Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the Hershey Board Balances Family Control with Shareholder Value
Transcript
- Lucas: If you've ever looked at a bar of Hershey's chocolate and wondered why a company with such a dominant brand seems to move so slowly on innovation, the answer isn't in the product — it's in the boardroom. Luna: Are we talking about the Hershey Trust? The entity that controls the majority of voting power? Lucas: Exactly. The Hershey Trust Company holds about 80% of the voting shares. It was created by Milton Hershey in 1905 to fund a school for underprivileged children — the Milton Hershey School. So the board of Hershey has this unique dual mandate: maximize shareholder value while also serving a charitable mission. Luna: That's a massive constraint. I mean, how do you even balance those two things when they conflict? Lucas: That tension has defined some pivotal moments in the company's history. Take 2002. Wrigley offered to buy Hershey for about $12 billion. The board initially supported the sale, seeing it as a way to diversify the trust's assets and secure funding for the school. But then came a huge public backlash — Pennsylvania politicians, employees, the local community in Hershey, Pennsylvania. The board ultimately pulled the deal, and the stock dropped something like 30% in a day. Luna: So the board chose the mission over the shareholders. That must have infuriated a lot of investors. Lucas: It did. But here's where it gets interesting legally. The trust's board members are fiduciaries to the charitable mission, not to Hershey shareholders. So they have a legal obligation to prioritize the school's interests. That 2002 episode really brought that conflict into the open. Luna: And yet Hershey's stock has performed reasonably well over the long run. Is that because the trust structure actually forces long-term thinking? Lucas: That's the argument in favor. Without pressure to deliver quarterly earnings, the board can make patient investments. They've expanded into salty snacks with acquisitions like SkinnyPop and Pirate's Booty. They've built a billion-dollar international business in Mexico and Brazil. But the flip side is that they've been late to trends like premium chocolate — where brands like Lindt and Ghirardelli grabbed market share while Hershey was still pushing candy bars through mass retail. Luna: Wasn't there a governance scandal in the late 2000s that forced a board shake-up? Lucas: Right, 2007. The Pennsylvania attorney general investigated the trust for conflicts of interest — some trustees had ties to companies doing business with Hershey. The trust board was overhauled, with new members appointed by the state. That's another layer: the state of Pennsylvania has a lot of influence over the trust because it enforces the charitable mission. So the board isn't just accountable to shareholders or the school; it's also under political scrutiny. Luna: That sounds like a recipe for paralysis. How does the board make any bold moves? Lucas: Sometimes it doesn't. In 2016, Mondelez — the company behind Oreo and Cadbury — made a $23 billion takeover approach. Hershey's board rejected it. The stated reason was that the offer undervalued the company, but many analysts thought it was about protecting the trust's control. If Hershey had been sold, the trust would have had to reinvest the proceeds, and the school's mission might have changed. Luna: So the board essentially blocked a premium-priced deal to preserve the status quo. That's the classic double-edged sword of family or trust control. Lucas: Exactly. And here's a concrete number: since 2016, Hershey's stock has more than doubled, so in hindsight, rejecting the offer was the right call. But that's hindsight. At the time, many shareholders were frustrated. Luna: How does the board handle capital allocation? With less pressure to return cash to shareholders, do they invest more in the business? Lucas: They have a solid dividend — Hershey's been paying one since 1930 — and they've done share buybacks, but not aggressively. Their R&D spending as a percentage of revenue is around 1.5%, which is low compared to consumer goods peers. Some argue they underinvest because they don't face the same competitive pressure. But they've also made bolt-on acquisitions to enter faster-growing categories like protein bars and popcorn. Luna: So it's a mixed picture. Long-term stability and mission focus, but also missed opportunities and a slow-moving culture. Lucas: That's exactly the takeaway. And it raises a deeper question for any investor: are you willing to accept slower growth in exchange for a board that prioritizes a social mission? Because with Hershey, that's the deal. The trust is permanent — it's not going away. So the board structure is baked in. Luna: Which makes Hershey a fascinating case study in corporate governance. Most boards claim to think long-term, but Hershey's literally cannot think short-term without violating its charter. Lucas: You know, conversations like this are exactly why we do this show — digging into how board structures actually shape business outcomes. We keep these episodes free and without ads because we think these insights should be accessible to anyone who's curious. If you've gotten value from it, you can support the show at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. Truly helps us keep going. Luna: Yeah, it's a small way to say this kind of content matters. And we appreciate every bit of support. Lucas: So back to Hershey. The next big test for the board is how they handle the shift toward better for you snacking. Can a company built on milk chocolate and candy corn adapt to a world where consumers are reading ingredient labels? Their recent acquisitions of One Brands protein bars and Lily's sweets suggest they're trying. But the board's track record on innovation is mixed. Luna: What's a specific example of a missed innovation opportunity? Lucas: Premium chocolate. In the early 2000s, Hershey had a chance to acquire Ghirardelli, but they passed. Lindt eventually bought it and built a premium business that Hershey has struggled to replicate. They did launch a premium line called Brooks, but it never gained traction. More recently, they've had success with Reese's seasonal shapes and Hershey's Cookie Layer Crunch — but those are still mass-market sugar hits, not premium positioning. Luna: So the board's risk aversion might have cost them a whole market segment. Lucas: It's a tradeoff. The trust structure protects the company from being broken up or sold, but it also insulates management from the kind of market pressure that forces rapid adaptation. For investors, the question is whether the stability premium is worth the innovation discount. Luna: And for the board itself, the challenge is to prove that mission-driven governance can still deliver competitive returns. Otherwise, the pressure for change will only grow. Lucas: And that's the story of Hershey's board — a careful balancing act between a century-old mission and the relentless demands of modern capitalism.