Christine Boynton September 10, 2024
Former CEO of Southwest Airlines Gary Kelly speaks during a press conference at Southwest Airlines headquarters on April 17, 2018 in Dallas, Texas.
Credit: Stewart F. House / Getty Images
Executive Chairman Gary Kelly is among seven board members retiring from Southwest Airlines, to make way for new leadership.
The carrier’s announcement comes the day after meeting with its newest large activist investor, Elliott Investment Management, which has been pushing for change at the top. Southwest’s shakeup stopped short of its CEO, Robert Jordan, in whom the board has unanimously expressed continued confidence.
“Now is the time for change,” Kelly said in a Sept. 10 letter to shareholders. “It’s time to shake things up, not just stir them a bit… We know that changes are required to some of our historic business practices. We know we will need to continually bring in new talent – in leadership and on the board. We know we will need to continue to invest and transform. All that is underway.”
Since announcing its stake in June, Elliott has criticized Southwest’s performance and leadership and the airline has previously called discussions between the two one-sided, with the investor conditioning any serious discussions on an immediate CEO change. But describing its Sept. 9 meeting with Elliott as productive, Kelly noted, “we shared a specific framework to address its concerns about corporate governance and performance, and we are continuing to engage constructively toward a collaborative resolution in the near term. In the meantime, it is important that we not delay the meaningful board refreshment and corporate governance changes already underway, which we discussed with Elliott.”
Kelly will retire at the airline’s 2025 annual meeting in the spring, while six directors will step down at a regularly scheduled board meeting this November: David Biegler (Compensation Committee Chairman); Veronica Biggins (Nominating and Corporate Governance Committee Chair); former U.S. Senator Roy Blunt; Dr. William Cunningham (Lead Director); Dr. Thomas Gilligan (Audit Committee Chairman) and former JCPenney CEO Jill Soltau. In the “near future,” Southwest expects to appoint four new independent directors, giving due consideration to up to three of the 10 candidates previously proposed by Elliott for the open slots. Those changes would bring the board from its current 15 members to 12 following the annual meeting in 2025 and reduce average tenure to approximately 2.5 years from 7.3. The carrier has already added eight new independent directors since late 2021, while five have retired.
Welcoming Southwest’s announcement, Elliott called the scale of resignations based on shareholder feedback unprecedented, in its experience.
“We are pleased that the board is beginning to recognize the degree of change that will be required at Southwest, and we hope to engage with the remaining directors to align on the further necessary changes,” it said in a statement. Elliott in recent weeks has met the share threshold required to call a special meeting, through which it has suggested a vote could be held on new board members. “The need for thoughtful, deliberate change at Southwest remains urgent,” said Elliott, expressing confidence in nominees it has publicly proposed.
Acknowledging the post-pandemic years as having been particularly challenging – with soaring costs and capacity contributing to a disappointing performance – Kelly said Southwest began evaluating its strategy in 2023, before announcing sweeping changes in July. Its board refresh now follows feedback from a variety of shareholders, he noted in the letter. Based on that feedback, Southwest has also eliminated its executive committee structure and created a new finance committee on the board, which will comprise both new and incumbent directors with relevant strategy and financial expertise.
Outside experts and consultants have supplemented board oversight, providing independent scrutiny on the company’s go-forward plan, said Kelly, including former CEO of Spirit Airlines and AirTran Airways, Robert Fornaro. Kelly has served as Southwest’s board chairman since co-founder Herb Kelleher retired in 2008, relinquishing his CEO role to Jordan in early 2022 while at the time announcing his intent to serve as executive chairman at least through 2026.
A new chair will be appointed upon Kelly’s departure at the airline’s annual meeting in spring 2025.
“The next generation is more than ready to take the mantle of leadership and is already executing the plan that continues to build on our legacy of success,” Kelly said. “I had intended to consider this next year as part of our continuing efforts to refresh the Board, but I’ve since decided it is more important to expedite the plan in an effort to put this governance debate behind us and allow Bob and his team to focus exclusively on running the airline and restoring our industry leading performance.”
The Dallas-based airline will host an investor day on Sept. 26 and is scheduled to report third quarter earnings on Oct. 24.
Christine Boynton is a Senior Editor covering air transport in the Americas for Aviation Week Network.