Looking a Gift Horse in the Mouth: A Reassessment of the Impact of the Hershey Trust

This paper summarizes arguments and counterarguments driving academic discussion about the Milton Hershey School (MHS) and the Hershey Company's control mechanism, enacted by the Hershey Trust (HT). It then studies the Hershey Trust's governance with respect to ethics, budget sources, and management, focusing on how the Hershey Company exercises corporate control over MHS. My main tool of analysis is an event study, which estimates a particularly abnormal response of the Hershey Company's stock price to potentially disruptive developments. Empirical results indicate that the Hershey Company has not been greatly influenced by the Hershey Trust. Abnormal return of the Hershey Company's stock price is skewed, and it has an asymmetric probability distribution after June 2016. However, the Hershey Trust continues to indirectly manage and control the Hershey Company. The Hershey Trust, accordingly, is a de facto ‘industrial foundation'. Thus, charitable trustees of the Hershey Trust affect the Hershey Company's stock price and management. The HT and the MHS had mistaken a governance because the diversification lies with beneficiations of the trust per se, not shareholders of the Hershey Company. The HT and MHS should end their puppet dominance of the Hershey Company because the HT's and MHS's future 501(c)(3) status will be jeopardized. Overall, this paper presents analysis and empirical results, aimed at building a more charitable organization. The audience for this paper includes policymakers, regulators, and academics.