Elliott lays out framework for change at Southwest in letter to shareholders

Elliott Investment Management, which manages funds that together have an investment representing an approximately 11% economic interest in Southwest Airlines, sent an open letter to the shareholders of Southwest. In its letter, Elliott laid out its framework for change at Southwest – a comprehensive solution that would address the company’s inadequate leadership and create a transparent and credible process for reinvigorating its business. Elliott stated that it has been engaging with Southwest but that it believes that, “so long as the jobs of Kelly remain sacrosanct – and they remain empowered to make every critical decision at the Company without proper oversight from a Board that has failed for years to hold them accountable – it is preferable to give shareholders a direct say on the question of who should be leading Southwest.” Further, Elliott took note of Jordan’s recent rhetoric, according to which, “the culture of Southwest, which has powered its success for half a century, now seems to solely depend on the continued employment of its two top executives … who happen to be Mr. Kelly and Mr. Jordan.” Elliott wrote, “As Southwest’s thousands of hard-working employees know, Southwest’s culture is much bigger than these two individuals – and this culture deserves better stewards.” “Instead of embracing responsible governance and a spirit of collaboration,” Elliott argued, “Mr. Kelly and Mr. Jordan have resorted to entrenchment tactics – so-called “poison pills,” one-off announcements of long-overdue changes, and a rushed, unilateral Board refreshment process that lacks legitimacy. This is not how company leadership demonstrates confidence in its plans and establishes credibility with shareholders; it is how failed corporate leaders attempt to preserve their own jobs and perquisites, despite the wishes of the company’s constituents.” “We have seen this movie before, and it rarely ends well, because there is no one more short-term-oriented at the expense of future value than a beleaguered CEO trying to preserve his or her job.” Elliott wrote. Elliott said that it plans to meet with Southwest’s representatives on September 9, and is hopeful that it finds “individuals on the Board willing to look past the personal interests of Mr. Jordan and Mr. Kelly in favor of what is best for Southwest and its many other constituents.” “In the absence of these leaders rising to the occasion,” Elliott said it is convinced that the next step will be for shareholders to have a direct say in the company’s future.