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Milton Hershey was the founder of the Hershey Chocolate Company, which is now known as Hershey Foods, the maker of Hershey’s Milk Chocolate, Hershey’s Kisses, and other products with which all Americans are familiar.

Hershey and his wife, Catherine, did not have children of their own. In 1909, they founded a school to educate poor male orphans, created a charitable trust to support the school, and appointed nine trustees to manage the trust for the school’s benefit. In 1918, after his wife’s death, Hershey gave his entire personal fortune, consisting mostly of stock in the company, to the Hershey Trust to support the Milton S. Hershey School. The school today enrolls a diverse student body of about 2,000 low-income young men and women on a residential campus in central Pennsylvania. The students do not pay tuition or other fees, since the trust receives revenue from its interest in the food company each year to support the school’s operation (Milton S. Hershey School, 2014).

By 2001, the Hershey Trust had grown to over $5 billion, most of which was stock in Hershey Foods. Indeed, the charitable trust owned a controlling interest in the company, and company stock was 56 percent of the trust’s assets (Gadsden, 2002). With 6,200 employees, the company was the largest employer in its hometown of Hershey, Pennsylvania (Scully, 2009).

However, in 2002, the trustees of the Hershey Trust were concerned by the lack of diversification in the trust’s investments and by the increasing competition from other companies. Fearing that the food company’s decline could endanger the school’s future, they proposed selling the trust’s controlling interest. Wrigley, best known for its chewing gum, was prepared to buy it for $12.5 billion (McCracken & Brat, 2009).

The Hershey, Pennsylvania, community strongly objected to the sale, fearing the loss of jobs and a negative impact on the local economy. Under Pennsylvania law, the state attorney general oversees charitable trusts. The attorney general at the time, Mike Fisher, sided with the community and petitioned the state court to block the sale, arguing that it “could have profoundly negative consequences” for the Hershey region. The court agreed, and the sale was stopped. The Pennsylvania legislature later passed a law affirming the court’s decision (Larkin, 2002). Some argued that the attorney general and the court had overstepped their authority and had dangerously altered the law regarding the fiduciary responsibilities of charitable trustees. They might now be required to make their decisions not only in light of the interests of the trust’s beneficiaries, but also in consideration of local political and economic pressures (Larkin, 2002).

The food company’s position continued to decline after 2002. By 2009, Hershey Foods had suffered years of stagnating revenue and a slumping stock price, which reduced the assets of the trust and thus the revenue of the school. In addition, a wave of mergers in the food industry was presenting increased competition from large multinational producers. Meanwhile, Hershey was finding it difficult to grow its business outside of the United States and derived only 10 percent of its revenue from overseas (Wachman, 2009).

The food industry was consolidating. Mars merged with Wrigley in 2008 and, in 2009, Kraft made a bid to take over the famous British candy brand, Cadbury (Scully, 2009). The trustees of the Hershey Trust were deeply concerned by this new challenge to Hershey Foods. They knew the law would not permit them to sell the company, but they considered making an offer to buy Cadbury. Kraft had offered $16.5 billion for Cadbury, and Hershey would need to offer more. Hershey was only half the size of Cadbury and a fraction of Kraft’s size. Buying Cadbury would require borrowing massive amounts of money. It was reported that differences arose between the views of the company’s board and management, on the one hand, and the board of the charitable trust, on the other. The company’s board and management were concerned that such borrowing would cause the company’s credit ratings and stock price to decline, raise the cost of future borrowing, and hurt profits. The charitable trustees were concerned that failing to buy Cadbury would mean that Hershey would find it even more difficult to compete internationally in the future and that the long-term interests of the trust and the school would be jeopardized (Wachman, 2009).

Throughout January of 2010, there was daily speculation in the financial media about a possible Hershey counteroffer for Cadbury. But, on January 22, Hershey announced that it would not proceed and Kraft announced that Cadbury had accepted its revised offer of 11.9 billion British pounds ($19.4 billion). Kraft and Cadbury combined would become the largest candy company in the world (“Hershey Loses Taste for Cadbury,” 2010). But this was not the end of the story—neither for the Hershey Trust nor for the food industry.

In 2012, Kraft decided to split its company into two, spinning off its snack business under the new corporate name Mondelez International (Strom, 2012). The industry remained competitive in the following years. By 2016, Mondelez was under pressure from investors to do something that would increase its profitability (Berk, 2016). The stock of Hershey Foods was much higher than it had been in 2002. The assets of the charitable Hershey Trust had reached $12 billion (Fouad, 2016) and its income from its holdings in the chocolate company totaled $160 million every year (Solomon, 2016). But the food company’s performance had lagged since 2013 and there were once again reasons for the company and the Trust to be concerned (Solomon, 2016). Meanwhile, at the Hershey Trust, there were serious problems that were unrelated to the food industry or the price of the Hershey company’s stock.

Since the 1990s, there had been controversies surrounding the Hershey Trust’s governance practices and its complicated interrelationships with the for-profit entities it controlled. Some observers criticized the salaries paid to directors of the trust, real estate acquisitions that appeared to benefit individuals with connections to the trust’s board, and other practices (Eisenberg, 2011). The board had reached agreements with the Pennsylvania attorney general in previous years, requiring it to undertake reforms. But in 2011, the attorney general launched another investigation. Although the investigation concluded that the trustees had not violated their fiduciary responsibility, the board of the Hershey Trust agreed to undertake further reforms related to board compensation, conflict of interest, the process for selecting board members, and the process for considering acquisitions (Peregrine, 2013).2

Three years after the 2013 agreement, the attorney general’s office was not satisfied with the trust’s progress in implementing the changes and ordered it to remove three board members and reduce board members’ pay. (“Critics Question,” 2016) In-fighting among board members gained public attention, leading one journalist to observe, “Some serious behavioral issues have convulsed the Milton Hershey School. But the problem isn’t the students. The problem is the adults in charge” (Segal, 2016). In the midst of this turmoil, Mondelez made its move.

In July 2016, Mondelez offered $23 billion for Hershey Foods, knowing that the decision ultimately would be made by the board of the Hershey Trust, which was mired in controversy and change (Solomon, 2016). Mindful of the events that had unfolded in 2002, when community opposition had sunk the previous attempted takeover of Hershey, Mondelez offered reassurances. It would move its headquarters from Illinois to Hershey, Pennsylvania, and the combined company would keep the Hershey name (Solomon, 2016). The Hershey board rejected the offer, demanding a higher price. Mondelez increased its original offer, but Hershey would not come down from the price it previously had demanded, which was still more than Mondelez was willing to pay. Mondelez CEO Irene Rosenfeld eventually said she saw “no actionable path forward” (Frost, 2016). In other words, the deal was dead.

Some observers said it would have been difficult for the Hershey Trust board to accept an offer while it was mired in its own turmoil (Gasparro & Cimilluca, 2016). As one stock analyst explained, “The trust was always a wild card” (Frost, 2016). But others pointed to the inherent challenges in the structure of interrelated Hershey entities and their unique place in the community. Perhaps Mondelez’s commitments to stay in Hershey were necessary to have any hopes of making a deal, but the costs of keeping those commitments also may have made it impossible for Mondelez to offer a higher price (Solomon, 2016). Perhaps the “triple approval process” was just too complex (Solomon, 2016). The sale would have required agreement by the board of the food company, the board of the Hershey Trust, and the attorney general of Pennsylvania, three parties that were bound to have different perspectives and agendas (Solomon, 2016). The company board cares about earnings; the Trust has all the money it needs and wants to retain its position in the community; and the attorney general is concerned about keeping the jobs and economic benefits in the state (Solomon, 2016). As Solomon (2016) concludes, “Perhaps [Hershey] is a jewel to be treasured, one that should be exempt from the laws of economics and today’s hyper-market efficiency. And perhaps it should stay that way.”3

Questions Related to Case 4.2

  1. Why might the board of Hershey Foods and the trustees of the Milton S. Hershey Trust sometimes hold different views and priorities? To whom and for what are they responsible?

  2. Should boards of nonprofits be concerned only with following the intention of donors and serving the interests of those who directly benefit from the nonprofit’s assets, or should they also consider the impact of their decisions on local communities?

  3. What concerns might the trustees of the Milton S. Hershey Trust have held about their own legal responsibilities throughout the events described in the case? In other words, which laws might potentially have created liability for members of that nonprofit board?


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