The sole picture in F. Frederic "Ric" Fouad's wallet is of a young boy he never knew. Fouad, a graduate of the Milton Hershey School for disadvantaged children, carries a 20-year-old newspaper photo of a Philadelphia lad beaten to death by his father. For Fouad, whose own father was murdered and whose mother was too ill to care for him, the now-yellowed clipping is a reminder of all those children trapped in dire family situations. "But for Mr. Hershey's generosity, that child could have been me," he says.
This conviction is at the core of the former corporate lawyer's very personal battle to prevent the sale of the company that Milton S. Hershey built. The trust that oversees the school's funding also controls 77% of the candymaker's voting shares and has put Hershey Foods Corp. (HSY) on the market to diversify its $5.4 billion investment portfolio, just over half of which is in that company's stock.
Fouad, 41, president of the Milton Hershey School Alumni Assn., argues that the board shouldn't be allowed to make such a decision since it has not yet completed governance reforms it agreed to in July. And he contends that it's a bad decision anyway, one that would destabilize the Hershey (Pa.) community, which would in turn directly harm the school and its students. The corporation, the town, and the school had been tightly bound for generations, which is just how Milton Hershey intended it when he established the school in 1909, says Fouad. He and a band of fellow alumni see the trust's move as a direct assault on that notion and the latest insult in a continuing feud over how the school should be run. "The worst part is we are on the outside looking in, and we see them ransacking the house and threatening the children," Fouad contends.
That criticism is being amplified by unions and community groups, and the pressure against a sale is building. State Attorney General Mike Fisher, who's running for governor, filed a petition on Aug. 12 asking that any sale of Hershey Foods be subject to the approval of an orphans' court that has jurisdiction over charitable trusts. And on Aug. 20, The Patriot-News in nearby Harrisburg obtained a letter written by trust director William H. Alexander saying a sale was not certain. Alexander, who wrote that he was not speaking for the board, said he expected the "social constraints" of any deal, which could include keeping a certain number of jobs in Hershey might reduce the premium a buyer would be willing to pay.
Alexander did not return calls seeking comment. But a trust spokesman says the board continues to "explore the potential sale of Hershey Foods." Most observers still think a sale is likely. "The odds are improving but still small" that a deal can be blocked, says Richard A. Zimmerman, a former chairman and CEO of Hershey Foods who has come out against the trust's decision.
Robert C. Vowler, president and CEO of Hershey Trust Co., argues that selling the company would actually benefit the students. "Having half of your assets in one stock can create an awful lot of volatility into the future," he says. In reply, Fouad says: "Diversification in the abstract is certainly a good idea. However, in this particular proposed diversification it looks like a terrible idea, because it doesn't take into account the impact on the children of gutting the local economy." And the trust's return over the past five years has been solid: Its compound average annual return was 4.3%, compared with 0.44% for the Standard & Poor's 500-stock index.
This is a dispute born of years of bitterness between the alumni group and the trust. Well before Fouad became involved, alumni were arguing that the boards of the trust and the school (which are made up of the same 17 people) were bent on transforming the institution into a sort of middle-class prep school instead of a program for the most distressed and needy children. Under a July accord with Fisher, the boards agreed to make several changes, including lowering the maximum household income level for students entering the school, which charges no tuition. Also, three board members who are on the boards of Hershey Foods or Hershey Entertainment & Resort Co. will resign those positions when their terms expire to avoid conflicts of interest, says a spokesman for the school.
Fouad contends that, until those changes are made, the board of the trust should not be permitted to make such a major decision as selling Hershey Foods. He has been relentless in making his case: appearing on local TV to blast the board's actions, speaking at a rally in Hershey, and working the phones from his New York apartment.
A onetime associate at New York law firm Jones, Day, Reavis & Pogue, Fouad has spent the past decade as a sole practitioner specializing in securities fraud and civil-rights cases. But in the past two years, he has taken few new cases, devoting almost all his time to fighting the school's board. "Once it became clear the board was going to ignore us forever," says John F. Halbleib, the former head of the alumni association, Fouad's intensity was just what the alumni needed. He took over as president of the association, an unpaid position, in 2002.
Fouad doesn't remember his father, but by most accounts he has the same temperament. Fouad was born in Chicago, where his father, a native of Iraq, was a student. On a 1963 trip to visit relatives in Baghdad when Fouad was 2 1/2, his father was shot and killed. Fouad's mother, Nancy E. Bohn, says it may have had something to do with his open criticism of the new Iraqi government. Fouad's mother, an American, eventually moved to New York with her two children. But she was plagued by serious medical problems and was frequently hospitalized. Young Ric, who was often in fights and absent from school, says he was shuffled among acquaintances and even lived alone at times.
It was Fouad's older sister who heard about the Milton Hershey School, and the boy ended up there at age 11. "There was no choice, and there were no options," says his mother, who is now a hospice nurse. Within months, he took to the school. His grades picked up, he became a star wrestler, and he helped counsel younger students.
Even then, Fouad wasn't afraid to speak out. Rod E. McLaughlin, a retired school administrator, says Fouad used to agitate for more freedom for students, including the right to let their hair grow over their ears. "There were those members of our adult staff who were intimidated by his intellect and his aggressiveness," McLaughlin says. Fouad can only hope he's having the same effect on the school's trust today. By Amy Barrett in New York