Settlement ends Hershey Trust probe

Pennsylvania Attorney General Kathleen Kane has ended a two-year-plus investigation into the $10 billion Hershey charity for orphans and poor children with a settlement that imposes rules that lower board compensation and tighten board governance.

Kane did not find that the charity's board members violated their fiduciary duty by purchasing and developing a $17 million golf course or buying the adjacent Pumpkin World roadside market for $8.6 million.

The settlement, announced Wednesday and submitted to Dauphin County Orphans' Court, is the third agreement between the charity and the Attorney General's Office in the last 11 years related to governance reforms at the institution, founded as an orphanage by chocolate magnate Milton S. Hershey and his wife, Catherine, in 1909.

The Milton Hershey School, financed by the $10 billion in charitable funds, now operates like a boarding school for 1,800 poor children.

"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," Kane said in a statement.

The charity's questionable expenditures were first reported in The Inquirer in 2010 and 2011. Robert Reese, a former member of the charity's board, also claimed financial irregularities in a petition filed in Orphans' Court in 2011.

In addition to lowering compensation, the rules announced Wednesday require that board members travel "coach class" when flying and that the charity make its "best efforts" to find board members who are experts on at-risk children, residential education, and other disciplines important to its operations.

Under the terms of the settlement, the Hershey Trust Co., legal trustee of the Hershey charitable assets, must inform the Attorney General's Office a month before a real estate transaction of more than $250,000, according to the court filing.

In 2006, the charity purchased the money-losing Wren Dale golf course, now called Hershey Links, for $12 million from Hershey-area business executives, doctors, and lawyers. The charity then constructed a $5 million bar/restaurant and clubhouse on the property.

The purchase price was two to three times Wren Dale's value in an appraisal commissioned by the Hershey Trust Co. School funds were used in the deal, and the school said the cost was justified because of soaring land prices in the area.

At the time, the school said the golf course would be used as "buffer land" for student safety and green space as it added hundreds of students. This year, the school said it would close the golf course and Highlands restaurant/bar and build new student group homes on the property, even though it has more than 1,000 acres of farmland nearby.

"We worked cooperatively with the Attorney General's Office through this process," Robert Cavanaugh, chairman of the Hershey charity, said in a statement. "While the Office of Attorney General has reaffirmed that there was no wrongdoing on the part of the board, it also led to the development of new policies and practices that will serve our mission better."

The new annual retainer for a director at the Hershey Trust Co. will be $30,000. The chairman may earn an additional $10,000 a year, and committee chairs may earn an additional $5,000 each. Board members also will be paid $4,500 for each daily session of the board that lasts more than four hours.

The settlement places some limits on Hershey Trust Co. board members serving on other paying boards in the Hershey organization.

LeRoy S. Zimmerman, a politically influential, former Republican two-term state attorney general and former chairman of the Hershey charity, held positions on the three paying boards in the Hershey organization, earning about $500,000 a year. Those boards are for the Hershey Trust Co., the Hershey Co. (the chocolate company), and Hershey Entertainment & Resort Co.

The new rules say that no board member may hold positions on the three paying boards. Zimmerman resigned his board positions in late 2011.

The charity owns Hershey Entertainment & Resort and controls the publicly held chocolate company.