Harvard Case - The Hershey Trust: Managing Conflicts of Interest in Corporate Governance
"The Hershey Trust: Managing Conflicts of Interest in Corporate Governance" Harvard business case study is written by Andrew Hoffman. It deals with the challenges in the field of Business Ethics. The case study is 16 page(s) long and it was first published on : Mar 31, 2017
At Fern Fort University, we recommend a comprehensive approach to address the conflicts of interest within the Hershey Trust, prioritizing ethical leadership, transparency, and a robust corporate governance framework. This approach aims to balance the fiduciary duty to the Trust beneficiaries with the broader responsibilities of a publicly traded company, ensuring long-term sustainability and ethical business practices.
2. Background
The Hershey Trust, a charitable organization, holds a majority stake in The Hershey Company, a publicly traded confectionery giant. This unique structure creates inherent conflicts of interest. The Trust's primary objective is to maximize returns for its beneficiaries, while The Hershey Company must prioritize shareholder value and broader stakeholder interests. The case study highlights the tension between these objectives, particularly regarding the Trust's influence on company decisions, potentially leading to ethical dilemmas and challenges to good corporate governance.
The main protagonists are the Hershey Trust, The Hershey Company, and their respective stakeholders, including beneficiaries, shareholders, employees, customers, and the wider community.
3. Analysis of the Case Study
This case study can be analyzed through the lens of Stakeholder Theory, which emphasizes considering the interests of all stakeholders in decision-making. The Hershey Trust, as a significant shareholder, has a powerful influence on the company's direction. However, this influence must be balanced with the interests of other stakeholders, including:
- Shareholders: Seeking financial returns and responsible corporate practices.
- Employees: Seeking fair compensation, safe working conditions, and ethical treatment.
- Customers: Seeking high-quality products, ethical sourcing, and socially responsible practices.
- Community: Seeking positive economic and social contributions from the company.
The case study highlights the following key issues:
- Conflicts of Interest: The Trust's dual role as a shareholder and a charitable organization creates inherent conflicts.
- Transparency: The lack of transparency regarding the Trust's decision-making process raises concerns about accountability and ethical governance.
- Ethical Leadership: The Trust's actions raise questions about ethical leadership and its commitment to responsible business practices.
- Corporate Governance: The case study underscores the importance of a robust corporate governance framework to mitigate conflicts of interest and ensure ethical decision-making.
4. Recommendations
To address these issues, we recommend the following:
Establish a Clear and Transparent Governance Structure:
- Implement a clear separation of powers between the Trust and The Hershey Company, with distinct boards and management teams.
- Establish a transparent decision-making process for the Trust, outlining its objectives, strategies, and conflicts of interest management.
- Publish regular reports detailing the Trust's activities, investments, and impact on The Hershey Company.
Promote Ethical Leadership and Decision-Making:
- Develop a comprehensive code of conduct for both the Trust and The Hershey Company, emphasizing ethical principles, transparency, and conflict of interest management.
- Implement robust training programs on ethical decision-making, corporate governance, and conflict of interest awareness for all board members, executives, and employees.
- Establish a whistleblower hotline to encourage reporting of unethical behavior and ensure appropriate investigation and action.
Embrace Stakeholder Engagement and Transparency:
- Establish a formal stakeholder engagement process to gather feedback and address concerns from shareholders, employees, customers, and the community.
- Publish regular reports detailing The Hershey Company's social and environmental impact, including its commitment to fair trade, ethical sourcing, and sustainability.
- Implement a robust communication strategy to ensure transparency and accountability regarding the Trust's activities and its impact on the company.
5. Basis of Recommendations
These recommendations are based on the following principles:
- Corporate Responsibility: Recognizing the company's responsibility to its stakeholders, including shareholders, employees, customers, and the community.
- Ethical Leadership: Emphasizing the importance of ethical decision-making and transparency in corporate governance.
- Stakeholder Theory: Recognizing the need to balance the interests of all stakeholders in decision-making.
- Transparency: Promoting open communication and accountability to build trust and credibility.
These recommendations are consistent with best practices in corporate governance and align with the company's mission to provide high-quality products while acting responsibly.
6. Conclusion
By implementing these recommendations, the Hershey Trust and The Hershey Company can establish a robust framework for managing conflicts of interest, promoting ethical leadership, and ensuring long-term sustainability. This approach will enhance the company's reputation, strengthen stakeholder relationships, and create a more responsible and ethical business environment.
7. Discussion
Alternative approaches might include:
- Divesting the Trust's stake in The Hershey Company: This would eliminate the inherent conflict of interest but could also significantly impact the Trust's financial stability.
- Establishing a separate entity to manage the Trust's investment in The Hershey Company: This would create more distance between the Trust and the company, but could also lead to complications in decision-making and transparency.
The key risks associated with the recommended approach include:
- Resistance from the Trust: The Trust may be reluctant to relinquish control or adopt a more transparent approach.
- Complexity of implementation: Implementing these changes will require significant effort and may face challenges in achieving full buy-in from all stakeholders.
8. Next Steps
To implement these recommendations, the following steps should be taken:
- Form a task force: A task force composed of representatives from the Trust, The Hershey Company, and external experts should be assembled to develop a detailed implementation plan.
- Develop a timeline: A clear timeline with key milestones should be established for the implementation of each recommendation.
- Communicate with stakeholders: Regular communication with all stakeholders should be maintained throughout the implementation process to ensure transparency and address concerns.
By taking these steps, the Hershey Trust and The Hershey Company can move towards a more responsible and ethical future, balancing the interests of all stakeholders and creating a more sustainable and transparent business environment.
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Case Description
The Hershey Company has just received a purchase offer from Mondelez, another confectionery company, and students are thrust into the role of Layla Dylan, one of Hershey's board members. The Hershey Company has an unusual ownership structure, in which the Hershey Trust Company controls 9% of the shares and 80% of the voting rights. The Hershey Trust Company is charged with providing for the Milton Hershey School, a responsibility which can be interpreted as ensuring for the richness of the entire community of Hershey, PA. While the purchase offer for the Hershey Company makes business sense, it may interfere with the charter of the Hershey Trust Company. As a board member of both the Hershey Company and the Hershey Trust Company, Dylan must balance the two organizations' goals as she makes her decision.
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