at Southwest is urgent, and we believe the highly qualified nominees we have put forward are the right people to stabilize the board and chart a new course for the airline.”
Mr. Kelly, who was the airline’s chief executive for nearly two decades before Mr. Jordan took over, said he plans to retire after the airline’s annual meeting next spring. Six other mostly longtime board members plan to resign after a meeting in November.
About half of the board’s 15 directors have been in their positions for three years or less. After the reform, that share will increase to 75 percent. The airline said its board would appoint four new members “in the near future” and consider candidates recommended by Elliott. After Mr. Kelly steps down, the Board will have 12 directors.
Elliott, who has a long history of getting big turnarounds at publicly traded companies, criticized Mr. Kelly and Mr. Jordan for their management of the company, and blamed them for the steep decline in Southwest’s stock price in recent years. He has called for greater oversight of the board and last month announced plans to nominate 10 new board members, a group that includes many former aviation executives.
But Mr. Kelly defended his and Mr. Jordan’s stewardship of the company, calling Southwest “arguably the most successful commercial carrier in the history of aviation.”
Among the four major US airlines, Southwest is the only company that has never sought bankruptcy protection, and it has remained profitable for almost its nearly 50-year history.
“Southwest’s profit streak was only interrupted by the pandemic, because even Southwest was not immune to Covid-19,” Mr Kelly said. “However, the years before the pandemic saw record returns to invested capital and shareholders in Southwest.”
The airline had already announced major changes in response to Elliott’s criticisms, including overhauling its unique boarding process in favor of assigned seating and adding red-eye flights and more premium options.
Mr Kelly also said on Tuesday that the board would establish a new committee to oversee corporate strategy and financial performance. Southwest plans to provide additional updates in a presentation to investors this month in Dallas.
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