Hershey Trust to Reform Rules as Mondelez Increases Scrutiny

  • Controversial chartity group will add term limits, pay caps
  • Trust has been seen as obstacle to takeover of Hershey Co.

Hershey Trust Co., the $12 billion charity that controls the Hershey chocolate company, reached a deal with the Pennsylvania attorney general to reform its management practices, ending an investigation into the scandal-scarred nonprofit group.

The trust, which has faced allegations of lavish spending by board members in recent years, agreed to various governance changes, including term limits and a cap on compensation for board members. The deal also calls for three members of the trust’s board to resign by the end of the year, according to a statement Friday from Kathleen Kane, the attorney general of Pennsylvania.

The Hershey Trust, established in the early 1900s by Milton Hershey, has been back in the spotlight after Mondelez International Inc. made a $23 billion bid to buy the chocolate company last month. The trust controls the candy maker through voting shares and has been seen as an obstacle to takeover attempts. That’s made the turmoil at the nonprofit -- and the push to change its management practices -- of strong interest to Hershey investors.

“All of our efforts that led to this agreement were made to ensure that the vision of Milton and Catherine Hershey remains intact,” Kane said in the statement.

Retirements Planned

In addition to the three directors who must leave the board by the end of the year, two more must retire by the end of 2017, according to the statement. The agreement limits terms on the roughly 10-member board to a decade and calls on the trust to find directors whose “education, training and experience” reflect the full range of the organization’s duties.

The trust previously reached an agreement with the Pennsylvania Attorney General’s office in 2013, ending a probe into the controversial purchase of a golf course by the charity. The current investigation centered on the trust’s compliance with the previous agreement, according to Kane. The trust shares a board of directors with the Milton Hershey School.

“We are satisfied with the outcome,” Velma Redmond, chairman of the trust’s board, said in a separate statement. The organization will “now move forward, working cohesively and collaboratively, as we direct, support and fulfill the ongoing mission of the Milton Hershey School.”

‘Period of Transition’

Redmond noted that the trust board was “already in a period of transition,” with three members leaving for personal reasons in the past year. Joan Steel, a Hershey Trust board member since 2012, resigned earlier this month.

The trust announced that two new directors, James W. Brown and M. Diane Koken, had joined the board.

Adding to the upheaval, trust executive John Estey, a one-time aide to former Pennsylvania Governor Edward Rendell, was fired in April after pleading guilty to wire fraud associated with campaign contributions. The wrongdoing wasn’t related to his work at the charity, a spokesman for the trust said.

Amid the ongoing controversy, Mondelez emerged with an offer for Hershey Co. that would have created the world’s largest candy maker. Hershey, struggling with an ill-fated expansion in China and sluggish U.S. sales, has long been seen as a takeover target -- with the trust serving as the main obstacle to a buyout.

Future Bid?

The Mondelez bid was rejected by the chocolate company, though analysts have speculated the suitor could raise its bid. Mondelez and Hershey haven’t commented on the matter beyond confirming the initial offer. The trust would ultimately have to approve a deal, and the Pennsylvania attorney general has the right to review it. It’s unclear if the shake-up at the trust changes its outlook on a potential acquisition.

The trust runs Hershey Entertainment & Resorts Co. and operates a school for low-income students. At the event announcing the agreement, Kane said her office plans to continue monitoring the trust.

“We hope in three years they say, ‘We’re happy to report there’s nothing to report,’” she said.

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