The Magazine

Sweet Empire

Milton Hershey made lots of chocolate, and money.

Sep 4, 2006, Vol. 11, No. 47 • By MARTIN MORSE WOOSTER
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In 1900, Hershey sold his caramel company and decided to build a large chocolate factory. He bought land about 20 miles from Lancaster, and decided to build a magnificent city for his employees. He held a nationwide contest to come up with a suitable name for the town. The winning name was "Hersheykoko." The Post Office rejected the name as too commercial, but said "Hershey" was fine.

As a manufacturer, Hershey made his big breakthrough in 1903. Milk chocolate was hard to make, since watery milk and fatty cacao butter don't mix very well. But engineer John Schmalbach discovered that cooking low fat milk for several hours produced a condensed product that was easily combined with cacao and sugar to produce milk chocolate. As D'Antonio observes, one consequence of Schmalbach's process was that the milk fat fermented slightly, leaving "a slight, faintly sour note." Ever since then, Americans have found this slightly sour chocolate delightful, while Europeans think our chocolate tastes funny.

In 1908, Hershey incorporated his chocolate company. One year later he created his orphanage, funded with most of the shares of Hershey Chocolate. Hershey gave his most detailed explanation of his intentions in an interview with the New York Times's James C. Young in 1923: "My business has been far more successful than I ever expected it to be," he said. "If I should drop out, what should become of the business, the capital, and the earnings? . . . Well, I have no heirs, so I have decided to make the orphan boys of the United States my heirs."

"We do not intend to turn out a race of professors," Hershey added. "The thing that a poor boy needs is knowledge of a trade, a way to make a living. We will provide him with the groundwork. Of what use is Latin when a fellow has to hoe a patch or run a lathe?"

But by leaving control of Hershey Chocolate in the hands of a nonprofit, Hershey created a powerful "poison pill" that made sure that the company would not be sold. William A. McGarry explained the connections between the corporation and the school in a 1940 article in Nation's Business: "The plant is now owned in trust by the home," McGarry wrote. "The business supports the boys and the boys supply labor and executives for the business when they grow up."

But the flaw in this scheme was that Hershey Chocolate, with an annual growth rate that averaged 17 percent, was too successful for Hershey's purpose. The Milton Hershey School board struggled to deal with the flood of cash. In 1963, $50 million (or 20 percent) of the endowment was given to Penn State to create the university's medical school in Hershey, several hundred miles away from the school's main campus in State College. This was an acceptable diversion, since the residents of Hershey could use a good hospital.

The board decided to create a pharaonic building campaign. They built Founders' Hall, which one writer in 1973 observed, "looks like a recently added addition to the Strip in Las Vegas." A Philadelphia Inquirer article in 1982 noted that students had their meals in the Camelot Room, "a dining hall with a King Arthur motif that could be a $100-a-meal restaurant." The school also has largely ceased to be an orphanage; only 10 percent of the students are true orphans. Most are "social orphans" with one, or even two, parents.

The Milton Hershey School board has never explained why they need their multibillion-dollar endowment, given Hershey's intentions to provide a modest education for pupils benefiting from his charity. Nor have they explained why it is so vital that the Hershey School endowment be spent in Hershey.

Courts enforce donor intent by an ancient legal doctrine called cy pres, or "as close as possible." The most productive way to preserve Hershey's legacy is to franchise the Hershey School concept across America, in much the same way that Girls and Boys Town has become a national institution with branches in many states. In that sense, the Milton Hershey School board has a choice: Will they use their billions to help tens of thousands of struggling children enmeshed in foster care? Or will they continue to provide a gold-plated education for the fortunate few?

Martin Morse Wooster, a senior fellow at the Capital Research Center, is the author of The Great Philanthropists and the Problem of Donor Intent.