News

Board vs. Board

Reese Names Names

UPDATE: Saturday, Feb. 12, 6:25 a.m.

By Dave Buffington

In his first petition to the Dauphin County Orphans' Court, former Hershey Trust Company president Robert Reese accused unnamed members of the Trust and Milton Hershey School boards of “self-dealing” in a laundry list of abuses of the Derry Township charity.

In his second missive to the court, Reese names names.

In an amendment filed Friday, Feb. 11, to his original petition, Reese lists “LeRoy Zimmerman, Robert Cavanaugh, Robert Vowler, Anthony Colistra, Richard Lenny, James Nevels, James Mead, Velma Redmond, Raymond Gover, Joseph Senser, Hiliary Pennington, and Joan Lipsitz” as the “co-trustees, Directors and Managers whose acts or omissions occurred during the relevant periods ….”

The big fish here is LeRoy Zimmerman, who is currently the Chairman of the Milton Hershey School Board of Managers and Chairman of the Hershey Trust Company Board of Directors. Zimmerman was the Attorney General of Pennsylvania from 1981 to 1989 and is widely recognized as the most powerful figure in the Hershey “entities.”

Other notables include:
- Richard Lenny is the former boss of Hershey Foods (now "The Hershey Company"). Lenny has been tied to the controversy over the purchase of the Wren Dale (now “Hershey Links”) golf course.
- Anthony Colistra was a member of the School and Trust boards during the controversy over the sale of Hershey Foods in 2002. Colistra is now President of the Milton Hershey School.
- Ray Gover is the former president and publisher of the Hampden Township (then Harrisburg) Patriot-News.

‘Knowing, Wilful Violation’

The Feb. 11 amendment from Reese also provides some explanation of the abrupt departure of former Trust President Robert Vowler in 2008.

The amendment contains a portion of a “letter of termination” which discusses “the placement of IRAs and certain revocable trusts in the Company’s common trust funds …” and says, “Recommending and approving the inclusion of these investments into the common funds was a knowing, willful violation of your duties as an officer and director of the Company.”

Analysis

The first Reese petition was a bombshell, a litany of substantial allegations by a top official of the Hershey entities. By itself, it threatened to force action by the state Attorney General’s office (which has oversight of the School and Trust) and the Dauphin County Orphans' Court (which has ultimate authority over the School and Trust).

The Reese amendment raises the stakes even further. By naming names, it cracks the façade of unity at Founders Hall. However, with the exception of the Vowler case, the amendment does not attach individual names to individual acts.

Of course, that could be the next move.

A full copy of the Reese amendment is available here.

The story below was last updated Friday, Feb. 11, 3:49 p.m.

In this story:
- The Grand Payback
- 'Excess Benefits'
- Highpoint Fundraiser
- Jobs in Derry Township
- 'Hundreds of Free Passes'
- Reese Out
- Criminal Charges?
- Your Private Bank?
- Zimmerman Leaving Hershey Board

In a stunning development with massive ramifications, a member of the Milton Hershey School Board of Managers has accused other members of “self-dealing” and an array of other abuses in a petition filed Feb. 8 with Dauphin County court.

In his petition, Robert Reese, “who has standing as a member of the Board of Managers of Milton Hershey School, the Board of Directors of Hershey Trust Company, and President of Hershey Trust Company”, has asked the court to show why “breaches of trust” by various members of the entity boards should not be redressed. As part of that redress, Reese has asked the court to compel the other board members to pay $22 million and has also asked the court for "the removal of said trustees as deemed appropriate by the Court…."

The Grand Payback

Construction of the "Grand Expansion" CottagesConstruction of the "Grand Expansion" CottagesThe move publicly pits Reese, the grandson of H.B. Reese, against the other members of the entity boards, and in a bold accusation, Reese says the recent Grand Expansion of the Hotel Hershey by Hershey Entertainment and Resorts (presumably the "100% owned subsidiary") was done for the pleasure of the other board members:

… the direction by certain trustees to the 100% owned subsidiary to invest up to $70 million to upgrade Hotel Hershey so the trustees could enjoy their stays and experiences there. The $70 million investment was opposed by financial management of the 100% owned subsidiary because the investment would never have a payback to justify it. Even with the huge investment, Hotel Hershey loses money. In fact, the 100% owned subsidiary as a whole has a net loss, did not pay any dividends to the Charity, its sole shareowner, for several years and even when it did pay a "token" $2 million dividend to the Charity in 2010, it had to borrow the money to pay the dividend.

Elsewhere in the petition, Reese says that:

…the staying by these trustees and spouses at Hotel Hershey in luxury accommodations (believed to be $500 per night) and free amenities (e.g., frequent use of the luxury spa at the Hotel) at the times (usually two nights, in some cases, more) of regular Trust Board and School Board meetings (which lasted one and one-half days) and at the times of Special Meetings. Staying two nights at the Hotel Hershey in "cottages" at Board meeting times is the case even for trustees living within relatively short driving distances of High Point Mansion and Founders Hall in Hershey, PA where almost all the Charity's Boards' meetings take place.

Reese also discusses travel perks for board members and their spouses, including "the provision to trustees and spouses of limousine services (one even to take a trustee to Maine for a vacation) and first-class air travel in unexceptional circumstances."

According to IRS documents filed by the school in June 2010:

The Board Travel Reimbursement Policy states “Coach airfare will be reimbursed. If Board members choose to fly first or business class, they will be responsible for the cost difference.”

'Excess Benefits'

The compensation of board members has been a topic of discussion for some time. (For details, see the Oct. 14, 2010 issue of The Sun.) However, Reese's petition elevates that discussion by calling the compensation a form of self-dealing:

Compensation since 2002 has nearly tripled. The average hours worked per week by Board members as reported in the most recent Form 990 filed with the Internal Revenue Service is approximately 5 (excluding the Petitioner, whose are 55). Under rules ofthe Internal Revenue Service, compensation paid above services rendered is considered "private inurnment" or "excess benefits", which would correlate to the principles of self-dealing under Pennsylvania law, i.e., receiving a personal benefit well in excess ofthe consideration rendered….

Highpoint Fundraiser

Highpoint Mansion - Photo: Nathan MerkelHighpoint Mansion - Photo: Nathan MerkelReese also cited the use of Hershey's Highpoint Mansion for a political fundraiser, presumably the controversial 2007 fundraiser held to honor GOP operative Karl Rove:

Not only did the political party not pay for the use of Mr. Hershey's home as a fundraiser, but submitted an invoice for $15,000 to the Charity with the notation "per [the trustee's] request, please find an invoice for the fundraiser hosted by [the trustee] on behalf of the [political party] State Committee on [date] at High Point Mansion". Instead of the political party or an individual paying for use of the Charity's facility, the political party invoiced the Charity, and this invoice was paid to the state political party by the 100% owned subsidiary (or its political action fund at the direction of the subsidiary's top management, which depleted the fund).

Jobs in Derry Township

Three of the members of the Hershey Trust Company and Milton Hershey School board were on the board of The Hershey Company when the candymaker moved to close the East Chocolate Avenue plant in downtown Hershey. In his petition, Reese also says:

…these trustees took no action to oppose, and, in fact, supported the closing of the Main Hershey Chocolate Plant built by Milton Hershey, and other manufacturing and supply chain actions, resulting in the loss of 3,000 jobs in Derry Township, Pennsylvania and the consequent "economic impact". These actions were not necessitated by the performance of the manufacturing facilities in Derry Township. The practical effect of these actions is, to a substantial degree, to undermine this Court's decision in 2002 enjoining the sale by the Trust of the then Hershey Foods Corporation.

'Hundreds of Free Passes'

As another example of "self-dealing," Reese offers "the making of a profit by a trustee in the sale of his monetary interest in Wren Dale Golf Course to the Charity in 2006" and says that "hundreds of free passes to play were given to certain trustees." However, the petition is careful not to call out board members by name. Instead, the petition uses the generic "trustee" description.

However, Reese does explicitly distance himself from the other board members saying:

Petitioner Reese was not a Director or on the Trust Board and was not a Manager or on the School Board when the actions constituting breaches of trust referred to hereinafter occurred, with limited exceptions.

Reese Out

Connie McNamara, a spokesperson for the Milton Hershey School and Hershey Trust Company provided this statement to The Sun on Thursday, Feb. 10:

The Hershey Trust Company board has received this petition and takes its fiduciary duties very seriously. We will review these matters and respond appropriately.

Although Mr. Reese has been a board member of Hershey Trust Company since 2007, the trust company received notification of this filing only after Mr. Reese learned that he was not reelected to the board for another term.

As of 5:27 p.m., Feb. 10, Reese was still listed as a member of the board at the Hershey Trust Company web site. In that listing, Reese was described as:

Robert Reese
Appointed: 2008
Highlights:
Retired in 2002 from Hershey Foods Corporation as Senior Vice President - Public Affairs, General Counsel and Secretary; recently served as Senior Vice President and Chief Legal Officer of the Molson Coors Brewing Company; Chairman and President of Reese Trusts; graduate of Harvard University and Georgetown University Law School.

But by 7:11 p.m., Feb. 10, Reese's listing was removed from the Hershey Trust Company web site.

Criminal Charges?

The Reese petition also contains a fascinating reference to an indictment by the Pennsylvania Attorney General's Office:

…the payment by the Charity directly or through wholly-owned affiliates of the Charity to a government relations consulting company, one of whose principals is the son-in-law of a trustee. These payments average $100,000 per year over several years, and there is not substantial evidence that equal consideration was received by the Charity and its affiliates. These payments for many years were not included in the Form 990. The company involved and at least one of its principals (not the trustee's son-in-law) has been indicted by the Pennsylvania Attorney-General's Office. The Company and individual involved have denied and are contesting the Attorney-General's charges.

The "government relations consulting company" is not identified in the petition, and the School reported no expenses for "Lobbying" on its latest IRS Form 990. However, the Form 990 does mention that:

Anthony B Seitz is a family member of Leroy S Zimmerman. Anthony B Seitz is a partial owner of Delta Development Group, Inc (the Company) The Company provides transportation consulting for 2 wholly owned entities of Milton Hershey School and School Trust. Delta Development Group, Inc was paid in total $289,819 by the wholly-owned for-profit corporations, Hershey Trust Company and Hershey Entertainment & Resorts Company. None of the amounts were paid by Milton Hershey School and School Trust.

Delta Development Group is based near the Patriot-News offices in Hampden Township, Cumberland County. At the Delta Development web site, "Tony B. Seitz" is listed as a Senior Vice President - Development Services. The web site also includes a document labeled "A Formula for Revitalization - Hershey, Pennsylvania," which is available here.

In 2009, Delta Development was entangled in the legislative "Bonusgate" scandal via former state Representative Mike Veon. In March 2009, then-Attorney General Tom Corbett unveiled allegations that Delta Development hired Veon's brother and said Delta Development "provided little to no work for the funds they received from the BIG," a non-profit established by Veon.

Your Private Bank?

Although the details are murky, the Reese petition also appears to allege that at least one board member was permitted to establish an IRA in the charity:

…the decision in 2004 (before Petitioner Reese was on the Board) by a trustee and officer, and ratified by the Chairman of the Audit Committee in 2006, to have the Hershey Trust's for-profit business allow Individual Retirement Accounts (IRAs) in its Common Funds (the Charity had monies invested in the Common Funds as well). This action financially and personally benefited the trustee/officer materially in his compensation. The trustee/officer was previously advised by counsel in 1999 this was not legally permissible….

Zimmerman Leaving Hershey Board

The Reese petition comes shortly after news that the Chairman of the Hershey Trust Company and Milton Hershey School Board of Managers, LeRoy Zimmerman, is leaving his position on the board of The Hershey Company, the worldwide candy maker based in Derry Township.

On Wednesday evening, Feb. 9, Trust and School spokesperson Connie McNamara said that "of course" Zimmerman was still chairman of the Hershey Trust Company and that a full statement would be released later.

On Friday afternoon, Feb. 10, the School announced that two new members have been named to the board. For more information, click here.

FOR MORE INFORMATION
- A full copy of the Reese petition is available
here.
- The Oct. 14, 2010 issue of The Sun included details on the compensation of board members. That story is available here.
- In the Sept. 10, 2009 issue of The Sun, former MHS President Johnny O'Brien wrote about governance issues at the School. His essay is available here.

CORRECTION: The "Breaking News" banner in this week's print edition of The Sun is incorrect. Zimmerman is known to be leaving The Hershey Company board.

 


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