Pact limits pay and tenure of Hershey Trust members

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Under the deal filed today in Dauphin County Orphans’ Court, the trust’s size will increase from an average of nine members to 13. The court oversees matters related to charitable organizations, including the trust.

Attorney General Kathleen Kane said the move will help create a more diverse panel, particularly with respect to adding members who have expertise in areas such as large property transactions and the education of at-risk youth, which is the school’s mission.

Kane also praised the trust for its cooperation with her office’s efforts, which were led by Chief Deputy Attorney General Mark A. Pacella.

“I think that there is no question that we are making progress,” said Kane, referring to years of investigations into the trust and the school, which has been under scrutiny by the AG’s office over issues including how much its members are paid, how long they serve and questions about their expenses.

“There is an agreement, and we did not have to go to court to sue them to make progress,” Kane added.

In an open letter released this afternoon, trust Board Chairwoman Velma Redmond, who also chairs the school’s board of managers, said discussions with the AG’s office in recent months had been productive.

“We are satisfied with the outcome,” Redmond said. “The boards now move forward, working cohesively and collaboratively, as we direct, support and fulfill the ongoing mission of the Milton Hershey School.”

News of a possible deal initially emerged last week, but the trust also has been in the headlines over its association The Hershey Co.

The trust is Hershey’s main stockholder, controlling more than 80 percent of the company’s voting shares — which gives the body significant leverage over any possible sale of the Dauphin County candy company.

Three members of the trust’s board also sit on the Hershey Co. board, which on June 30 rejected a $23 billion purchase proposal from Illinois-based Mondelez International, a Kraft Foods spinoff whose brands include Oreo Cookies.

Terms of the deal

Here is what the deal includes:

• Board members are limited to 10 years of service, with the possibility of one-year extensions. Board members also must submit to annual performance evaluations.

• Board members Robert F. Cavanaugh, Joseph M. Senser and James E. Nevels must retire by the end of this year. James M. Mead and Redmond must retire by Dec. 31, 2017.

• Prior to the election of any new manager or director, the board must provide the AG’s office with a 30 days written notice of any candidate.

• Annual board trust compensation is capped $110,000 per year. Lower caps are set for board members who sit on the boards of other Hershey entities, including The Hershey Co. and Hershey Entertainment and Resorts Co.

• Managers of the school and the trust’s directors must continue “to use their best efforts” to identify board candidates whose education, training and experience reflect the full range of the boards’ responsibilities, including at-risk children, residential education, financial and business investment and real estate management.

• The trust may continue to elect members to the Hershey Co. board, but no more than three may sit at a time, and neither the school’s president nor the trust’s CEO may serve with the chocolate company.

• The deal also provides clarification to the school/trust conflict of interest policy, continuing the requirement that the trust and school must provide the AG’s office with written notice of at least 30 days prior to all real estate transactions involving more than $250,000 or a lease of more than three years.

Enforcement

Reporters asked about several possible scenarios, including how investigators can prevent outgoing board members from simply replacing themselves with friends and acquaintances.

Kane pointed out that the AG’s office is entitled to 30 days notice before new candidates are elected. If the office does not feel an individual is suited to the service, the AG’s office has the right to question the board further.

“We can go to back to them and say we object,” Kane said.

In such a case, the board has “to prove to us” why they weren’t able to find a candidate who demonstrates proper expertise, she added.

If the board persists?

“We always have the opportunity to take them to court,” Pacella added.

Why no immediate resignations? Kane said the departures that will follow the deal were staggered to maintain continuity — particularly given that Redmond, for example, is only in her first year — and not to deplete the board of its existing expertise.

“Twenty-two years ago there were no experts on the board,” she said, referencing a much earlier agreement. “Today there are experts on the board in certain areas.”

And the panel already has lost several members. Trustee Joan Steel resigned earlier this month, though no reason was given for her departure. Redmond said that three members have departed for personal reasons in the past year, while two new members were added.

“This allows the board to transition,” Kane said of the deal. “We think that is a reasonable amount of time.”

Hershey Co.’s future

Kane declined to comment on the nature of negotiations, and also said the deal was in no way related to the chocolate company, being focused solely on the trust’s compliance with a previous 2013 agreement with the AG’s office.

For more than a decade, internal and external debate has swirled around whether the trust would be better served by diversifying its holdings, so it is not so financially dependent on the candy company’s fortunes.

Milton Hershey, who founded the chocolate company that bears his name, established the trust more than a century ago. Its purview also includes the Milton Hershey School Trust, The M.S. Hershey Foundation Trust and the Hershey Cemetery Trust.

Kane said her office is not making any recommendation about whether the trust should diversify, saying that matter is “outside our jurisdiction,” and that matters related to any sale of The Hershey Co. are up to the company’s board.

“Because the deed of trust mandates ‘in perpetuity,’ we have to get it right in correctly managing assets,” Redmond said.

“The boards continue to review the diversification profile of the school trust assets with the assistance of expert outside advisers as well as the management of the trust company,” she added. “We are satisfied that the asset portfolio is being managed by the trust company in a responsible manner, consistent with the 1909 Deed of Trust.”

Both Redmond and Kane said the changes will benefit students.

“These really are wonderful reforms for children,” Kane said.

“As we make this transition, I would be remiss if I didn’t point out that both the trust company and the school are performing at exceedingly high levels,” Redmond said of the facility, which she said has nearly 2,300 students and a student retention rate of 93.2 percent.

“The school trust’s income has nearly doubled in the last ten years despite steep declines in interest rates and a volatile investment market,” Redmond added. “The increased income is what has allowed us to serve so many more students over that time.”