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Ruby:

From Schwartz Media, I’m Ruby Jones. This is 7am.

Last week, something extraordinary happened at Australia’s largest climate polluter, AGL.

Having failed in his attempt to take over the company and begin forcing it into a faster renewable transition, Mike Cannon-Brookes succeeded in staging what amounts to an internal coup.

At the company’s annual general meeting, Cannon-Brookes managed to get four new directors onto the AGL board. He did so with only an 11 per cent stake in the business.

Today, national correspondent for The Saturday Paper Mike Seccombe on what’s next for the tech billionaire and the dirty company he wants to clean up.

It’s Tuesday, November 22.

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Ruby:

So, Mike, the Australian billionaire Mike Cannon-Brookes has made this extraordinary play to transform Australia's biggest polluter, AGL. Last week his candidates seized control of the board of directors. But before we get to that, can we go back to the way in which Cannon-Brookes entered into this corporate fight with AGL? Where does it all begin?

Mike:

Yeah, sure. So Mike Cannon-Brookes, as I guess most people know by now, is the founder of the technology company Atlassian. You know, he's a seriously smart tech dude and he's worth several billion dollars as a result. And he's also very passionate about climate issues.

Archival tape -- Mike Cannon-Brookes:

Look, climate change is affecting the Australian economy. It's affecting businesses, it's affecting individuals, our employees. You saw that with millions and millions….

Mike:

And he took an interest in the energy producer and retailer AGL because AGL was just the dirtiest company in Australia. I mean, simple as that.

Archival tape -- ABC News:

AGL, Australia's oldest energy company and the nation's worst polluter.

Mike:

Around 8% of all Australia's greenhouse emissions come from AGL.

Archival tape -- ABC News:

But then along came Australia's wealthiest green campaigner.

Mike:

So they're definitely a company ripe for reform in that regard.

Archival tape -- Sky News:

Mike Cannon-Brookes is pushing to accelerate the closure of major coal-fired power stations. He's also promised to get AGL out of coal.

Mike:

And they've long resisted transitioning away from fossil fuels and in fact in recent years they were sort of moving the other way, getting more into them. And this was happening, of course, even as solar and wind became cheaper and cheaper. And the result is that AGL started losing, you know, large amounts of shareholder value.

Archival tape -- ABC News:

AGL has been a truly miserable investment, down from $28 five years ago to a low of about $5 a share last year, a fall of 80%. There aren't many worse than that.

Mike:

And that's simply because the company failed to foresee the impact that the shift to renewables would have on companies that generate electricity through the burning of fossil fuels, you know, particularly coal. So in all that decline in value has cost shareholders a huge amount. AGL has not been well run, I guess is the bottom line there.

Ruby:

And alarm bells must have been going off inside AGL as that happened because shareholders wouldn't have been happy with the prospect of losing billions of dollars of value. So how did the AGL leadership try to, to fix this problem, the problem being that they hadn't anticipated the growth of renewables?

Mike:

Well, you're quite right, they didn't anticipate it and in fact they were quite open about it, you know, very belatedly, but they were quite open about it. Peter Botten, who was the chair of AGL at the time, admitted to shareholders in July last year. And he said, and I'm quoting him here, there is no doubt that the winds of change in the electricity market have been substantially faster than many people have anticipated. And he continued, I certainly didn't see quite that level of change. And he went on to say that nor had the board. So that was a pretty major mea culpa.

Anyway, the leadership of AGL then came up with the plan, and that was to split its business in two. One side of the business would be focussed on energy retailing and that side would be carbon neutral. And the other side of the business or the other new company would hold all of the dirty energy generation assets, the coal and gas power stations. And, you know, climate activists, including Cannon-Brookes, didn't like the plan because they saw it as making it much harder to actually stop emissions from those coal and gas stations. I might add. Market analysts started calling the two companies, you know, CleanCo and ShitCo, I think was what one of them told me so. So they argued that, you know, it was not good in a climate sense.

Anyway, that all led to Cannon-Brookes launching quite an audacious bid back in February this year to actually buy AGL outright so that this splitting of the company might be stopped.

Ruby:

Okay. But that bid back in February, that was rejected, wasn't it? So why was it shot down? And how is it that Cannon-Brookes has managed to persevere with his plans at AGL, given that he wasn't able to buy the company?

Mike:

Well, well, you're quite right. The first offer was rejected by the Board of AGL as being too low.

Archival tape -- 7.30:

The AGL board rejected the offer, saying it undervalued the company.

Mike:

There was a second offer that also was knocked back.

Archival tape -- Sky News:

The company received an increased offer worth nearly 9 billion dollars, but AGL knocked backed the offer after holding emergency discussions…

Mike:

And I might say throughout all of this, of course, the previous government ran interference.

Archival tape -- Scott Morrison:

Now in relation to the bid being put up.

Mike:

Warning that they might stop the takeover.

Archival tape -- Scott Morrison:

Let me be really clear about something. We need to ensure that our coal fired generation of electricity runs to its life because if it doesn't, electricity prices go up, they don't go down.

Mike:

So certainly the Morrison Government was definitely backing the dirty plan. But anyway, you're right, it got knocked back twice and Cannon-Brookes said he had given up on the takeover and the Canadian investment group with whom he was in a consortium, well, they walked away, but that wasn't the end of the matter. It didn't put him off. And the way he's managed to acquire power over AGL despite this is quite fascinating, I think.

What he did was he bought an 11% stake in AGL which made him, I think, the biggest individual shareholder but still 11% isn't a lot. And this 11% of course gave him voting power in the company, but he also managed to convince enough of the other shareholders to vote against it as well, that it became clear that it was going to crash. You know, this was not going to go through.

So this was quite extraordinary. You know, about a month after Cannon-Brookes announced his plan to stop the demerger, AGL announced that it was scrapping the whole plan.

Archival tape -- Sky News:

We've got some breaking news for you now. Australia's largest electricity provider, AGL, has confirmed that it is dumping its long running plans to demerge its coal focussed generation business. So basically it's been thrown into crisis.

Mike:

Subsequent to that, the chair of the board resigned. So did AGL CEO, so did two other board members. So, an absolute bloodbath at AGL and a big win for Mike Cannon-Brookes.

Ruby:

We’ll be back in a moment.

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Ruby:

So, Cannon-Brookes has made some major inroads at AGL. He's managed to to stop the demerger and there's also now been this wave of resignations at the company. So what does that mean for the company and what does the makeup of the board look like now?

Mike:

Well, the board looks very different now as of the annual general meeting of AGL shareholders last week. So Mike Cannon-Brookes, with an 11% stake, wanted to shake up the board.

Archival tape -- Patricia McKenzie:

Welcome to AGL's T22 annual general meeting.

Mike:

Which of course meant that he had to win over significant support among other shareholders, particularly the big institutional shareholders, because, you know, it's the shareholders overall that, you know, elect the board and Cannon-Brookes only holds 11% of the vote. So he and his investment vehicle Grok nominated candidates.

Archival tape -- Patricia McKenzie:

I now turn to the fifth item of business, which is the election of four directors proposed by Gallop, a partnership which is an NTA entity associated with Grok Ventures and Mike Cannon-Brookes.

Mike:

So prior to the vote though, AGL released its own recommendations and said that as far as it was concerned, only one of the four people, one of the four proposed board members that Cannon-Brookes put up should be accepted onto the board. So they recommended against the other three.

Archival tape -- Patricia McKenzie:

For the reasons I outlined earlier. I intend to vote undirected proxies on hold as chair in favour of the appointment of Marc Twaddle as a director and against the appointment of Dr. Kerry Schott, John Place and Christine Holman.

Mike:

And so we get to the day of the AGM, the four Cannon-Brookes nominees give their presentations and then the votes are tallied.

Archival tape -- Patricia McKenzie:

Details of the proxy and direct votes that have been cast on item five are shown on the screen. Please place your vote for this item if he's not already done so.

Mike:

And at the end of it all, all four of Cannon-Brookes nominations are elected to the board. So institutional investors essentially showed that they realised the business model that had sustained AGL for 185 years, made it Australia's biggest climate polluter was no longer viable and Mike Cannon-Brookes was putting up people who had the best prospects of actually doing something to fix it up.

Ruby:

Okay. It sounds like what's happening here, Mike, is essentially a full blown takeover of the company by board members who want to make this hard transition away from fossil fuels. So is there a way that this new board can actually change AGL's business model? What's actually on the table for the company?

Mike:

Well, I think I should make a couple of points here. First point, we can only assume that these people want to speed the transition away from fossil fuels. And we should stress that the four directors were elected as independent directors, not not as representatives of Mike Cannon-Brookes per se, but obviously he would not have endorsed them if he didn't think they held similar values and views to his own. Second point, AGL has actually made some quite big changes.

The incumbent leadership of the company did produce a new plan following the failure of its demerger option, which brought forward the closure of its coal fired power stations and foreshadowed big investments in renewables and storage and so on. And Cannon-Brookes welcomed that. But he says it didn't go nearly far enough. And ahead of the AGM he lobbied shareholders, saying that AGL had to do much more about exploiting what are called behind the metre opportunities. And what that involves is really nothing less than turning the traditional model of electricity provision upside down.

What Cannon-Brookes is saying is that we need more generation at the point of consumption, so it never actually goes into the grid. You know, you generate it off your own roof, you use it yourself. You know, power grid has nothing whatsoever to do with it. We also need more storage at or near the point of consumption. We need things like community batteries at the end of the street, individual batteries in the home, and of course, a very big one: electric cars providing power in and out of the grid and in and out of people's rooftop solar.

And of course, we'll still need a bunch of big electricity generators, you know, solar and wind, out there on the grid for backup and for, you know, stability and what have you. But if AGL does it right, they can play all these games, they can play the traditional model of big transmission, but they can also play the behind the metre game by getting themselves involved in, in all of those other things that I've enumerated.

Ruby:

Okay. And how likely is it that AGL does do this right because it really seems like what Cannon-Brookes is trying to do is, to force change from the inside. He's trying to, to turn Australia's biggest polluter into the company that saves us, that forges the way for an energy future without fossil fuels. And that is no small task, Mike. And I imagine there are still a lot of barriers in place, fights that would need to be had, and won for something like that to be put off.

Mike:

Well, you're absolutely right. There are significant barriers and and also still within the company. At the AGM, the shareholders voted for the plan that was put up by the old board, despite Cannon-Brookes criticism that, you know, didn't do enough behind the metre, wasn't good enough. His people calculated that the board plan was consistent with global heating of 1.8 degrees Celsius rather than the 1.5 that the Paris Agreement said that we should. It was the most we could afford to warm if we were to avoid the most catastrophic effects of climate change. So there's a big hurdle there in that, you know, although these shareholders voted for the board members that Cannon-Brookes put up, they also voted for the plan that was put together by the old management.

There's also questions, I guess, over the capacity of, you know, 185 year old company to quickly learn new tricks. I spoke to Bruce Robertson, who's another energy expert with the IEEFA, the Institute for Energy Economics and Financial Analysis, who made the point that, you know, normally when you get big disruption, it doesn't come from an established, a legacy company like AGL. He says it's very difficult to do because you have this incumbent business model that you've somehow or other got to wind down without losing too much value. And it's also hard to change the mindset within a big company, you know, because there's just institutionalised resistance.

And he points to the example of Tesla, you know, the electric car maker and how it really led the electric vehicle revolution. This was despite the fact, he says, that everyone knew that electric cars were possible and even superior to internal combustion vehicles in many ways.

You know, General Motors even made one, which was the Chevy Volt, but it took Tesla to make them a commercial reality. You know, he says it wasn't Mercedes, wasn't VW, wasn't Ford or GM. And the reason was that those big companies didn't really want to disrupt their own traditional business model. And then, of course, Elon Musk came along with a whole new model, you know, a totally different way of doing business and disrupted the incumbents. And now those incumbents are furiously playing catch up.

So there's that. But there's a lot of obstacles in Cannon-Brookes' way. On the other hand, he has shown himself to be a great disruptor already. I mean, he's had big victories now over AGL. And frankly, if AGL doesn't move quickly, new nimbler players are going to come in and they're going to eat their lunch.

Ruby:

Mike, thank you so much for your time.

Mike:

Thank you very much.

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Ruby:

Also in the news today,

Independent Senator Andrew Wilkie has claimed fossil fuel companies have been, quote, “lying for years about the quality of our coal” and had been engaged in bribes during the final parliamentary sitting period for the year.

Wilkie said the misconduct includes exports to Japan, South Korea, China and India and involves companies including Terracom, Anglo American, Glencore, Peabody and Macquarie Bank.

These claims have been denied by Peabody and Anglo American.

And New Zealand’s supreme court has ruled that its current voting age of 18 is discriminatory and breaches the human rights of young people.

The court ruling marked the conclusion of a two-year case brought by a group of young campaigners to lower the voting age to 16, arguing that younger people should be able to vote on issues such as the climate crisis, which will disproportionately affect them and their futures.

The ruling does not automatically guarantee the right to vote will be extended – that can be done only by parliament – but it does mean that parliament is now breaching the fundamental human rights of younger voters, and may force legislators to consider a change.

I’m Ruby Jones, this is 7am. See you tomorrow.