Mike Cannon-Brookes shakes up AGL's board of directors. What's next?
Mike Cannon-Brookes has succeeded in overtaking AGL's board of directors, and that's just the beginning, writes UNSW Business School's Mark Humphery-Jenner
“What is a grok?” asked a shareholder at AGL’s 2022 annual general meeting at the Melbourne Recital Centre on November 15, as those assembled struggled with the reality being forced on Australia’s biggest carbon emitter by Australia’s third-richest person. Grok is, in fact, a word invented by science-fiction writer Robert Heinlein for his 1961 novel Stranger in a Strange Land. To “grok” means to understand something intuitively.
This is not something likely to be said about how AGL’s leadership has appreciated the ambition of software billionaire Mike Cannon-Brookes to have Australia’s biggest energy retailer lead the nation’s transition to renewable energy.
At the meeting, Cannon-Brookes used the 11.3 per cent shareholding he has collected through his investment company Grok Ventures – plus proxies and support from other shareholders sympathetic to his cause – to reshape the company’s board. Before the meeting, AGL had five directors, including chairperson Patricia McKenzie. It now has four new independent directors – all nominated by Cannon-Brookes.
McKenzie and her other directors endorsed just one of those nominees – Mark Twidell, a renewable energy expert who works for Tesla Energy. The other three new directors are Kerry Schott, past chair of the Federal Energy Security Board; John Pollaers, Swinburne University’s chancellor; and CSR director Christine Holman.
The existing board also suffered the indignity of a significant minority vote against its executive compensation plan, as well as against AGL’s energy transition plan, which commits to quitting fossil fuels by 2035. For some, the plan was not ambitious enough. For others, the business case was unclear.
Yet as Cannon-Brookes’ forces swept the field, the same shareholder wondering about the meaning of “grok” also wondered whether the new directors would work for Cannon-Brookes or for AGL. So too, did others. The division was palpable.
Shareholders now seem almost caught in a civil war. On one side are those focused on sustainability, and carbon emissions, who support Cannon-Brookes in his mission to see AGL divest fossil fuels quicker. Though his takeover bid failed, in May, he successfully blocked AGL’s demerger plan, which he argued would delay divestment.
On the other side are those focused on returns and concerned about “board capture”. These interests need not be mutually exclusive. A company can operate sustainably and be profitable at the same time. But its leadership must explain this and make the strategy clear, cohesive and credible.
Board missed its opportunity
McKenzie talked strongly about the need to move towards renewable energy. She said AGL’s transition plan must be “sensible”. But there was a lack of focus on financials.
Directors owe a duty to all shareholders to act in the corporation's best interests. This requires directors to focus on opportunities to maximise shareholder wealth but doesn’t negate doing so sustainably. New director John Pollaers came closest to articulating the challenge facing AGL. This was a time for strategic change, he said. AGL had an opportunity to generate returns and find a path to profitable growth.
McKenzie and her fellow directors could have used the opportunity to show how the renewable energy transition is necessary for AGL’s ongoing financial success or provide new avenues for wealth creation. But they awkwardly tried to find a middle ground, promoting the clean energy transition without fully outlining the financial underpinnings until pressed: McKenzie ultimately noted the transition must be “reasonable” to be financially viable.
Finding a shared vision
In lieu of this vision, questions revolved around the board’s competence and record. Shareholders went into the meeting with AGL’s stock worth A$7.70. That’s better than the $5.30 it was worth a year ago but about 70 per cent less than the $25.81 it traded at five years ago.
The vote against the board’s executive compensation plan sets the scene for further boardroom upheaval. Under Australia’s “two-strike” rule on executive pay, at least 75 per cent of shareholders must approve a board’s compensation plan. More than 25 per cent of opposition 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 occurs will depend on how successfully old and new directors can work together – something incoming director Christine Holman noted in her pitch to shareholders. First, they must find a new chief executive to replace Brett Redman, who resigned in April. A new CEO can give clarity over AGL’s future priorities – but to do so, he or she will need to be palatable to both sides.
If they can’t find agreement, then AGL’s next meeting of shareholders promises to be even more spectacular.
Mark Humphery-Jenner is an Associate Professor in the School of Banking & Finance at UNSW Business School. He has been published in leading management journals, and his research interests include corporate finance, venture capital and law. For more information, please contact A/Prof. Humphery-Jenner directly. A version of this post first appeared on The Conversation.