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Published in Print: September 18, 2002, as Hershey School Part of Fight Over Candy Giant

Hershey School Part of Fight Over Candy Giant

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Ninety-three years ago, Milton S. Hershey set up a trust to start a school for poor orphan boys in central Pennsylvania. Today, that school—and its $5.5 billion trust—are at the center of a heated debate over the future of one of the world's most recognized candy labels.

Mr. Hershey, who became rich making candy—most notably, the chocolate bar that bears his name—endowed the trust with stock from his company. Now called Hershey Foods Corp., the company has grown greatly in value, and the assets of the trust for the Milton Hershey School have reached $5.5 billion, making it one of the largest private school endowments in the country.

The controversy started when the company that manages the Milton Hershey School Trust—the Hershey Trust Co.—announced in July it was considering selling Hershey Foods.

"The trust is exploring steps to divest itself of its controlling interest in Hershey Foods Corp. in order to comply with its fiduciary responsibilities to diversify and protect the assets of the trust," said a July 25 press release from the Hershey Trust Co.

The school trust owns about a third of the equity and holds about three-fourths of the voting power of Hershey Foods, according to the press release.

Almost immediately, alumni of the 1,300-student, residential school, residents of the town of Hershey, Pa., and state Attorney General Mike Fisher opposed the prospect of such a move.

This month, Senior Judge Warren G. Morgan of the Dauphin County Orphans Court issued a temporary injunction, requested by Mr. Fisher, to delay the sale of Hershey Foods until the court considers the economic and social impact of such a sale. Last week, the trust's managers appealed the judge's decision and were still waiting for a ruling late last week.

Opponents of a sale say it would not only hurt the community of Hershey, but also would not make good sense financially.

"I'm not sure that you want to rip apart from the community the economic engine that has successfully driven the trust portfolio over all these years," argued J. Bruce McKinney, a graduate of the tuition-free boarding school who served on the trust's board for 14 years. "The school is part of the community. Hershey Foods is part of the community. That's the way Milton Hershey planned it—not each one in separate camps, but all woven together."

'Standing Disagreement'

Ric Fouad, a 1980 graduate of the school and the president of its alumni association, has much harsher criticism.

He calls the school trust "the charitable-trust Enron," referring to the energy-services giant that has become a byword for improper business practices. He accuses the trustees of various kinds of wrongdoing, including self-dealing, wasting money, and violating Mr. Hershey's deed of trust. ("Alumni, Administrators Lock Horns at Hershey School," Dec. 13, 2000.)

Mr. Fouad contends that the trustees lack the competence to handle a decision as "grave" as the sale of Hershey Foods.

But Thomas E. Gluck, the assistant to the president of the Milton Hershey School, counters that such criticism is unfounded.

"Mr. Fouad and the alumni association have been engaged in a long-standing disagreement with the board of the school and the administration of the school," he said, "and have made endless and wild accusations about whether the school is in compliance with Milton Hershey's deed of trust." That deed is statement of intent for how the money from Mr. Hershey, who died in 1945, would be used. The 17 people who make up the board of directors of the Hershey Trust Co., who have proposed the sale of Hershey Foods, are also the trustees of the trust and the managers of the school.

At the request of the school's alumni association, Mr. Fisher, the state attorney general and the Republican candidate for governor in November, recently investigated the management practices of the trust.

The result was an agreement that trustees would no longer serve simultaneously on the board of the school's trust and on the board of any other entity owned or controlled by the Hershey Trust Co., such as Hershey Foods.

The trustees also agreed to change the school's admissions policy in order to draw more students from higher poverty levels.

Mr. Gluck noted that the attorney general didn't find the school to be out of compliance with Mr. Hershey's deed of trust: "The mission of the school is the same as it's been for 93 years—to nurture and educate children in financial and social need in perpetuity."

Trust's Ties

It's not only alumni of the Milton Hershey School who feel connected with the school's trust.

The trust owns 9,000 acres in the town of Hershey, notes Kathy Taylor, a local lawyer who is heading a citizens' group opposed to the sale of Hershey Foods.

In many small and large ways, said Ms. Taylor, various Hershey entities have interacted in the town, which has a population of 21,000. For example, the town's library was founded with $100,000 from Mr. Hershey, and the children from the Milton Hershey School now use it, she said.

Mr. Hershey also built the first building to house the local Derry Township public school district. The district now has 3,300 students and receives $1 million a year from a Hershey trust that is also managed by the Hershey Trust Co., Mr. Gluck said.

"There's major cooperation among the entities," Ms. Taylor said.

Vol. 22, Issue 3, Page 6

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