"These [children] must grow up with a feeling that they have a real home." - Milton S. Hershey

Pa. Attorney General Report Changes Little at Hershey School

Pablo EisenbergSenior Fellow, Georgetown Public Policy Institute


The Pennsylvania attorney general's long-awaited report on the Milton Hershey School for poor children, issued last week after an investigation that lasted more than two years, is sure to be a disappointment to everyone who had hoped for major changes in the way the Hershey Trust manages the school.

The report, as well as an agreement between the attorney general's office and the almost $9-billion trust, absolves the group's board and leaders of wrongdoing and irresponsibility.

But its conclusions seems hard to square with what has been reported by journalists and advocacy groups like Protect the Hershey's Children.

The report was commissioned after board members and school officials were accused of shady real-estate dealings, inappropriate expenditures, massive conflicts of interest, poor and careless management, and excessive compensation of board members, according to reports in the Philadelphia Inquirer and a lawsuit by a former board member, Robert Reese, that was later withdrawn.

But Hershey Trust has long been such a powerful organization in Pennsylvania that no attorney general, Democrat or Republican, has wanted to push the kinds of real changes that are needed.

Last week's report, issued by a Democrat, Kathleen Kane, comes a little more than a decade after one issued by a Republican attorney general, Michael Fisher, which called for major governance changes at the trust after allegations of high compensation and cozy insider dealings. While Mr. Fisher later stepped back from some of his recommendations, the trust has in recent years defended itself from charges of wrongdoing by saying that it had made the changes requested.

Those changes have clearly done little good. What is especially surprising about the new attorney general's report is how little concern is expressed about the children who suffered the most from the board's poor oversight.

That would sadden Milton Hershey, the founder of the chocolate empire that bears his name, who left substantial sums to create the school, which started operation in 1909.

Mr. Hershey's bequest created the Hershey Trust Company, which controls two for-profit subsidiaries, including the Hershey Foods Corporation and the Hershey Entertainment & Resorts Company, the conglomerate that runs Hersheypark and numerous other businesses.

The attorney general's investigation was initially triggered by the school's questionable real-estate deals, most notably the purchase of the failing Wren Dale Golf Course for $12-million, which was two to three times its appraised value.

School officials said the cost was justified because of soaring land prices, but critics say the deal was in part to benefit at least one member of the Hershey board and other people who were associated with board members, the Inquirer reported. The school also bought the Pumpkin World roadside market for $7.5-million, far more than it was worth, the Inquirer reports.

The school said the land deals would create a buffer zone of safety for the children but then went on to build a $5-million clubhouse for the golf course on the land. Now the school is closing the golf course and clubhouse, saying it will build new student housing in their place.

The attorney general said that board members of the school did not violate their fiduciary responsibility in approving the real-estate deals or the high compensation and perks of the board (which have included payments of about at least $95,000 a year for trustees).

It also glibly dismisses Mr. Reese's serious allegations of misconduct.

The report shows little evidence that the attorney general consulted with outside experts on child welfare or residential institutions before issuing her report.

Protect the Hershey's Children, an advocacy group made up of alumni, had recommended creating an advisory panel of outstanding people in education. That's a good idea that the attorney general should have included.

According to Bob Fernandez, writing in the Philadelphia Inquirer last week, Attorney General Kane said that "these reforms will help ensure that the Hersheys' goal of providing a stable home and quality education to disadvantaged children can continue for generations to come."

These changes--it's a stretch to call them reforms--will do no such thing. The agreement does not require any changes in the composition of the board. Those who were responsible for past wrongdoings will remain as board members.

Though Protect the Hershey's Children and other outsiders have called for new board members with expertise on social welfare, residential schooling, and disadvantaged youths, the agreement calls on the trust and the school only to "use their best efforts to identify for election to their boards" such qualified people.

Not a strong endorsement of significant changes on the board.

While the attorney general said the enormous stipends paid to board members in the past were acceptable under the law, the agreement nevertheless reduces the maximum fee for trustees to $30,000 annually.

It allows Hershey to provide an additional $10,000 for the chair of the board and $5,000 for people who chair board committees. What's more, board members are to receive an additional $4,500 for each in-person board meeting that exceeds four hours in length.

The agreement also permits future increases in board pay on the basis of advice from compensation consultants. Why not impose a low flat stipend for board members, as would be appropriate for nonprofit service?

Past members made a lot of money by sitting on the boards of two or more of the three affiliated Hershey companies.

LeRoy Zimmerman, former chair of the nonprofit board, earned about $500,000 from three Hershey boards in a single year, de, according to tax filings.

The attorney general now says that some school trustees can sit on no more than two boards simultaneously. Why not limit their service to only one board?

The attorney general took a similar approach in how it handled the real-estate deals. It said it found no breach of fiduciary duty in the deals, but the agreement now requires the school to notify the attorney general of all real-estate transactions of more than $250,000 or involving a lease of more than three years.

If the school must notify the attorney general, why not also ask for state officials to approve transactions? And why require notifications and board-compensation limits if there truly had been no wrongdoing?

The agreement has little to say about the operation of the Hershey school itself. It seeks no changes in the administration of the school and does not suggest the appointment of an outside advisory council nor did it mention making any new child-safety provisions.

The agreement is a political document that does nothing to protect charitable assets. It just trims around the edges without changing any of the personnel or dealing with the formidable problems facing the Hershey organization.

The needy kids who are the heartbeat of the school are getting short shrift. That is the real tragedy of the attorney general's new report.

Pablo Eisenberg, a regular Chronicle contributor, is a senior fellow at the Center for Public and Nonprofit Leadership at the Georgetown Public Policy Institute. His e-mail address is pseisenberg@verizon.net.