SOUTHWEST AIRLINES ANNOUNCES NEXT PHASE OF COMPREHENSIVE BOARD REFRESHMENT
PR Newswire
DALLAS, Sept. 10, 2024
Six Directors to Retire in November; Gary Kelly to Retire Immediately After 2025 Annual Meeting
Board Intends to Appoint Four New Independent Directors, Potentially Including Candidates Proposed by Elliott Investment Management L.P., in Near Term
Board Eliminates Executive Committee Structure and Creates New Finance Committee; New Committee Chairs and Lead Independent Director to be Named
Board Reiterates Support for Bob Jordan as CEO
Southwest Airlines Intends to Continue Engagement Toward a Collaborative Resolution with Elliott Investment Management L.P.
DALLAS, Sept. 10, 2024 /PRNewswire/ -- Southwest Airlines Co. $(LUV)$ (the "Company") today announced the next phase of the Board's transformation, including significant ongoing refreshment. The Board presented its plans at a meeting yesterday and invited Elliott Investment Management L.P. ("Elliott") to participate in refreshment efforts and other corporate governance changes. Southwest Airlines intends to continue its constructive engagement with Elliott toward a collaborative resolution in the near term.
Southwest Airlines Executive Chairman Gary Kelly also is sending a letter to Shareholders today detailing these changes, which can be viewed here, highlighting the following:
Board Composition and Refreshment
Executive Chairman Gary Kelly has announced his intention to voluntarily retire from the Board and his Executive Chairman position effective immediately after the 2025 Annual Meeting. Six current Directors have informed the Board of their plans to voluntarily step down immediately after the Company's regularly scheduled Board meeting in November:
-- David Biegler (Compensation Committee Chairman) -- Veronica Biggins (Nominating and Corporate Governance Committee Chair) -- Senator Roy Blunt -- Dr. William Cunningham (Lead Director) -- Dr. Thomas Gilligan (Audit Committee Chairman) -- Jill Soltau
The Southwest Airlines Board deeply appreciates the service of the outgoing Directors, each of whom offered unique experience and expertise that benefitted all Shareholders. The Company wishes them all the best in their future endeavors.
The Board anticipates appointing four new independent Directors in the near future. In addition to considering Elliott's Director candidates, the Nominating and Corporate Governance Committee has engaged a leading independent search firm to identify and review strong candidates who can bring complementary skills and experience to lead the airline forward.
The airline has added or appointed eight highly qualified Directors over the past three years, including the recent appointment of Rakesh Gangwal, co-founder of India's largest airline, InterGlobe Aviation (IndiGo). With these changes, the Company expects the number of Directors serving on the Board to be reduced to 13 following the regularly scheduled November Board meeting and to 12 following the 2025 Annual Meeting. Inclusive of all of these changes, 75% of the airline's Directors will have three years or less tenure on the Board as of the 2025 Annual Meeting and the average Board tenure will be approximately 2.5 years, reduced from 7.3 today.
Corporate Governance Changes
Consistent with feedback from Shareholders, the Board has eliminated the Executive Committee structure and created a new Finance Committee with a mandate focused on assisting the Board with oversight of financial, operational, and business plans and strategies, major transactions, capital structure and capital allocation priorities, among other duties. In connection with the planned Director retirements in November and other Board committees being reconstituted at that time, the Finance Committee also will be reconstituted to include both new and incumbent Directors with relevant strategy and financial expertise. The Board will name a new Lead Director and new Committee Chairs for each of the Audit, Compensation, and Nominating and Corporate Governance Committees at that time as well.
The comprehensive changes announced today reflect feedback from a variety of Southwest Airlines Shareholders collected through direct engagement by the Board and build upon deliberate actions by the Board to embrace fresh perspectives. To supplement the Board's oversight, the Company has brought in outside experts and consultants who have provided independent scrutiny and comprehensive analyses of the plan, including former CEO of Spirit Airlines and AirTran Airways, Robert Fornaro.
These moves are intended to further strengthen the Board's ability to provide effective oversight and to hold Management accountable as it continues to execute its strategic plan.
Board Confident in CEO Bob Jordan and Committed to Holding Management Accountable for Delivering Results
Southwest Airlines' Board is confident that there is no better leader than Bob Jordan to successfully execute Southwest Airlines' robust strategy to evolve the airline and enhance sustainable Shareholder value. Jordan is a 36-year industry veteran who has led the Company through some of its most turbulent times, while consistently driving transformational initiatives and innovation.
Over Jordan's tenure at the Company, he has led the acquisition and integration of AirTran Airways; was instrumental in the development of Southwest's e-commerce platform; launched a new and highly successful Southwest Airlines Rapid Rewards$(R)$ program; oversaw a wholesale refresh of the Southwest Airlines brand; led the expansion of the route network domestically and introduced international flights and, during the height of the pandemic, led efforts around voluntary retirement and leave programs that were critical to maintaining Southwest Airlines' financial strength and sustainability.
Jordan is implementing intentional changes to transform the business, meet evolving Customer preferences, enhance the Customer Experience, further modernize the airline, and drive Shareholder returns. During his tenure as CEO, Jordan has been the visionary and key driver behind the review and development of the commercial initiatives outlined at the airline's second quarter financials and made substantial improvements to the airline's operational performance, all with a commitment to driving improved financial performance. Introducing leadership change in the middle of Southwest Airlines' largest transformation to-date would present significant risk to the Company and its Shareholders.
The Board has high expectations for Jordan and the executive leadership team and will continue to hold them accountable for delivering results.
BofA Securities and Morgan Stanley & Co. LLC are acting as financial advisors to Southwest Airlines; Vinson & Elkins L.L.P. and Kirkland & Ellis LLP are acting as legal advisors.
The following is the full text of Southwest Airlines Executive Chairman Gary Kelly's letter to Shareholders:
September 10, 2024
Dear Southwest Shareholders,
I've had the great honor and privilege to serve as an Employee and Officer of Southwest Airlines for the past 38 years. Throughout that time, I have been committed to communicating with all of our constituents with open, honest, and transparent updates. This letter is among the most important.
Yesterday, two of our independent Directors and I met with Elliott Investment Management at its New York office. Our objective was to meet, in person, and commence a productive dialogue, which I believe we successfully achieved. We have been committed to engaging constructively with Elliott since its initial announcement of its investment in Southwest on June 10 and have solicited feedback from a range of other Shareholders on the issues Elliott raised in its presentation and other public communications. In our meeting with Elliott yesterday, 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, and I have outlined below. Before I do so, however, I offer a brief perspective.
Southwest is unquestionably the most successful commercial carrier in the history of aviation. All the credit goes to the People of Southwest and their strong Culture. From my seat since joining in 1986 as Controller, the Company's value has grown 60-fold. It had an unprecedented, uninterrupted profit streak of 47 years -- despite wars; recessions; oil price spikes; 9/11; the Great Recession, and all along, an airline environment so brutally competitive that every major airline in existence in 1986 other than Southwest is either gone or has gone bankrupt. Southwest's profit streak was only interrupted by the pandemic, as even Southwest was not immune to COVID-19. However, the years preceding the pandemic saw Southwest producing record returns on invested capital and to Shareholders. Since I stepped down as CEO in 2022, Southwest has continuously strived to uphold this track record, while maintaining our passion to serve our Customers and care for our Southwest Family. Southwest has shown, for more than 53 years, that these endeavors are not mutually exclusive. In fact, they work in harmony.
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