The proxy team at Orient Capital recently completed a historic win for their client Grok Ventures, the private investment firm of Mike Cannon-Brookes. Grok undertook an Activist campaign against AGL Energy, initially to prevent the planned demerger of AGL and subsequently to drive Board renewal within the company.
In conjunction with Canadian Asset Manager Brookfield, Grok made a takeover approach for AGL in early 2022 which was swiftly rejected by the AGL Board. Undeterred, Grok returned to take up over an 11% stake in AGL, making the firm the largest shareholder in the company and then sought shareholder support to derail the demerger.
Grok believed the demerger would destroy shareholder value and delay the closure of AGL’s remaining coal-fired power plants. They were motivated by the view that AGL needed to remain intact to take advantage of the economic opportunity presented by decarbonisation.
A multipronged shareholder engagement campaign ensued with a progressive shareholder communication strategy devised to actively engage key investors, beneficial owners and proxy advisors, with an in-depth solicitation campaign targeting 40,000 retail investors.
The campaign gained significant support from both the institutional and retail investor base resulting in the demerger being defeated. The Scheme was adjourned two weeks prior to the meeting with AGL knowing they did not have sufficient shareholder support. The AGL Chairman, CEO and two Directors subsequently resigned due to the damning result.
Grok secured ongoing dialogue with the AGL Board but was unsatisfied with the strategic direction. This included seeking fresh skills and experience to help AGL lead Australia’s renewable energy transition. They nominated four new candidates to the board of AGL to be considered by shareholders at the 2022 AGL Annual General Meeting.
Another substantial shareholder engagement campaign was launched to focus on gaining support for Board renewal. The proxy campaign encompassed shareholder analysis, proxy advisor outreach, institutional investor engagement and a retail solicitation program via email, SMS, print, and a mammoth outbound engagement component with over 75,000 calls.
Overall, three of the nominated directors were opposed by AGL, with the Board recommending other shareholders vote against their election. Shareholders were left to vote and decide who would be elected. With all new board nominations being approved by shareholders at the AGM, the campaign was a resounding success.
Activism is gaining momentum, particularly around companies' climate and net zero commitments. Public perceptions of ESG and the approach of activists are evolving. With concise messaging and sustained engagement, Grok was able to capture the hearts and minds of retail investors.
Several investment managers and passive investors were willing to publicly take a stance in AGLs high profile proxy battle. Superfunds and pension funds were also keen on influencing voting control on these matters. For example, Hesta opposed the AGL Demerger and encouraged Board renewal. Hesta has also recently put some Boards on notice about the discrepancy between their strategic targets, and a pathway to alignment with the goals of the Paris Agreement. Hesta has increased its 2030 target for emissions reduction to 50%, up from 33%.
There have been recent examples of other stakeholder activist groups such as the Australian Centre for Corporate Responsibility (ACCR) and Market Forces putting forward ‘Say on Climate’ shareholder resolutions at AGMs. These proposals were only advisory. We are now seeing several corporates proactively include resolutions for their Climate Transition Plans and asking shareholders to vote. There is an increasing requirement for corporates to stay engaged with key investors, beneficial owners and proxy advisors on this front.
Grok’s campaign was one of the largest most successful activist campaigns in Australian corporate history and is evidence, for other major Australian companies, that Boards will be held to account if they fail to take environmental, social and governance issues seriously.