Pennsylvania Attorney General Kathleen G. Kane announced Friday that five of the longest-serving and highest-paid board members on the $12.3-billion Hershey Trust for poor children would resign over the next 18 months after a probe into the board’s compensation, governance, and travel expenses.
Friday's settlement would create a new majority for the embattled nine-member board. It also was the second attempt by Kane in four years - and the fourth since 1994 - to fix the scandal-plagued charity.
Hershey board members, while overseeing a school for poor children, have earned millions of dollars in compensation and spent more than $4 million on outside law firms since mid-2015 to investigate one another over conflicts of interest and possible insider trading involving Hershey chocolate company stock.
In a 30-minute news conference, Kane said she did not require that Hershey Trust board members reimburse the legal fees to the trust for poor children because the Attorney General's Office considered those payments part of a "legitimate dispute."
Kane said she believed that "we are evolving to a brighter future" for the trust. She saw it as a good sign that "we did not have to go into court and sue them to force changes."
Because Kane's law license has been suspended as she awaits a criminal trial next month, First Deputy Attorney General Bruce L. Castor Jr. signed the agreement.
Trust chairwoman Velma Redmond said in a statement that the talks with the Attorney General's Office were "productive. We are satisfied with the outcome."
Critics lost no time attacking the agreement, which they said would not force the charity to correct its ways and might be weaker than past ones.
Ric Fouad, a school alumnus who is president of Protect the Hersheys' Children, an advocacy group, said, "Pennsylvania officials have again taken pains to preserve the Hershey child-welfare charity as a patronage slush fund.
"This agreement does nothing for needy kids and everything for those profiteering at kids' expense. Attorney General Kane has again disgraced her office and thrown needy kids under a bus."
"It's riddled with loopholes," added Joseph Berning, another alum who has been advocating for change since the mid-1990s, citing language in the agreement such as "best efforts" to maintain a 13-member board. "I'm so frustrated I can't see straight."
Because the Attorney General's Office did not force the board members to reimburse the millions of dollars in legal fees, "they can do whatever they want with the trust money as long as they [collectively] agree to it. The attorney general has given them carte blanche," Berning said.
The Hershey Trust is considered the nation's largest child charity because it finances and oversees the 2,000-student Milton Hershey School.
Buoyed by decades of dividends from Hershey Co. stock, the trust has amassed $12.3 billion in assets, about 10 times the endowment for Phillips Exeter Academy, a bellwether prep school.
The agreement, which will be filed with Dauphin County Orphans' Court, says that the Attorney General's Office has to be given 30 days' notice when the Hershey Trust is about to appoint new board members and that members will serve maximum 10-year terms, which could be extended by one year.
The agreement sets $110,000 as annual board compensation, plus an additional $10,000 to chair a board committee. Trust board members can still sit on the boards of for-profit companies owned or controlled by the charity, which can boost their compensation significantly.
The agreement calls for the Hershey Trust boards - one to manage the charity's finances and a second to oversee the school, but comprised of the same individuals - to expand to 13 members from the current nine.
Former chairman Robert Cavanaugh, Joseph Senser, and James Nevels will resign by Dec. 31, according to the agreement.
Cavanaugh, an alum who was appointed to the trust in 2001, is a former trust board chairman. Last year, Cavanaugh was embroiled in a conflict-of-interest scandal when his college-age son was hired for a lucrative summer internship, earning about $13,000 over 10 weeks from one of the Hershey Trust's outside money managers.
The Hershey Trust board paid a New York law firm $650,000 to see if Cavanaugh violated the trust's conflict-of-interest policies. The report - which ended up costing about $38,000 a page - cleared Cavanaugh.
Redmond and board member James Mead will have to resign by Dec. 31, 2017.
Redmond joined the board in 2003 and is well past the 10-year limit. But Kane said it was important for Redmond to stay for continuity with so many board departures.
While Kane called Friday's changes "wonderful," they seem barely different from ones the trust voluntarily agreed to more than 20 years ago.
In 1994, the Hershey Trust announced, as part of a reform package to settle an attorney general's investigation, that it would restrict board members to two five-year terms, according to an April 7 news release from that year.
As part of those reforms, the trust also said its "new criteria for board membership" included "school-related experience, such as education and child development."
The Hershey Trust boards still lack experts.
Kane said her investigation did not involve the Hershey Co., which is controlled by the trust.
Mondelez International Inc. offered to acquire Hershey Co. for $107 a share in June but the offer was rebuffed by the company's board. Many on Wall Street expect Mondelez to make a higher offer with the trust board weakened.
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Hershey Trust directors' pay
Name Pay over Year last four years appointed
Robert F. Cavanaugh $1.4 million 2001
James Mead $1.2 million 2007
James Nevels $2.4 million 2007
Velma Redmond $453,829 2003
Joseph Senser $759,299 2001
Robert C. Heist $405,278 2011
David Saltzman N.A. 2014
M. Diane Koken N.A. 2016
James W. Brown N.A. 2016
Source: IRS tax returns