Shareholder takeover rocks AGL board
November 18, 2022
AGL Energy’s Board was overhauled at its recent AGM due to concerns over its climate risk management and a shareholder campaign by tech billionaire Mike Cannon-Brookes. AGL is Australia’s largest greenhouse gas emitter, and the voting results will place pressure on other large emitters to accelerate their decarbonisation plans.
In this article, Minerva’s Senior Stewardship Analyst Thomas Bolger examines the background and context for the shareholder vote.
AGM Voting Results
AGL’s AGM saw four shareholder-nominated director candidates – Mark Twidell, Kerry Schott, Christine Holman and John Pollaers – be elected to the Board, despite AGL only supporting Twidell’s appointment. The new directors were nominated by the Galipea Partnership, which holds 11.28% of AGL’s share capital. Galipea is an entity associated with Grok Ventures – the investment vehicle of Australian billionaire Mike Cannon-Brookes.
In addition, AGL received a first strike on its remuneration report and over 30% of the shareholder ballot dissented on the approval of its climate transition action plan.
The AGL Board overhaul and Engine No. 1’s successful shareholder campaign to secure director appointments to Exxon Mobil’s Board last year could be indicative of a new focus for climate shareholder activists seeking strategic change by seeking change of the directors who run companies.
Shareholder activism at AGL
The Board shakeup follows a build-up of shareholder activism, led by Cannon-Brookes, over AGL’s climate ambitions in recent years. To understand the vote, we need to go back to AGL’s announcement in June 2021 of its intention to undertake a demerger to create two energy businesses with separate listings on the Australian Securities Exchange.
Under the demerger proposal, AGL Energy’s retail and coal-focused power generation businesses would have been split into two entities, called Accel Energy Ltd and AGL Australia Ltd. The announcement led to several notable shareholder engagements, including two takeover attempts led by Cannon-Brookes’ consortium. These actions led to the withdrawal of the demerger, and AGL initiated a strategic review and Board renewal process with CEO Graeme Hunt, Chairman Peter Botten and non-executive directors Jacqueline Hay and Diane Smith-Gander stepping down.
In explaining its nominations, Galipea stated it considered that the existing Board was not up to the challenge of delivering on the decarbonisation opportunity and returning AGL to its leadership position in energy retailing and generation due to its small size and lack of diversity and skillset. Galipea also raised concerns with the slow pace of the Board’s renewal processes.
In response, the Board had argued that it would be unusual for a non-controlling shareholder to nominate four directors, the appointments would not add to the overall effectiveness of the Board and as AGL’s constitution limits the Board size to 10 directors it would limit its ability in appointing future directors. Additionally, whilst AGL initially raised independence concerns with the candidates they later conceded that they were not affiliated with Grok Ventures.
The resounding victory indicates that shareholders disagreed with the Board. AGL has faced challenges, with a decline in share price and abandoned restructuring, indicating shareholders felt additional Board refreshment was necessary in order to deliver on the decarbonisation and strategic challenges facing AGL. Although, some shareholders have raised concerns over potential board capture and the implications of focusing on divestment and closure over shareholder returns.
AGL’s 5-year share price: climate risk is financial risk
Remuneration and Say on Climate
In regard to the “first strike” on its remuneration report, AGL stated that the result was due to a couple of large shareholders voting against it. One potential shareholder concern may have related to the retention awards granted to executives in connection to the demerger planning.
Shareholders would have welcomed the strengthened climate transition action plan (CTAP) which contained an earlier closure date for the Yang A Power Station and an intention to develop a decarbonisation pathway to achieve net zero for Scope 3 greenhouse gas emissions by 2050. However, the resolution still received significant dissent which again is in part due to Grok Venture opposing the plan.
In developing the CTAP, AGL commissioned ACIL Allen to undertake economic modelling of four different decarbonisation scenarios:
AGL adopted Scenario III for the CTAP stating that whilst “Scenario IV may be feasible within scenario modelling, the level of new investment to achieve this outcome is materially more ambitious than under a well below 2 degree scenario, and would require a significant shift in government policies to provide new incentives for low-emissions generation and supporting infrastructure such as transmission, storage, distributed energy and demand-side resources, and technologies to provide essential system services.”
Shareholders may have been concerned with the current 1.8°C transition plan and lack of Scope 3 pathway in light of AGL’s position as Australia’s largest emitter. AGL intends to provide shareholders with a non-binding advisory vote every three years and in the event of material changes within the three-year timeframe, a revised plan will be put to the vote at the following AGM. In light of the new composition of the Board and pending appointment of a new CEO, there may be a new strategic review with implications for the CTAP.
Last Updated: 18 November 2022