Fans of the nation's largest chocolate maker are angry at a FSU law professor for questioning the company's corporate structure.
“I’m not particularly interested in Hershey per se. I’m interested in what the Hershey situation can tell us about corporate control situations and charitable trust situations. ” — Jonathan Klick, professor, Florida State University College of Law
Klick, along with Robert H. Sitkoff, a Harvard University law professor, wrote an article to be published next year in the Columbia Law Review, saying basically that the Hershey Co., the nation’s most revered chocolate maker, should have been sold or merged with another company years ago.
Klick’s academic paper, packed with historical context and data, contends that the charitable trust that controls the company cost stockholders $2.7 billion when it failed to sell Hershey to Wrigley when it had the chance in 2002.
Klick’s research is stirring things up in Hershey, where passion for the company runs high. A series of events there, from the planned resignation of Hershey’s CEO, who opposed the 2002 offer, and a board shake-up to disappointing earnings reports, has the town heading toward another raucous debate about the company’s future.
To understand the heat that Klick’s research is generating, you have to understand the unique structure of Hershey Co. Milton Hershey, the company’s founder, created a deed of trust to control the company and support an orphanage he opened in 1909. The orphanage eventually became the Milton Hershey School, which exists today in Hershey as a free private school and home for children from families with limited incomes or social needs. The trust controls about 80% of the company’s voting rights and has about an $8-billion stake in the company.
In 2002, when Wrigley tried to buy Hershey, angry residents protested, and Pennsylvania’s attorney general came out against the deal. The chairman of the charitable trust’s board of trustees, who supported the deal, received death threats and had to have an armed guard assigned to his home.
Today, Cadbury Schweppes is rumored to be considering an offer for Hershey. Klick expects any new proposal will generate a similar reaction that will ultimately kill a sale. “My guess is that the town is going to throw a fit,” Klick says.
August “Skip” Memmi Jr., a member of the board of supervisors of Derry Township, where Hershey is located, thinks Klick is right about the “fit” — although he’s not so sure if a Florida law professor can truly understand why locals oppose a sale so strongly. “Our parents and our grandparents worked for Milton Hershey,” Memmi says. “Hershey is one of the most recognized corporate names in the world. We all take pride in that and take ownership in that. If Hershey goes away, we lose that identity. The core of our community has been the word ‘Hershey,’ and if you take that away, we lose a piece of our community. Maybe those living outside the state of Pennsylvania don’t quite understand Pennsylvania.”
Nowhere in Klick’s 78-page paper, titled “Agency Costs, Charitable Trusts and Corporate Control: Evidence from Hershey’s Kiss-Off,” is this fact: Klick is a native Pennsylvanian. He grew up in Lebanon, a small town just 15 miles east of Hershey. When he was a kid, he went to Hershey Park. He has seen the streetlights created to look like giant Hershey Kisses. He has walked down Chocolate Avenue. He knows people who live in Hershey. He knows people who worked at the factory.
Klick, a lawyer and an economist, says his research isn’t a personal attack on his home region. He chose the topic only because of the legal and economic issues it stirs. “I’m not particularly interested in Hershey per se,” he says. “I’m interested in what the Hershey situation can tell us about corporate control situations and charitable trust situations.”
Klick is currently searching for other big public companies with similar setups, but hasn’t found one so far.
Meanwhile, Klick is taking a little guff from his friends back in Pennsylvania. Even his own sons — he has four all under age 8 — have asked him why he keeps writing about Hershey. He explains he’s not anti-Hershey, that he likes eating Hershey’s chocolate as much as the next guy and he’s just doing his job. “Believe me,” he says. “It was no different for me than any other kind of paper I write.”
| Links: Read “Agency Costs, Charitable
Trusts and Corporate Control:
Evidence from Hershey’s Kiss-Off.”
For more articles this month with extra links, go to the Links page.