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Dave Taylor has been involved with the Internet since 1980 and is widely recognized as an expert on both technical and business issues. He has been published over a thousand times, launched four Internet-related startup companies, has written twenty business and technical books and holds both an MBA and MS Ed. Dave maintains four weblogs: The Business Blog at Intuitive.com, Ask Dave Taylor, Dave On Film, and Attachment Parenting Blog. Dave is an award-winning speaker, sought after conference and workshop participant and frequent guest on radio and podcast programs.

Incredible Management Discord at Hershey's Corp: Entire Board Resigns?

For a company that makes iconic American chocolate and has a town in Pennsylvania named after it, Hershey's Corporation (NYSE: HSY) sure has some interesting problems. You'd think that a confectionary firm would be sweet but things couldn't be further from the truth.

As the Wall Street Journal is reporting, six of the ten corporate directors at Hershey Corp. were asked to resign by the charitable trust that runs the firm and two more directors quit in a show of solidarity (and probably some level of disgust too). Only two survived the bloodbath...

Before I go too much further explaining what's happening there in chocolate town Pennsylvania, however, a bit of background on the company. In addition to the ubiquitous Hersheys brand, the company also markets BreathSavers, Bubble Yum, Cadbury chocolates, Reese's, Jolly Rancher, KitKat, Mauna Loa macadamia nuts, Milk Duds, Twizzlers, York, Scharffen Berger, Dagoba, and about thirty additional small brands.

Rather incredibly, the company was founded in 1894 by Milton Hershey. Through some innovations in how to fold milk into chocolate on a mass production line, by early 1900 Hershey's was able to make milk chocolate an affordable mass-market product. The Hershey's Kiss was introduced in 1907, Mr. Goodbar in 1925, Hershey's Syrup in 1926, and the Krackel bar in 1938. World War II arrived and Hershey's switched production facilities to aid the war effort, making "Ration D" bars for the soldiers. By the time the war ended, they'd produced more than a billion of 'em.

The company bought H.B. Reese's chocolate company, also based in Hershey, PA, in the late 1950's, and the late 60's and early 70's saw an acquisitions binge, including Delmonico Foods, rights to English candy from Rowntree MacKintosh, Y&S Candies, Dietrich Corp, Peter Paul / Cadbury's US operations, and Ronzoni Foods.

The company currently has over 13,500 employees worldwide and net sales of nearly $5 billion, making it the largest North American manufacturer of quality chocolate and sugar confectionary products.

So. So it's a big, successful company. But the way it's all put together and the way it's unraveling highlights the challenges of building a company that's publicly traded, but not shareholder controlled. Just scan the corporate press releases for 2007 and you'll see the edges of the discord: Hershey Enters into Short-Term Credit Agreement, Hershey Company Announces Chairman, President and CEO to Retire, Hershey names President, CEO and Director, Hershey Company Announces Election of New Directors.

What makes this all so interesting to me is that Hershey's Corporation is actually run by a charitable trust, the Hershey Trust Board. Just like any other separate organization, the Trust Board has its own expectations and has become increasingly unhappy with the performance of the company itself [see this WSJ article for background]

Imagine the reaction of the corporate executives - especially the already embattled CEO - when the Trust Board issued a statement in mid-October that made it clear they were "not satisfied" with the company's performance and is "actively engaged in an ongoing process" to improve it. Ouch!

But it's even more complicated than that. Back in 2002 the company was put up for sale, receiving a joint offer from Cadbury and Nestlé for $10.5 billion, then a sweeter offer of $12.5 billion from Wrigley. Just to have the Hershey Trust Board refuse to accept either offer after getting pushback from the community.

No surprise, the relationship between the corporate team and the Trust team decayed further, and now the Trust has taken back control of the company entirely by kicking out the entire Board of Directors. (The two remaining Board members are the incoming CEO David West and Robert Cavanaugh, a Board member who is also a part of the Trust itself)

There's no moral to this story other than to observe that when you have two masters (the marketplace / your shareholders and a managing trust) it's perhaps inevitable that one of them will get unhappy when things are difficult. And then the sparks will fly and, if things get really ugly, the bullets will too.

Pay attention to Hershey Corporation in the next twelve months. My guess is that the new Trust-selected Directors will move the company towards a merger with another firm, perhaps Cadbury Schweppes, but with the guarantee that Hershey's stay in control and that, ultimately, the Trust, a body that isn't under the scrutiny of a publicly traded company management team.

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