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PA OAG Reaches New Agreement With Trustees of Hershey School

PA OAG Reaches New Agreement With Trustees of Hershey School

Trustees had spent $3.6 million on internal investigations of possible insider trading, violation of conflict rules

The Pennsylvania Office of Attorney General has reached a new agreement with the trustees of the Hershey Trust Company and Hershey School only three years after an agreement made in 2013. 

The agreement comes after published reports that the trustees had spent more than $3.6 million in legal fees investigating whether two of them had been involved in insider trading of stock in the Hershey chocolate company, and whether a former chairman of the board had been involved in a conflict of interest in obtaining an internship for his son with one of the outside managers of the Hershey Trust portfolio.

According to reports published in the Philadelphia Inquirer, the trustees had spent $3 million in legal fees to Zuckerman Spaeder for an investigation of possible insider trading, and $650,000 to Weil Gotshal & Manges to determine whether there had been a violation of the conflict of interest policy.  Both investigations had cleared the trustees. 

The new agreement requires half of the current trustees to leave the board by December 31, 2017, imposes 10 year term limits, sets maximum annual compensation, and establishes specific conflict of interest and expense reimbursement policies.

The agreement was announced by the “office of the Attorney General” because Attorney General Kathleen Kane’s license to practice law was suspended while she was under indictment for leaking grand jury information and lying about it to investigators.  She was subsequently convicted and resigned her position.

The Hershey Trust Company manages a $12 billion endowment for the benefit of the Milton Hershey School, which provides a year-round program for about 2000 low-income, high-risk students in pre-K through high school.  Although the investment management function of the Trust Company is significantly different from the educational function of the school, the boards are identical.  Kane had reached a “reform agreement” with the board in 2013 after charges of breach of fiduciary duty and excessive compensation had been aired for months in the newspapers.  (See Nonprofit Issues®, 3/16/13.) 

The new agreement calls for three of the 10 current trustees/directors, including the former board chair whose son obtained an internship with an investment manager, to leave office by December 31, 2016 and two more to leave by December 31, 2017.  The board is required to give 30 days’ prior written notice to the Attorney General’s office before appointing a new person.   The board is supposed to use its “best efforts” to bring the board up to 13 members.

Board terms will be only for one year, up to a maximum of ten years, but an additional year may be provided “to assure continuity of leadership or to respond to other exceptional circumstances.”  No director may be reelected in a year they become age 75 or older.

Compensation for directors of the trust company is now set at a maximum of $110,000 per year, subject to annual cost of living adjustment.  The prior agreement had called for regular compensation reviews with compensation set at the lower end of the spectrum.  The board chair may be paid an additional $30,000, while committee chairs, other than the board chair, may get an additional $10,000, without regard to the number or committees they chair.  If a trust company director also serves on the board of the Hershey Company or Hershey Entertainment and Resorts Company, the director may not be paid more than $80,000 by the trust company.

No more than three directors of the trust company may serve on the board of the Hershey Company at the same time and the CEO of the trust company and president of the school may not serve as a director of the Hershey Company.  Beginning in 2017, the board will have to give the AG advance notice if they want to elect someone to the board of Hershey Entertainment.

The conflict of interest policy covers directors and family members and provides that they may not (1) seek to profit from information not disclosed to the public about the various Hershey entities; (2) accept personal favors or gratuities with a value over $100 from any person or organization providing goods or services to the Hershey entities; or (3) engage in personal transactions with any person or organization supplying goods or services to the Hershey entities other than on terms and conditions generally available to the general public.

As an illustration, the policy says it is a prohibited conflict if a director or member of the director’s family asks a Hershey trust company staff person to make an introduction or otherwise support a contact with an entity that has a known transactional relationship with the trust company for assistance in obtaining a permanent or temporary position for themselves, a relative, friend, or associate.  That sounds almost precisely like the situation described in the press that the lawyers, after payment of $650,000, found not to be a conflict of interest for the former board chair.

The expense reimbursement policy rules out reimbursement for first class air travel and a variety of other charges that had been disputed in press reports.

Although newspaper articles had said the AG was seeking reimbursement for the $3.6 million in legal costs of the internal investigations, the final agreement said that the AG’s office found such reimbursement “unwarranted.”

Many of the other terms of the prior agreement, including the requirement of an annual report to the AG’s office, were continued in the revised agreement.


It is sad to see the continuing controversy at the Hershey Trust Company, which has long been a political football and has frequently created the impression that the board members are more concerned with themselves than with the education of the students.  How anyone could have countenanced paying the fees charged for these investigations is not clear.  But it buttresses the feeling that Hershey has so much money it doesn’t know what to do with it all and doesn’t really care how much things cost.

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