THE HERSHEY COMPANY
The scope of this paper is to analyze the kind of agency problems that emerges between The Hershey Company and their stakeholders and shareholders. To answer this, a review of the company`s board structure and ownership structure was made. Thereafter two specific situations that has occurred in recent times was used as case examples to enlighten the agency problems suggested to emerge by the corporate structure.
Whinston and Segal defines ownership as a set of rights and obligations concerning assets (Thomsen and Conyon, 2012, p. 122). The ownership structure, naturally, highly affects the actions of the company. Hershey is a publicly listed company on the New York Stock Exchange. There are two key elements of ownership structure regarding publicly listed companies; ownership concentration and ownership identity. Institutional ownership accounts for 75,89 % of the total share, where 660 institutional holders possess 123 672 496 shares (NASDAQ NYSE, 01.05.2014). Out of these, the biggest shareholder is Hershey Trust Company, who holds a total of 12 513 721 shares. Among other large institutional shareholder you find Vanguard Group Inc. (7 429 090 shares), State Street Corp (6 926 329 shares) and Janus Capital Management LLC (5 554 881 shares). However, as the Hershey Trust Company holds class B stocks, they have the majority voting power (80 %). The Milton Trust Company also needs to approve any issuing of Common Stocks or other actions that would deprive the Milton Trust Company of the ability to cast a majority of the votes on any matters where the class B Common Stock is entitled to vote. (Notice of annual meeting of stockholders, 2010). This goes to show that the Hershey Trust Company have the power to swing the votes in the directions of their desires in matters like electing directors, selecting of independent auditors, approval of executive officers compensation etc. even though they only hold 10,12 % of the total shares. The Hershey Trust Company also have the legal right to appoint or remove up to six directors (Notice of annual meeting of stockholders, 2010). The three other top four shareholders, in combined, holds 16,10 % of the shares, but that does not enable them to affect any real decisions. The rest of the shareholders holds anything between four and 4 million shares. With 660 individual institutional shareholder. The structure of the voting power paves the way for addressing type 2 agency problems (minority vs. majority investors). The Hershey Trust Company may have a different agenda and different views than the rest of the shareholders. The Hershey Trust Company`s primarily mission is to act as a trustee and manage the Hershey School, through the financial support raised though the Hershey Company. The Hershey Company are believed to have very strong incentives to carefully monitoring the executives and company performance, because they have great interest, both as owner and the corporate ties between the institutions. The minority shareholders will have smaller incentives towards monitoring daily operations. The distribution of power in between the shareholders are highly concentrated, as The Hershey Trust Company controls the votes. Big shareholders with great power, may have big influence of managers (Thomsen and Conyon, 2012, p. 124).
In October 2011, the board of Hershey Trust Company demanded the resignation of several board members of The Hershey Company. The foregoing events leading to such demands was the merger talks between The Hershey Company`s CEO at the time, Richard Lenny and the UK company Cadbury Schweppes. Hershey Trust Company felt betrayed as, as the major shareholder, as they had not been informed about the ongoing talks. It resulted in nine board members handing in their resignations. The Hershey Trust Company announced their successors on November 11. The board is a generic corporate governance mechanism and works as...
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