Cannon-Brookes shakes up AGL: Now what for Australia's biggest CO2 emitter

Cannon-Brookes shakes up AGL: Now what for Australia’s biggest CO2 emitter

“What’s a grok?” asked a shareholder at AGL’s 2022 annual general meeting at the Melbourne Recital Center on November 15, as those gathered grappled with the reality imposed on Australia’s biggest carbon emitter by Australia’s third richest person.

Grok is in fact a word invented by science fiction author Robert Heinlein for his 1961 novel Stranger in a Strange Land. “Groken” means to understand something intuitively.

Which probably can’t be said for how AGL’s leadership has acknowledged software billionaire Mike Cannon-Brookes’ ambition to lead Australia’s largest energy retailer in the transition to renewable energy.

At the meeting, Cannon-Brookes used the 11.3% stake he raised through his investment company Grok Ventures — plus proxies and support from other shareholders sympathetic to his cause — to reshuffle the company’s board.

Prior to the meeting, AGL had five directors, including Chair Patricia McKenzie. It now has four new independent directors – all nominated by Cannon-Brookes.

McKenzie and her other directors supported only one of those candidates — Mark Twidell, a renewable energy expert who works for Tesla Energy. The other three new directors are: Kerry Schott, former Chair of the Federal Energy Security Board; John Pollaers, Chancellor of Swinburne University; and CSR Director Christine Holman.

AGL’s new directors Christine Holman, Kerry Schott, John Pollaers and Mark Twidell.
Morgan Hancock/AAP

The existing board also suffered from outrage from a significant minority voice against its executive compensation plan as well as against AGL’s energy transition plan, which commits to going fossil-fuel free by 2035. For some, the plan was not ambitious enough. For others, the business case was unclear.

Shareholders shared

But as Cannon-Brookes’ forces swept the field, the same shareholder, who wondered about the meaning of “grok,” also wondered if the new directors would work for Cannon-Brookes or for AGL. So did others. The division was palpable.

Shareholders now seem almost caught up in a civil war.

On one side are those focused on sustainability and carbon emissions, who support Cannon-Brookes in its mission to get AGL to move away from fossil fuels faster. In May, although his takeover bid fell through, he successfully blocked AGL’s demerger plan, which he said would delay the sale.

Read more: Australia’s largest CO2 emitter caves in to Mike Cannon-Brookes – what now for AGL’s other shareholders?

On the other hand, there are those who are focused on returns and concerned about board capture.

These interests do not have to be mutually exclusive. A company can operate sustainably and be profitable at the same time. But their leadership must explain this and make the strategy clear, coherent and credible.

The board missed its chance

McKenzie spoke strongly about the need to transition to renewable energy. She said AGL’s transition plan must be “sensitive.” But there was a lack of focus on finances.

AGL Chair Patricia McKenzie at the company's 2022 Annual General Meeting.
AGL Chair Patricia McKenzie at the company’s 2022 Annual General Meeting.
Morgan Hancock/AAP

The directors have a duty to all shareholders to act in the best interests of the company. This requires directors to focus on ways to maximize shareholder wealth, but does not negate this in a sustainable manner.

New director John Pollaers came closest to articulating the challenge AGL faces. This is a time for strategic changes, he said. AGL had an opportunity to generate returns and find a path to profitable growth.

McKenzie and her fellow board members could have used the opportunity to demonstrate how important the transition to renewable energy is to AGL’s continued financial success, or to chart new avenues for wealth creation.

But they awkwardly tried to find a middle ground by promoting the clean energy transition without fully outlining the financial underpinnings until they were pushed: McKenzie finally noted that the transition had to be “reasonable” to be financially viable be.

Find a common vision

Instead of this vision, the questions revolved around the competence and record of the board.

Shareholders attended the meeting with AGL shares valued at A$7.70. That’s better than the $5.30 it was worth a year ago, but about 70% down from the $25.81 it was trading at five years ago.

The vote against the board’s compensation plan paves the way for further upheaval in the boardroom.

Under Australia’s “two strike” rule on executive compensation, a director’s compensation plan must be approved by at least 75% of shareholders. More than 25% resistance results in a strike. A second strike leads to a ‘spill resolution’ – a vote on whether all directors must stand for re-election.

Whether that happens depends on how successfully old and new directors can work together — something new director Christine Holman noted in her pitch to shareholders.

Read more: Despite private interests, the end of coal power is in sight

First they need to find a new CEO to replace Brett Redman, who resigned in April. A new CEO can bring clarity to AGL’s future priorities – but to do so, he or she must be mutually palatable.

If they can’t agree, AGL’s next shareholder meeting promises to be even more spectacular.

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