An activist from Southwest Airlines threatens to launch a proxy battle for new management.

• Southwest's board was informed by Elliott that, unless there was a significant shift in attitude, it intended to grant shareholders more control over leadership changes at the airline.
• The activist proposed that a special meeting of shareholders be held, which is a power that big shareholders possess at the airline.
• Bob Jordan and Gary Kelly are being targeted for removal by Elliott due to the airline's poor performance and lack of progress.

Elliott Management announced on Monday that it plans to launch a proxy battle to push for changes at the company unless management agrees to negotiate, stating that the poison pill and board expansion measures taken by the company are "entrenchment tactics."

Elliott, in its letter to Southwest's board, stated that it was open to collaboration but that the board had taken steps to limit Elliott's influence. The activist is seeking the removal of CEO Bob Jordan and executive chairman Gary Kelly due to poor performance and a toxic corporate culture.

Elliott and its partners, John Pike and Bobby Xu, stated that Elliott planned to act quickly to allow shareholders to have a direct say in the required leadership changes. A proxy fight would be costly and difficult for Elliott and Southwest Airlines.

Elliott, as a big shareholder in Southwest, has the ability to call for an extraordinary shareholder meeting under the company's bylaws to vote on directors or other proposals.

On the same day that Southwest announced the addition of billionaire airline entrepreneur Rakesh Gangwal to its board and just days after the company adopted a poison pill limiting shareholders to a 12.5% stake in the airline, Elliott revealed it holds an 11% interest in Southwest, making it one of the largest beneficial owners.

Numerous conversations with investors and stakeholders were cited by Elliott in support of leadership change at the airline.

"Pike and Xu wrote that Elliott is still dedicated to giving them a clear option between the current management and experienced airline executives who can restore Southwest to its position as a top industry leader."

The activist portrayed the poison pill as a "defense mechanism for inadequacy and an offensive weapon for nothing but the fees of consultants," which underscored a fundamental principle of its campaign for reform. Elliott views insular management culture as hostile to external perspectives.

Gangwal's addition to the board is a deliberate step in the "deliberate" process of board refreshment, as Southwest has described the poison pill as a fiduciary obligation, given Elliott has indicated that it plans to grow its stake.

Shareholders typically approve board nominees and changes to a company's bylaws or compensation packages during annual meetings without much opposition. However, activist investors may launch proxy fights to push for changes in a company's leadership or operations.

Rather than risk a proxy battle with Elliott, the activist investor, companies often settle with him. For instance, when Elliott nominated a slate of directors at Salesforce, the company addressed his concerns through cost-cutting, operational changes, and a strong earnings report. As a result, Elliott withdrew his rival slate.

A Southwest spokesperson was not immediately available for comment.