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New a2 Milk CEO must buy before selling

Jemima WhyteSenior reporter

Updated Aug 11, 2020 – 3.09pm,first published at 2.42pm

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The a2 Milk Company's past introduction of an external chief executive became a "what not to do" lesson after a split on strategy, an unexpected share sale and an exit after just 18 months in the role.

On Tuesday, the $14 billion milk company – among the largest on New Zealand's exchange – appointed Hanesbrands' president of inner wear, David Bortolussi, as its chief executive after a six-month search.

Incoming A2 Milk chief executive David Bortolussi has been described as the right fit in terms of talent and "right DNA" for the company. Josh Robenstone

As part of his contract, Mr Bortolussi, who will move from Melbourne to Sydney and start the role in early 2021, will not be able to sell any shares until he owns the equivalent of one year's salary.

"We learnt from that experience – my mistake – I didn't dream we would have a situation where someone would sell their shares immediately," a2 Milk chairman David Hearn said from London about how the company was structuring its new CEO's remuneration and share sale terms. "We are now wiser."

Mr Bortolussi will succeed Geoffrey Babidge, who has been acting as interim chief executive since December 2019 when previous chief executive Jayne Hrdlicka – the former management consultant now part of Bain Capital's buyout of Virgin Australia – left the company.

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He will receive a base salary of $1.75 million, including superannuation, and may receive a short-term incentive payment of 120 per cent of his fixed base salary in his first year, though performance objectives have yet to be determined.

On an annual basis, he will be able to take up performance rights under the long-term incentive plan equivalent to 160 per cent of his fixed remuneration. These will vest over three years, with conditions to be determined. Mr Bortolussi will receive an additional $3.7 million in share rights and a $1.27 million cash payment for forfeiting rights at his former employer.

Mr Hearn said he and the board members were confident that Mr Bortolussi was the right pick for the role, and selecting a chief executive was one of the most important and challenging roles for any chairman. Appointing an Australian was "an accident", with the past three candidates for the role from three different continents.

Having Mr Babidge as interim chief executive had removed any stresses around timing, he said.

Mr Hearn said that after extensive research and conversations he believed Mr Bortolussi was the right fit in terms of talent and the "right DNA" for the company, which he described as very non-hierarchical and respectful.

'Safe pair of hands'

Milford Asset Management's Will Curtayne said the appointment looked like a "safe pair of hands", adding that the fund also valued the input of chief operating officer Peter Nathan.

Mr Hearn said Mr Bortolussi's approach in presenting his plans for a2 to the board was one sign they had found the right fit.

"He approached it rather than let me impress how I have 10 much more clever ideas than you about the business ... he was open-minded about the way we were doing it, but prepared to be brave enough to say he wasn't sure what we are doing is necessarily perfect," he said.

Mr Bortolussi's experience doing business in China will also be important, particularly as the relationship between Australia and China deteriorates.

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"When the geopolitical tide is going out we can't afford to get sucked out with it. We have to be cleverer to stay on the beach properly ... we have to be subtle and smart. David is smart and we think he is subtle as well," Mr Hearn said.

"As the geopolitical situation worsens we need to be more nuanced and more clever, we are emphasising the fact, for a start, that we are a New Zealand company and all the products in China are New Zealand-sourced."

In a statement, Hanes Australasia said Mr Bortolussi, who previously worked at Foster's Group, had made an "extraordinary contribution to the organisation" during his 11 years at Hanes, and that it had begun a process for a new chief executive. Hanes' brands include Bonds, Berlei, Brans N Things, Champion and Sheridan.

Spencer Stuart advised on the board of the process.