e-Journal of Social & Behavioural Research in Business Vol. 7, Iss. 2, 2016, pp: 29 – 48. ”http://www.ejsbrb.org”
A Case Study of Organizational Form: Hershey versus Mars
Jason C. Patalinghug Department of Economics and Finance Southern Connecticut State University 501 Crescent St. New Haven, CT 06515 Phone: (203) 392-7337 Fax: (203) 392-5254 Email: [email protected]
Abstract Purpose: This study examined the history, growth and structure of two of the world’s largest confectionery makers, Hershey and Mars, to determine why these two companies chose their current organizational form. Design/method/approach: This paper starts off with an analysis of the industrial foundation which is a common organizational form in Europe but rarely found in the United States. A historical analysis is then made of both Hershey and Mars using literature from economics, law, history and management to come up with answers as to why the two corporations are organized the way they are today. Findings: The study found that Hershey adopted the industrial-foundation organizational form based on the donor-agency theory which assures donors that their donations are not redistributed as profits to residual claimants. The non-distribution constraint in the Hershey Trust Company prevents dividends (donations) from being redistributed to residual claimants, and that the non-distribution constraint makes more sense for Hershey because its founder, Milton Hershey, expressed his preference to leave a long lasting legacy. The study also found that Mars has chosen a family-controlled organizational form based on the competitive advantage theory which postulates that firm value is maximized when families retain control, benefitting both family and nonfamily shareholders. Originality/value: There have been few studies on the history and organizational evolution of the American confectionery industry. The study is unique as it addresses some gaps in the literature as it provides a historical and institutional study into that particular industry.
Keywords: industrial foundation, economics of organization, corporate governance, family owned firms.
JEL Classification: D02, L22, M10 PsycINFO Classification: 3660 FoR Code: 1503 ERA Journal ID#: 123340
Introduction The confectionery industry in the United States has evolved from one which had many
small niche players to one which is dominated by a few firms with the rest operating on the fringes. This industry is therefore an oligopoly. Confectionery is a multi‐billion dollar industry in the United States. U.S. candy manufacturers offer a wide range of products and have a huge presence in the global market. However, despite its size, there has been little research on the nature of the organization in the industry. This paper is a case study of the two bigger firms in the U.S. chocolate market: Hershey Company and Mars Incorporated (hereafter referred to as Hershey and Mars).
The objective of this paper is to examine the confectionery industry in the United States
from an institutional viewpoint using a case study approach. The study aims to show how the two biggest players in the industry came to choose their organizational structures over the years and the developments that have made those choices possible. In addition, the study discusses the factors that have made the industry the way it is today as well as those innovations the industry had to adopt as the circumstances necessitated. This study attempts to contribute to the literature on organizational studies.
The main hypothesis of this study is that certain institutional factors have made Hershey
a European-style industrial foundation and Mars a tightly held family‐owned firm. These factors had given these firms the incentives to behave the way they did over the past decades. This paper argues that Hershey chose the industrial-foundation organizational form so that it can preserve the legacy of its founder, Milton Hershey. This organizational form is consistent with the donor-agency theory. The non-distribution constraint in the Hershey Trust Company prevents dividends (donations) from being redistributed to residual claimants, and that the non-distribution constraint makes more sense for Hershey because its founder, Milton Hershey, expressed his preference to leave along a lasting legacy. The non-distribution constraint thus assures donors that their funds won’t be expropriated because the founder has a preference as to where those funds should go (The Hershey School). Hershey was able to persist as an industrial foundation due to government intervention in the 1960s when it was grandfathered into the Tax Reform Act and then in 2002 when the Pennsylvania state government prevented the sale of the company.
This paper also argues that Mars has chosen a family-controlled organizational form
because of Mars family’s greater commitment to the company, its long-term investment horizon, and the amenity potential associated with a traditional family name. This organizational form is consistent with the competitive advantage theory of family control which postulates that families retain control when firm value is maximized benefitting both family and non-family shareholders. I will thus compare and contrast the two organizational forms and lay out the argument for why each firm chose their current form.
The study draws from the literature of the new institutional economics (NIE) in
attempting to explain what institutions are, how they came to be, what their purpose is, how they change, and how they evolve (Klein, 1999). The hypothesis is verified and elaborated by citing empirical studies on ownership and organizational form (Hansmann, 1987, 1988, 2006) particularly studies on the performance of foundation-owned firms (Thomsen, 1999; Herrmann and Franke, 2002, Hansmann and Thomsen, 2012) as well as studies on the performance of family-owned firms (Sraer and Thesmar, 2007; Anderson and Reeb, 2003; Villalonga and Amit, 2006, 2009, 2010).
Review of Related Literature
Michael Rowlinson has done extensive work in the history of Cadbury. In his 1988 paper he stated that Cadbury had begun to apply scientific management techniques at its Bournville facility well ahead of most of its British counterparts. He attributed the fact that workers did not react negatively by and large to these techniques to the welfare policies that the firm employed. These policies are generally accepted as the foundation of Cadbury’s corporate
culture. The generally accepted view is that Cadbury’s labor management policies are an offshoot of the Cadbury family’s Quaker roots. Among those who held that view was Charles Dellheim who stated in his 1987 paper that the Quaker ethic was the cornerstone of Cadbury’s. Rowlinson and Hassard (1993) argued, however, that Cadbury’s labor policies were driven more by contemporary social pressures rather than a specific religious mindset. Cadbury’s “invented” corporate culture based on its Quaker ties gave it an air of legitimacy and moral authority. The reconstruction of Cadbury’s history has given it an identity distinct from other firms. Rowlinson (1995) argued that the Cadbury culture started to dilute in the 1960s due to increasing diversification and divisionalization. In his 2002 paper, Rowlinson took a look at Cadbury World, Cadbury’s counterpart to Hersheypark in the US, and concluded that the park, while having its own merits, presents an idealized version of the company’s history that is based on nostalgia for Britain’s industrial past.
Child and Smith (1987) presented a case study of Cadbury wherein they addressed issues
such as Cadbury's position within the chocolate and sugar confectionary sector, organizational change within the firm, the “firm-in-sector” perspective and the process of organizational transformation. Jones (1984) presented a case study of Cadbury’s overseas operations during the interwar years of 1918-1939. He pointed out many had asserted that British firms preferred to invest in former colonies, a so-called “Empire preference”, because that was the path of least resistance due to a lack of competition. Jones also pointed out that Cadbury faced tough competition in both Australia and Canada which were former British colonies and that Cadbury had mixed results in its overseas investments similar to other British multinationals of the period. Fitzgerald (2005) attributed Cadbury’s superior financial performance between 1922 and 1938, vis a vis Roundtree and Mackintosh, to product, marketing, and organizational innovations.
Fitzgerald (2000) examined the history of Mackintosh’s, a British confectionery firm
founded in the 1890s which merged with Rowntree in 1969. He argued that because the firm was dominated by a single family, its history would be intertwined with debates about the failures of British “personal capitalism”.
Erikkson et al. (1996) explored the structural changes that occurred within the British
and Finnish confectionery industries over the past few decades as well as the inter-organizational relationships that resulted from these changes. They also developed the sector concept to gain a better understanding of these industries.
Several studies have investigated the efficacy of different forms of firm ownership.
Picard and van Weezel (2008) looked at the advantages and disadvantages of private, public, nonprofit and employee ownership in the newspaper industry. They stated that private ownership is theoretically the most effective form compared to the other forms they analyzed. They also found that employee ownership is preferable to nonprofit ownership because employee owned newspapers have better monitoring capabilities, financing opportunities and performance incentives. Plunkett et al (2010) examined the trade-offs that come with different types of ownership among irrigation cooperatives in Australia. In their paper, they compared the characteristics of single structured irrigation corporation cooperative with those of the dual structured irrigation corporation cooperative. Single structured cooperatives are formed under federal law and are run as cooperatives. These coops do not separate asset ownership, maintenance and management of water functions. Dual structured coops separate asset ownership and maintenance, which is handled by a common law mutual, from water services and provision management, which is handled by a trading cooperative. They found that dual structured coops have some advantages over single structured ones.
Methodology Yin (2009) defines a case study as “an empirical inquiry that investigates a contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident” (p. 18). This paper presents longitudinal case studies of two of the biggest players in the American confectionery industry. It attempts to answer the present-day phenomenon that is their current organizational form and presents a context which explains how they got there. This study builds on earlier academic work and adds
additional information to knowledge about the industry. This paper tries to explain the path-dependency that these firms have and how these firms interact with the institutional environment through time. The paper explains the concept of an industrial foundation and then it provides a history of the two firms to provide context and a foundation for the rest of the analysis. The paper then discusses the merits of family-owned firms and then provides a comparison of privately held firms versus industrial foundations. This paper uses the prism of business history to formulate its arguments. Business history is a field that examines the growth of industries and corporations and the intricate links that they form with governments and societies.
The paper draws from the literature on institutional economics, industrial organization, law, agricultural economics, anthropology, geography, management, and history. These include historical studies of the U.S. and European confectionery industries as well as trade association publications. Data was also gathered from studies on industrial foundations and family owned firms. Industry-level and firm-level data were sourced from the U.S. Census Bureau, company websites, and other databases.
Paradox of the Industrial Foundation
Thomsen (1999) defines industrial foundations as self-governing, non-profit institutions that have a large ownership stake in a corporation. Usually the ownership stake is donated by the company’s founder or his family. Companies owned by industrial foundations are found mostly in Northern European countries like Germany, Sweden and Denmark. Examples of foundation-owned companies include IKEA (Sweden), Carlsberg (Denmark), and Krupp (Germany). Industrial foundations are a kind of pyramidal business group. Pyramidal business groups are called just that because the apex of the pyramid (usually a family firm) has control over resources larger than its residual claims (Langlois, 2012). Industrial foundations are not common in the US due to the 1969 Tax Reform Act which bars private foundations from owning more than a 20% stake in a corporation. Hershey is the most prominent example of an American industrial foundation (see Table 1). The corporate structures of several hospitals in the US also resemble industrial foundations since these have a nonprofit foundation which owns and controls the hospital, an insurance company and a firm that sells health plans (Thomsen, 1999).
Table 1: Characteristics of Industrial Foundations
They are self-governing, non-profit institutions that own business companies.
They have no owners and no members.
The decision to establish a foundation is irreversible. Once created, the foundations are self-perpetuating bodies provided they are financially viable.
As a non-profit entity, the foundation may earn profits but cannot redistribute them, except for charitable purposes.
The independence of a foundation emanates from initial wealth, endowment, or privileged access to a source of future income (e.g. the right to future profits from a company owned by the foundation).
Source: Compiled from Thomsen (1999).
Industrial foundations have long presented a puzzle for the standard principal-agent theory. Since foundations are non-profit entities, they thus lack the profit motivation to monitor the managers of the companies that they own. There are also constraints to the amount of equity that foundation-owned firms can attract from investors. However, Thomsen (1996) found that foundation-owned firms did not perform worse compared with other firms.
Thomsen (1999) enumerates the five elements that comprise the legal definition of an
industrial foundation: (1) charitable intention, (2) altruistic purpose, (3) foundation endowment, (4) foundation organization and charter and (5) ownership of a majority of shares in a corporation. Industrial foundations have proven to be an enigma for economists. The general
thinking has been that if managers are to do their job well they either have to be closely monitored by the owners or be compensated in a way that is similar to the returns the owners make. However industrial foundations do not work that way. Since they are organized as nonprofit institutions they are subject to a nondistribution constraint which means that any residual earnings the company makes will not go to the managers or the directors of the company.
Hansmann (1988) stated that nonprofits arise when the conflict between the costs of
contracting and the costs of ownership are strong enough so that no class of patrons can own the firm without incurring huge inefficiencies. Market contracting is insufficient to protect the interests of patrons because either these patrons are purchasing services for third parties or they are purchasing a public good. It is thus hard for the patrons (i.e. the donors) to monitor the firm’s performance. Due to this problem of asymmetric information it is more efficient to establish a firm where the managers hold it in trust for its patrons. Agency theory holds that nonprofits are managed less efficiently than for-profit firms because of the nondistribution constraint. Nonprofits are formed because the inefficiency of its managers is offset by the consumer protection that these managers provide to their patrons who can’t effectively monitor the firm’s performance. The nondistribution constraint prevents managers from appropriating resources for themselves. This explanation is usually offered to explain the presence of nonprofits in areas such as health care and education where there is competition between nonprofit and for-profit providers.
However, as Hansmann and Thomsen (2012) pointed out, the goods that industrial
foundations produce like chocolate in Hershey’s case are not characterized by the asymmetric information problem. Hansmann proposes that industrial foundations provide protection not to its consumers, as other nonprofits would do, but to its founder. In most instances the founder of an industrial foundation is seeking some sort of legacy that will last long after the founder dies. In the case of Milton Hershey, the Hershey Trust Company was established so that his main charitable cause, the Hershey School, will go on. Industrial foundations serve as an endowment from the founder to his dead self (Hansmann and Thomsen, 2012). However since the founder cannot monitor the firm after he dies, he creates an industrial foundation so that those who will manage the firm after he dies will have no incentive to deviate from the founder’s plan by trying to profit from the firm.
Thomsen (1999) provides several theories as to why industrial foundations are a viable
organizational form. His first theory is the donor-agency theory. In this theory donors need to be reassured that their donations are not going to be expropriated by the agents. At first glance this does not seem to apply to industrial foundations but donor-agency problem do arise if these firms receive dividends and distribute these to charitable causes. The non-distribution constraint thus avoids these revenues from being expropriated. Thomsen (1999) asserts that this theory makes sense if the founder has a preference as to which direction his company is headed to.
Tax consideration is another theory that Thomsen posits as a factor in the creation of
industrial foundations. His research has shown that northern European countries tend to have high inheritance taxes. This in turn encourages founders to put up a foundation which enables him to avoid paying the inheritance tax while allowing him and his family to maintain control of their business.
Thomsen also proposes that control mechanisms other than direct ownership such as
monitoring, managerial labor markets, debt pressure and product market competition may play a role in the creation of industrial foundations. However, he finds little evidence that these mechanisms solve the agency problems of industrial foundations.
Industrial foundations may also have product market advantages. Hansmann (1980)
wrote that the supplier of a good may organize as a nonprofit if the buyer is uncertain of the quality of the good that the seller is selling to him. This uncertainty creates a situation where the seller may overcharge the buyer and sell him inferior goods. Organizing as a nonprofit gives some reassurance to the buyer that the seller won’t cheat since the profit incentive has been
eliminated. Thomsen however could not find any solid link between product market linkages and industrial foundations.
Hershey as an Industrial Foundation
In 1909 Milton Hershey established the Milton Hershey School in order to provide education for orphan boys though today the school accepts students of either sex regardless of whether they are orphans or not. In the same year the Hershey Trust was created to be the school’s trustee. In 1918, three years after the death of his wife Catherine, Milton Hershey transferred all of his assets to the Milton Trust. The Trust thus had a majority of the voting shares in the company. This creates an unusual organizational setup wherein a nonprofit organization has control of the firm.
While industrial foundations are common in certain parts of Europe they are not as
prevalent in the United States. The main reason is because the Tax Reform Act of 1969 prohibits private foundations from controlling more than 20% of the voting shares in a corporation. However, industrial foundations were common prior to the enactment of this law. Some examples of former industrial foundations include the Ford Foundation which controlled the Ford Motor Company and the Alfred I. DuPont Testamentary Trust which controlled the St. Joe Paper Company. Hershey was able to get through the restrictions of the Tax Reform Act of 1969 by lobbying to Congress to consider it a supporting organization rather than a private foundation. A supporting organization is a nonprofit organization that gives grants to or operates a public charity. Section 509 of the law defines private foundations and provides an explanation as to why some organizations are excluded from this definition. The House Report (No. 91-413) mentions the Hershey Trust, university presses and non-church religious organizations as examples of supporting organizations.
The law’s main goal was to prevent the abuse of tax-exempt charitable foundations. The
law created two categories of exempt organizations: those which are considered as private foundations and those that are not. The types of exempt organizations not categorized as private foundations include publicly supported charities, gross receipts charities, organizations promoting public safety, and supporting organizations (DiRusso, 2006). The Hershey Trust and its allies provided a critical role in the development of supporting organizations. There was some concern in the company that the new law would treat the trust as a private foundation. Pennsylvania senator Hugh Scott provided testimony as to why section 509(a)(3) (the section regarding supporting organizations) was important to Hershey. Senator Scott stated that if the trust were to be considered a private foundation, it would put undue hardship on the school and its students. It is clear that Hershey’s lobbying in Congress paved the way for the creation supporting organizations.
Mars and Family Owned Firms Mars is one of the largest privately held firms in the nation, among the likes of food giant Cargill and chemical firm Koch Industries. Its corporate headquarters is located in McLean, Virginia just outside of Washington, D.C. The firm, owned by the Mars family, is known to be fiercely protective of its privacy. Family members rarely give any interviews. Clearly there is some value in Mars decision to stay private and not go public like its competitor Hershey. As a privately held company, Mars does not have to provide mounds of data to the Securities and Exchange Commission. Mars can thus keep some information to itself and away from the prying eyes of its competitors. Analysts can provide estimates of how much the CEO of Mars earned in base salary for a particular year but they can’t get that information from the SEC. However, there are some disadvantages as well. As a private company, Mars does not issue stock thus it cannot raise capital through the stock market nor can it use stock options as an incentive to its employees. In order to raise capital, Mars would have to go directly to banks or private investors in order to get the needed funds to expand its business. The merger with the William Wrigley Jr. Company in 2008 is a case in point. The deal was financed by Berkshire Hathaway, the business conglomerate owned by billionaire Warren Buffett. Wrigley, though a public corporation before the merger, is another firm which is tightly held by its founding family. Before the merger, the
Wrigley family owned most of the B shares in the firm. B shares have greater voting power than the common shares that the company formerly issued. The merger thus resulted in Wrigley becoming a stand-alone subsidiary of Mars with Berkshire Hathaway having a 10% stake in Wrigley. In the past, family owned firms have been perceived as inefficient as well as less profitable than firms where ownership is more dispersed. This may be due to the fact that upper management in most family firms consists mostly of family members, thus shutting the door to outsiders who may be more qualified. This may thus result in poorer business decisions and lower profitability. It may also cause resentment among employees since meritocracy is seemingly thrown out the window. Fama and Jensen (1985) show that open corporations use market value rules in order to maximize their firm’s cash flow while closed corporations will tend to underinvest in new capital. The family’s ability to select managers and directors for the firm creates barriers for outside parties to control the firm and that leads to the entrenchment of management and a lower bidding value for the firm. Gomez-Mejia et al. (2001) found out that family owned firms in Spain show signs of increased agency costs and greater managerial entrenchment. Managers can thus stay on even if they are not able to run the firm efficiently anymore. In a family owned firm, the owners have the power to take part in activities that benefit themselves at the expense of the firm’s performance. They expropriate for themselves private rents such as increased compensation or special dividends. DeAngelo and DeAngelo (2000) cited the case of the Times Mirror Company which was owned by the Chandler family. The authors claimed that the Chandlers’ desire for higher dividends lead to the poor performance of the firm. Shleifer and Summers (1998) state that families have an incentive to transfer rents from employees to themselves. Therefore, founding families will thus try to ensure that management serves their best interests. While these policies may maximize their utility it may lead to firm performance that is not up to par with non-family firms. Perez-Gonzalez (2006) provides evidence that promoting family CEOs in publicly-traded corporations significantly hurts performance and the evidence indicates that nepotism hurts performance by limiting the scope of labor market competition. Bertrand and Schoar (2006) provide cross-country evidence linking stronger family ties to worse economic outcomes. They argue that nepotism impedes the ability of family firms to grow. “Reliance on family members rather than professional managers may also lead to inefficiencies in decision making that will on average slow firm growth” (page 86). Anderson, Duru, and Reeb (2009) find that in large, publicly traded companies, both founder and heir firms are significantly more opaque than diffuse shareholder firms and exhibit a negative relation to performance.
While the preceding studies present a negative view of family executives and describe family firms with norms that are costly for corporate decisions and economic outcomes, the dominant findings in the literature support the view that family firms evolve as an efficient response to the institutional and market environments.
Anderson and Reeb (2003) note that large shareholders have an incentive to minimize
agency costs and increase firm value especially if the family’s wealth is tied in to the firm’s performance. Founding families thus have a reason to monitor their managers. Their long term presence gives them enough time to learn the specifics of their firm’s technology. Since founding families have a long term presence in their firms, this gives them a willingness to invest in long term projects. Their long term investment horizon makes family owned firms less prone to the myopia of shortsighted managers who could possibly forego good investments in order to increase the bottom line in the short term. Casson (1999) posits that founding families regard themselves as stewards of their firms and they view their firms as assets that can be passed to the next generation. This makes family owned firms more likely to hire managers who will ensure the long term viability and survival of the company.
The long term presence of founding families in their firms also creates a reputation
effect. Third parties such as suppliers and investors are more likely to deal with the same governing bodies in family firms as opposed to those in nonfamily firms (Anderson and Reeb, 2003). The family’s reputation is thus a bigger factor in family owned firms compared to nonfamily owned firms where there is faster turnover of managers and directors. This provides
the founding family an incentive to strengthen their firm’s performance. Family owned firms may even have the benefit of lower debt financing costs compared to nonfamily firms. Burkhart, Panunzi, and Shleifer (2003) argue that under an environment that provides strong legal protection to minority shareholders, the founder hires the best professional manager unless his amenity potential of keeping control in the family is huge. Even if the founder hires a professional manager, the law is not strong enough to control managerial discretion, and the founder or his children must stay on as large shareholders to monitor the manager. Villalonga and Amit (2006) indicate that family ownership creates value only when the founder swerves as CEO of the family firm or as Chairman with a hired CEO. Fahlenbrach (2009) show that Founder-CEO firms not only have a higher valuation, but also a better stock market performance. “Founder-CEO firms invest more in research and development, have higher capital expenditures, and make more focused mergers and acquisitions” (page 439). Villalonga and Amit (2010) discover that founders and their families are more likely to retain control when doing so gives the firm a competitive advantage. Table 1.5 provides a more detailed description of empirical studies on family firms. From what we have seen in the literature, it seems that family owned firms both have an incentive to improve firm performance and the power to actually make it happen.
Organizational Choice: Hershey and Mars This section provides a discussion about why Hershey eventually ended up being a corporation run by a nonprofit trust and why Mars has remained a family owned privately held firm.
Analyzing Hershey’s Organizational Form
One factor for Hershey choosing its organizational form is its deep ties to the town of Hershey and the state of Pennsylvania. As stated earlier there were several natural advantages as to why Derry Township was selected to be the headquarters for Hershey. Hershey’s presence had made it possible for several subsidiary industries to develop such as tourism, education and health care. Since Hershey is a company town, its inhabitants opposed the proposed sale because they strongly feel that a change in organizational form might lead to Hershey moving out and to a loss of jobs.
Thomsen (1996, 1999) analyzed the profitability and growth performance of 157 companies selected from the 300 largest Danish companies over the period from 1982 to 1992. He found out that foundation-owned companies performed no worse than the performance of dispersely-owned companies and family-owned companies. Thomsen asserts:
In other words, foundation-owned companies achieve similar levels of profitability and growth at a lower level of financial risk (measured by the equity/assets ratio). Furthermore, controlling for other variables the foundation-owned companies were found to have a lower level of volatility in the profitability measure (indicating a lower level of business risk) (Thomsen, 1999, p. 118). Thomsen (1999) using the same sample as Thomsen (1996) conducted a formal test of the
performance advantage of foundation-owned companies in terms of long-term commitment. He concluded that “there is some support for the idea that foundation-owned companies have a particular commitment to their businesses and that this may under some circumstances be an advantage in terms of profitability”, (page 131). He further asserted that “foundation-owned companies have a somewhat higher survival frequency and that they perform relatively better (in terms of profitability) in volatile businesses”, (page 132).
Relating Thomsen’s findings to Hershey’s performance, Hershey’s profits surged by 50% in
the 4th quarter of 2008, which was one of the most volatile periods of the U.S economy. Herrmann and Franke (2002) compared a sample of 65 German foundation-owned
companies with a sample of 306 German exchange-listed non foundation-owned companies over
the period 1990-1992. Their findings showed that foundation-owned companies performed better than listed companies. “German foundation-owned firms appear to follow investment and financing policies which clearly differ from those of listed corporations yet they managed to achieve a somewhat higher profitability” (page 277). The strategies of foundation-owned companies tend to promote long-term stability.
Using a sample of 121 Danish foundation-owned companies over a period 2003-2008,
Hansmann and Thomsen (2012) found that greater foundation distance from a subsidiary is positively and significantly correlated with the latter’s efficiency. They hypothesized that:
Foundation board members will be Outsiders rather than Insiders with respect to the operating company, and hence less subject to the cooptation that comes with Insider status…Directors who sit on the foundation board but not on the company board are presumably less subject to the confirmation bias that might result from participation and decision taken within the company (Hansmann and Thomsen, 2012, p. 22). The interpretation of Hansmann and Thomsen is that the preceding analysis explains why
the board of directors in industrial foundations act as if they were the subsidiary companies’ real owners with the entitlement to appropriate its residual returns.
Fama and Jensen (1983) introduced the concept of “donor-agency problem”. Thomsen
(1999) elaborated further on this theory by stating that “donors need to be assured that their donations are not redistributed as profits to external residual claimants”, (page 121). The donor-agency theory is applicable to Hershey because the Hershey Trust Company is the recipient of donations (dividends) from the Hershey Company. The non-distribution constraint in the Hershey Trust Company prevents dividends (donations) from being redistributed to residual claimants.
The non-redistribution constraint makes more sense for Hershey because its founder,
Milton Hershey, expressed his preference to leave a long lasting legacy. Milton Hershey donated in 1918 his Hershey Chocolate Company stocks to the Hershey Trust Company. Hershey as an industrial foundation provided the institutional arrangement to realize Milton Hershey’s preference for the survival of Hershey Chocolate Company. Hershey continuously plays its commitment advantage by building a reputation of product quality and brand image, and by signaling its long term commitment to raise barriers to entry by conducting continuous technological modernization and by building a $300 million state-of-the art manufacturing facility. This credible commitment of Hershey highlights its preference for survival and continuity, and its industrial foundation structure provides more incentives not to renege on its long term commitment.
The industrial foundation structure has been the appropriate organization form for
Hershey as its founder Milton Hershey sought a legacy that will last long after his death. In this case, Milton Hershey established the Hershey Trust Company to achieve his goal. This premise is validated by Hershey’s corporate pronouncement:
A legacy that lives on: With the death of Milton Hershey in 1945, the company, town, and institutions that bear his name were well positioned to continue and grow. The M.S. Hershey Foundation (a subsidiary of the Hershey Trust Company) is committed to keeping Milton S. Hershey’s vision alive. Milton Hershey didn’t just build a town, he built a community.1
Analyzing Mars’ Ownership Structure
Villalonga and Amit (2010) classified theories of family control of firms into two broad types: 1) competitive advantage theory, and 2) private benefits of control theory. The former
1 http://www.thehersheycompany.com accessed on October 1, 2012.
hypothesizes that founders or their families are more likely to retain control when firm value is maximized benefitting both family and nonfamily shareholders. The latter states that nonfounding families and individual blockholders are more likely to retain control when firm value is maximized benefitting only the family who expropriates nonfamily investors. Bertrand and Schoar (2006) describe similar two groups of theories. They label the former as “efficiency-based theory” and the latter as “cultural theory”.
Table 1.4 presents the determinants of both the competitive advantage theory and the
private benefits of control theory. The four determinants of competitive advantage theory are: value maximizing size, monitoring needs, amenity potential, and time horizon (Villalonga and Amit (2010); Demsetz and Lehn (1985)). Family control is negatively related to efficient firm size, and positively related to monitoring needs, amenity potential, and time horizon, respectively. The two determinants of private benefits of control theory are: use of control-enhancing mechanisms, and information asymmetries. Families are observed to frequently use mechanisms such as dual-class stock, disproportional board representation, and pyramidal ownership to enhance their control of publicly traded family firms. Furthermore, families prefer to own less transparent firms that allow them to maximize value for themselves (Villalonga and Amit (2010)).
Mars, Incorporated has chosen a family-controlled organizational form which is now into
its fourth generation. Mars’ choice is simply an efficient response to the institutional and market environment. Consider the determinants of the competitive advantage theory (see Table 2) which fit Mars’ situation. Mars’ sources of competitive advantage are the following: 1) its founder’s greater commitment to the company, 2) its long-term investment horizon, and 3) the amenity potential offered to the Mars family due to the reputational benefits associated with a traditional family name. This response of Mars is consistent with the competitive advantage theory and is reinforced by Mars’ corporate pronouncement as stated below:
As a private company governed by the Mars family, we think in terms of generations not quarterly returns. This is evidenced in our decades-old commitment to investing in the building and operating of our own manufacturing. While this bucked the trend of outsourcing for lower costs, because we manufacture over 95% of the products we sell, we have greater control over our environmental footprint and the quality we able to deliver to consumers.
Paul S. Michaels President Mars, Incorporated2 In addition, the Mars family members’ prior exposure to the business provides an
additional competitive advantage towards supplying managerial expertise, providing appropriate guidance, and promoting cooperation and cohesion for the company.
1. Value-Maximizing Size The optimal size a firm needs to reach to compete successfully in any given industry.
Efficient Scale The larger the firm size, the more costly to own a firm
External Financing Needs The greater the external financing needs, the more family ownership is diluted.
2. Monitoring Needs The greater the needs for large shareholder monitoring, the more likely the firm is family controlled
Risk The higher the risk, the more the monitoring needs.
Competition The larger the number of firms, the less the monitoring needs
Employees Intrinsic Motivation The more skilled the employees, the less the monitoring requirements
3. Amenity Potential The greater the amenity potential, the more likely the firm is family owned or controlled.
4. Long-Term Profit Maximization Families have a longer investment horizon compared to other shareholders
B. Private Benefits of Control Theory
1. Use of Control-Enhancing Mechanisms
The use of mechanisms such as dual-class stock and pyramidal ownership, the greater the probability the firm is under family control.
2. Information Asymmetries Founders or families prefer to own firms or operate in industries with relatively large information asymmetries between them and nonfamily shareholders.
Source: Adapted from Villalonga and Amit (2010), Table VI, page 881.
Now there are arguments against the efficiency of family-owned firms. Schulze (2002) mention that almost two thirds of family firms fail in a transition of ownership tot the second generation. In family-owned firms misaligned incentives may form when the second generation takes over. Second generation owners may put a higher preference for leisure and perks than the performance of their firms. They would be reluctant to approve of new ventures that challenge the status quo or their own welfare. These succession issues thus lead to inertia within the firm. However, there is a way for the owners of family owned firms to exit. Lazonick (2007) listed the five functions of the stock market as creation, control, combination, compensation, and cash. Creation is the function that provides a way to transform privately owned shares in a company into tradeable securities, and this enables financiers to leave the new firms that they have funded. Lazonick (2010) states that one of the reasons that stock markets exist is to provide an opportunity for owners to cash out of their businesses and use the money for other ventures.
On the other hand, Anderson and Reeb (2003) have documented that family firms generate more value than nonfamily firms. Villalonga and Amit (2006), using Fortune 500 firms, found that family firms create value only when the founder serves as CEO or as Chairman with a hired CEO. Sraer and Thesmar (2007) showed that French family firms largely outperform widely held French firms. And Villalonga and Amit (2010) using a larger and more random sample of U.S. firms, provided evidence that when founders and their families are in control, value is maximized for all (family and nonfamily) shareholders, thus implying that the competitive advantage theory is being affirmed (see Table 3, Panel A, for a summary of selected studies in support of the competitive advantage theory for family-controlled firms). These empirical
studies support Mars’ choice of organizational form as attested by its superior market performance and its long-term existence.
Moreover, studies on family firms have indicated that the positive performance of firms and industries will depend on whether the controlling family is the founding family or the nonfounding family. Founding-family-owned firms perform better than nonfounding-family-owned firms. In addition, founder-CEO has superior performance compared to descendant-CEO. But descendant-CEO performs better than nonfamily-CEO. Family firms managed by first generation family members are, on average, better performing than family firms managed by later generations (Villalonga and Amit (2010)). Mars fits the first factor, a founding family-managed firm. But it does not fit the second because its founder died in 1934. However, Anderson and Reeb (2003) have indicated that family-controlled firms with hired CEO under the guidance of a founding-family Chairman can perform well compared to nonfamily-controlled firms. Lastly, even if Mars is currently under the control of fourth generation family members, it continues to show superior performance. Thus, Mars’ choice of organizational form can be described below:
When founders and their families are in control, the competitive advantage explanation dominates or at least coexists with the private benefits of control explanation. However, when nonfounding families and individual blockholders are in control, the private benefit explanation dominates (Villalonga and Amit, 2010, p. 891).
Table 3, Panel B, provides a summary of selected studies whose findings are consistent
with the private benefits of control theory. Family appropriation of nonfamily shareholders is prevalent in situations when family firms operate in countries with weak institutions and use mechanisms such as dual-class stock and disproportional board representation in publicly-traded family firms. It is evident that the private benefits of control theory does not apply to Mars. Firstly, Mars is operating mainly in countries with strong legal and economic structures. Mars has never been accused of bribery or corruption in its global operation. Secondly, Mars is a privately-held firm and not publicly-listed and is, therefore, not in a position to appropriate nonfamily shareholder value through the use of such mechanisms as dual-class stock and disproportional board representation.
In the case of Mars, even if ownership and control are exercised by the family they do
not expropriate private rents for themselves. Mars headquarters in McLean, Virginia has a simple layout with no corner offices. The perks of executive management such as executive washrooms, company cars or reserved parking spaces are nonexistent. Even members of the Mars family have to punch in for work. Their aversion for perks has enabled Mars to avoid the curse that had befallen other family firms. Recent studies have shown that family owned firms can be more efficient than other types of firms. Anderson and Reeb (2003) have found that family owned firms have better accounting and market performance than nonfamily firms. Villalonga and Amit (2010) state that founding families retain control of the firm when doing so will give the firm a competitive advantage.
Table 3: Selected Studies on Family Firms A. Studies Supporting Competitive Advantage Theory
Author(s) Data Findings
Villalonga and Amit (2010)
8,104 firms from Compustat, 2000
Founders and their families are more likely to retain control when doing so gives the firm a competitive advantage. Non-founding families and individual stockholders are more likely to retain control when they can appropriate private benefits of control.
Villalonga and Amit (2009)
515 Fortune 500 firms, 1994-2000
The primary sources of the wedge between cash flow and control rights of the founding families are dual-class stocks, disproportionate board representation, and voting agreements.
Fahlenbrach (2009) 2,327 firms and 3,633 CEOs from S&P 500, and largest corporations in Fortune, Forbes, and Business Week, 1992-2002
Founder-CEO firms invest more on R&D, have better capital expenditure, and make more focused mergers and acquisitions An investment strategy that has invested in founder-CEO firms from 1993-2002 would have earned a benchmark-adjusted return of 8.3% annually.
Sraer and Thesmar (2007) 420 French listed firms, 1994-2000
Family firms largely outperform widely held corporations.
Villalonga and Amit (2006)
508 Fortune 500 firms, 1994-2000
Family ownership creates value only when the founder serves as CEO of the family firm or as Chairman with a hired CEO.
Bertrand and Schoar (2006)
70 countries from world values survey, 1981-84, 1990-93, 1995-97, 1999-2001
Cross-country data show that family norms and values seem more robustly related to economic outcomes than is another more commonly discussed cultural variable: trust.
Anderson and Reeb (2003) 403 S&P 500 firms, 1993-1999
Family firms perform better than nonfamily firms. When a family member serves as CEO, performance is better than with outsider CEOs.
B. Studies Supporting Private Benefits of Control Theory
Author(s) Data Findings
Perez-Gonzalez (2006) 335 Firms from Compustat, 1994
Firms where incoming CEOs are related to the departing CEO, to a founder, or to a large shareholder by either blood or marriage underperform in terms of operating profitability and marked-to-book ratios relative to firms that promote unrelated CEOs.
Nenova (2003) 661 dual-class firms in 18 countries from DATASTREAM, 1997
The value of control block varies widely across countries. It is close to half of firm value in South Korea and close to zero in Finland. The value of common block votes is interpreted as a lower bound for actual private benefits of the controlling shareholder.
Claessens, et al. (2002) 1301 publicly traded firms in eight Asian economies from Worldscope, 1996
Firm value increases with the cash-flow ownership of the largest shareholder, consistent with a positive incentive effect. But firm value falls when the control rights of the largest shareholder exceed its cash flow of ownership, consistent with an entrenchment effect.
La Porta, et al. (2002) 539 firms from 27 wealthy economies from Worldscope, 1995.
They find evidence of higher valuation of firms in countries with better protection of minority stockholders and in firms with higher cash flow ownership by the controlling shareholder.
Bertrand, Metha and Mullanithan (2002)
18,600 Indian firms from Prowess, 1989-1999
They find a significant amount of tunneling of non-operating components of profits among Indian business groups.
Zingales (1995) 94 dual-class firms from CRSP, 1984-1990.
Results support the hypothesis that the price of a vote is determined by the expected additional payment vote holder will receive for their votes in case of a control contest. The value of managerial prerequisites is reflected in the price of votes.
Lease, McConnell, and Mikkelson (1983)
30 dual-class firms from Monthly Stock Guide and Security Awards Stock Guide, 1940-1978
Firms that have two classes of common stock outstanding, the class with superior voting rights traded at a premium relative to the other class.
Results Table 4 provides a summary of the characteristics of privately held firms and nonprofits. Privately held firms have low agency costs and a low degree of separation of management and control since management and control are concentrated in one group. They have a low ability to attract capital as well since they do not issue stocks. They have a moderate profit incentive and ability to generate capital on their own. These firms because a lot of them are family owned also have a high incentive for value growth and sustainability as the family owners would want their offspring to inherit their firms. Nonprofits meanwhile have a high degree of separation between management and control since a lot of nonprofits are run by trustees and they have
moderate agency costs. However, as discussed earlier nonprofits in general suffer from low profit incentives.
Table 4: Comparison of Economic and Managerial Conditions Between Privately Held Firms and Nonprofits Private Ownership Nonprofit Ownership
Degree of ownership and control separation Low High
Agency cost for monitoring Low Moderate
Information asymmetry High Moderate
Ability to acquire capital Low Low
Ability to self-generate capital Moderate Low
Profit incentive Moderate Low
Incentive for value growth High Low
Emphasis on sustainability High Moderate
Source: Picard and van Weezel (2008) Examining the comparison on Table 4 it seems that Mars as a privately owned firm has a low degree of separation between ownership and control as the Mars family themselves are hands-on managers of their company. With Hershey that degree is much higher due to the fact that the Hershey Trust manages the corporation on behalf of shareholders and other stakeholders of the firm. Due to the fact that the Mars family is actively involved in running their firm the agency cost of monitoring management is relatively low. This is the opposite for Hershey. Members of the Hershey Trust board have been recently accused of racking up huge expenses on lavish trips and other corporate perks (Fouad, 2016). This illustrates the fact that monitoring agents (the managers) become costlier as owners have less control of firms. The Mars family also has higher incentives to grow the value of their firm as their own personal wealth depends on the firm being profitable. Meanwhile the Hershey Trust board has been reluctant to enter into deals that could be very profitable for the company (Fouad, 2016). This could be due to the fact that the members of the board are not the firm’s owners and have less incentive to increase the firm’s value. The following table presents a comparison of Hershey and Mars based on the earlier analysis of family owned firms and industrial foundations and summarizes the reasons why they chose their current organizational form.
Table 5: Comparison of Factors Behind Current Organizational Form of Hershey and Mars
Hershey as an Industrial foundation Mars as a Family Owned Firm
Establish a legacy
Donor-agency theory
Tax considerations
Product market advantages
Minimize agency costs
Increase firm value
Long term planning
Reputation amenity benefits
As discussed earlier in the paper, Milton Hershey wanted to leave a legacy behind in Pennsylvania. Having died childless an industrial foundation format is suitable for him because he creates a situation wherein future managers of his firm have little incentive to deviate from the founder’s wishes and this can be seen by the Hershey board’s reluctance to merge with firms such as Mondelez (Fouad, 2016). As a nonprofit Hershey also benefits from US tax law exemptions. Its reputation as a nonprofit which supports a school for needy children could provide its products an advantage among socially-conscious consumers. Mars on the other hand has several factors that led it to becoming a family owned firm. Frank Mars and his descendants are very hands on with their firm and they wanted almost complete control of it. Keeping the firm private enables it to plan for long term goals and increase firm value without being bothered by the shortsightedness of hired managers who may just be looking to increase profits in the short term. Being a family owned firm also has a
certain appeal to some consumers as well as suppliers for the firm as they feel assured that they are dealing with the same set of people for a long time. One common denominator between these two firms is the determination of their founders to pass on their name and create a legacy for themselves. For Hershey, that legacy is embodied by the Milton Hershey School which is funded by the Hershey Trust which runs the Hershey Company. Industrial foundations owe their existence to the philanthropy of its founding families. The industrial foundation form created a path dependency for Hershey as we can see in efforts to preserve this organizational form during the proposed sale of 2002. Path dependence basically means that what happens in the future not only depends on present circumstances but also on what happened in the past. In short, history matters. In the case of Mars, their legacy is a profitable corporation that can be passed on to the next generation of the Mars family. As opposed to Hershey, the Mars family is not big in the philanthropy department. Their primary aim is to grow their business
Conclusion This paper has presented a case study on two of the world’s largest chocolate makers: Hershey and Mars. It found through examining their corporate histories that the choice of organizational form is not simply a choice between altruism and control, but a choice between a structure that legally puts institutional constraints to prevent managers and employees from expropriating the founder’s or donor’s assets and preserving its value, and a structure that offers amenity benefits to the family in terms of the utility derived at being able to influence the type of products the company offers in the market. Hershey chose the industrial foundation structure in order to preserve in the long run the legacy of its founder, Milton Hershey. Hershey appropriately chose a structure that imposes a long-term perspective on the corporate entity and restricts its risk taking activities. On the other hand, Mars appropriately chose the family-owned privately-held structure in order to maximize its competitive advantage in terms of its long term investment horizon, its founder’s greater commitment to the company; as well as to derive amenity potential due to the reputational benefits associated with a traditional family name and the utility derived in leveraging the family’s familiarity with the chocolate business. When founders and their families are in control, value is maximized for both family and nonfamily shareholders. This is the case of Mars. The ability of the Mars family to not expropriate private rents has made Mars more successful than most other family firms.
References Anderson, R. C., Duru, A., & Reeb, D. M. (2009). Founders, heirs, and corporate opacity in the
United States. Journal of Financial Economics, 92(2), 205-222.
Anderson, R. C., & Reeb, D. M. (2003). Founding-family ownership and firm performance: Evidence from the S&P 500. The Journal of Finance, 58(3), 1301–1327.
Bertrand, M., Mehta, P. & Mullainatham, S. (2002). Ferreting out tunneling: An application to Indian business groups. Quarterly Journal of Economies, 117(1), 1047-1073.
Bertrand, M. & Schoar, A. (2006). The role of family in family firms. Journal of Economic Perspectives, 20(2), 73-96.
Brenner, J. G. (2000). The emperors of chocolate: Inside the secret world of Hershey and Mars. New York: Random House.
Bruno, H. A., & Vilcassim, N. J. (2008). Structural demand estimation with varying product availability. Marketing Science, 27(6), 1126-1131.
Burkart, M., Panunzi, F., & Schleifer, A. (2003). Family firms. Journal of Finance, 58(5), 2167-2201.
Calori, R., Atamer, T., Melin, L., & Gustavsson, P. (2000). Innovative international strategies. Journal of World Business, 35(4), 333-354.
Casson, M. (1999). The economics of the family firm. Scandinavian Economic History Review, 47(1), 10-23.
Child, J., & Smith, C. (1987). The context and process of organizational transformation - Cadbury Limited in its sector. Journal of Management Studies, 24(6), 565-593.
Cidell, J. L., & Alberts, H. C. (2006). Constructing quality: The multinational histories of chocolate. Geoforum, 37(6), 999-1007.
Claessens, S., Djankov, S., Fan, J., & Lang, L. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 75(6), 2741-2772.
Clarence-Smith, W. G. (2000). Cocoa and chocolate, 1765-1914. New York: Routledge.
Coe, S. D., Coe, M. D., & Huxtable, R. J. (1996). The true history of chocolate. Nature, 382(6590), 411-412.
D'Antonio, M. (2006). Hershey: Milton S. Hershey's extraordinary life of wealth, empire, and utopian dreams. New York: Simon & Schuster.
DeAngelo, H., & DeAngelo, L. (2000). Controlling stockholders and the disciplinary role of corporate payout policy: A study of the times mirror company. Journal of Financial Economics, 56(2), 153-207.
Dellheim, C. (1987). The creation of a company culture: Cadburys, 1861-1931. The American Historical Review, 92(1), 13-44.
Demsetz, H. (1983). The structure of ownership and the theory of the firm. Journal of Law and Economics, 26(2), 375-390.
Demsetz, H., & Lehn, L. (1985). The structure of corporate ownership: Causes and consequences. Journal of Political Economy, 93(6), 1155-1177.
DiRusso, A. (2006). Supporting the supporting organization: The potential and exploitation of 509 (a)(3) charities. Indiana Law Review, 39(2), 207-252.
Doherty, B., & Tranchell, S. (2005). New thinking in international trade? A case study of the day chocolate company. Sustainable Development, 13(3), 166-176.
Dominguez, L. V., & Cirigliano, M. (1997). Chocolates el rey: Industrial modernization and export strategy. Journal of Business Research, 38(1), 35-45.
Eriksson, P. (1991). The changing logics of product-mix management. International Studies of Management & Organization, 21(4), 66-77.
Eriksson, P., Fowler, C., Whipp, R., & Räsänen, K. (1996). Business communities in the European confectionery sector: A U.K.-Finland comparison. Scandinavian Journal of Management, 12(4), 359-387.
Eversole, R. (2002). The chocolates of Sucre: Stories of a Bolivian industry. Enterprise and Society, 3(2), 209-246.
Fahlenbrach, R. (2009). Founder-CEOs, investment decisions, and stock market performance. Journal of Financial and Quantitative Analysis, 44(2), 439-466.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325.
Fama, E. F., & Jensen, M. C. (1985). Organizational forms and investment decisions. Journal of Financial Economics, 14(1), 101-119.
Farrer, A. M. (1908). The Swiss chocolate industry. The Economic Journal, 18(69), 110-114.
Fitzgerald, R. (2000). Markets, management, and merger: John MacKintosh & Sons, 1890–1969. Business History Review, 74(04), 555-609.
Fitzgerald, R. (2005). Products, firms and consumption: Cadbury and the development of marketing, 1900-1939. Business History, 47(4), 511-531.
Fold, N. (2001). Restructuring of the European chocolate industry and its impact on cocoa production in West Africa. Journal of Economic Geography, 1(4), 405-420.
Fold, N. (2002). Lead firms and competition in 'bi-polar' commodity chains: Grinders and branders in the global cocoa-chocolate industry. Journal of Agrarian Change, 2(2), 228-247.
Fouad, R. (2016). Charity and children suffer as Hershey’s board fends off lucrative merger bid. The Chronicle of Philanthropy. Retrieved from https://www.philanthropy.com/article/Opinion-CharityChildren/237175.
Gant, T. (Ed.). (2003). International directory of company histories, Vol. 51. Farmington Hills, MI: Gale.
Gomez-Mejia, L. R., Nunez-Nickel, M., & Gutierrez, I. (2001). The role of family ties in agency contracts. Academy of Management Journal, 44(1), 81-95.
Grivetti, L. E., & Shapiro, H. Y. (2009). Chocolate: History, culture, and heritage. Hoboken: Wiley.
Hansmann, H. (1980). The role of nonprofit enterprise. The Yale Law Review, 89(5), 835-901.
Hansmann, H. (1987). Economic theories of nonprofit organization. In W. W. Powell (Ed.), The nonprofit sector: A research handbook (pp. 27-42). New Haven: Yale University Press.
Hansmann, H. (1988). Ownership of the firm. Journal of Law, Economics, & Organization, 4(2), 267-304.
Hansmann, H. (2012). Ownership and organizational form. In R. Gibbons & J. Roberts (Eds.), The handbook of organizational economics (pp. 891-917). Princeton: Princeton University Press.
Hansmann, H., & Thomsen, S. (2012, January). Virtual ownership and managerial distance: The governance of industrial foundations. Paper presented at the Law and Economics Seminar of Stanford Law School, Stanford, CA.
Hermann, M., & Franke G. (2002). Performance and policy of foundation-owned firms in Germany. European Financial Management, 8(3), 261-279.
Jones, G. (1984). Multinational chocolate: Cadbury overseas, 1918–39. Business History, 26(1), 59-76.
Kimmerle, B. (2003). Candy: The sweet history. Portland, OR: Collectors Press.
Klein, P. G. (2000). New institutional economics. In B. Bouckaert & G. De Geest (Eds.), Encyclopedia of law and economics, Volume I. The history and methodology of law and economics (pp. 456-489). Cheltenham: Edward Elgar.
Klick, J., & Sitkoff, R. H. (2008). Agency costs, charitable trusts, and corporate control: Evidence from Hershey's kiss-off. Columbia Law Review, 108(4), 749-838.
Koehn, N., & Helms, E. (2007). Candy land: The utopian vision of Milton Hershey. HBS Case No. 9-805-066. Boston: Harvard Business School Publishing.
Komoroski, J. L. (2004). The Hershey Trust's quest to diversify: Redefining the State Attorney General's role when charitable trusts wish to diversify. William and Mary Law Review, 45(4), 1769-1802.
Lane, D., & Sutcliffe, A. (2006). Brand extensions in confectionery; the Mars delight. Marketing Review, 6(1), 85-102.
Langlois, R. N. (Ed.). (1986). Economics as a process: Essays in the new institutional economics. New York: Cambridge University Press.
Langlois, R. N. (2013). Business groups and the natural state. Journal of Economic Behavior and Organization, 88(1), 14-26.
La Porta, R., Lopez de Silanes, F., Schleifer, A., & Vishny, R. (2002). Investor protection and corporate valuation. Journal of Finance, 57(1-2), 1147-1170.
Lawrence, S. (2002). The Ghirardelli story. California History, 81(2), 90-115.
Lazonick, W. (2007). The US stock market and the governance of innovative enterprise. Industrial and Corporate Change, 16(6), 983-1085.
Lazonick, W. (2010). The Chandlerian corporation and the theory of innovative enterprise. Industrial and Corporate Change, 19(2), 317-349.
Lease, R., McConnell, J., & Mikkelson, W. (1983). The market value of control in publicly-traded corporations. Journal of Financial Economics, 11(1-4), 439-471.
Manne, G. A. (1999). Agency costs and the oversight of charitable organizations. Wisconsin Law Review, 1999(2), 227-272.
McMahon, J. (1998). Built to chocolate: The Story of the Hershey Chocolate Company. Los Angeles: General Publishing Group.
MarketLine. (2013, January). Industry profile: Chocolate confectionery in the United States. Retrieved from EBSCOhost database.
Mars, Incorporated. (2012). Principles in action highlights 2011. Retrieved from http://mars.com/global/assets/documents/Mars_PIA_Highlights_2011_EN_report.pdf.
Michman, R. D. & Mazze, E. M. (1998). The food industry wars: Marketing triumphs and blunders. Westport, CT: Quorum Books.
Moss, S. & Badenoch, A. (2009). Chocolate: A global history. London: Reaktion Books.
Nenova, T. (2003). The value of corporate voting rights and control: A cross-country analysis. Journal of Financial Economics, 68(3), 325-351.
Pederson, J. P. (Ed.). (2010). International directory of company histories, Vol. 114. Detroit: St. James Press.
Perez-Gonzalez, F. (2006). Inherited control and firm performance. American Economic Review, 96(5), 1559-1588.
Picard, R. G. & van Weezel, A. (2008). Capital and control: Consequences of different forms of newspaper ownership. The International Journal on Media Management, 10(1), 22-31.
Plunkett, B., Chaddad, F. R., & Cook, M. L. (2010). Ownership structure and incentives to invest: Dual-structured irrigation cooperatives in Australia. Journal of Institutional Economics, 6(02), 261-280.
Porter, M. E. (1974). Consumer behavior, retailer power and market performance in consumer goods industries. The Review of Economics and Statistics, 56(4), 419-436.
Richardson, T. (2002). Sweets. Bloomsbury, NY: Bloomsbury.
Rowlinson, M. (1988). The early application of scientific management by Cadbury. Business History, 30(4), 377-395.
Rowlinson, M. (1995). Strategy, structure and culture: Cadbury, divisionalization and merger in the 1960s. The Journal of Management Studies, 32(2), 121-140.
Rowlinson, M. (2002). Public history review essay: Cadbury World. Labour History Review, 67(1), 101-119.
Rowlinson, M., & Hassard, J. (1993). The invention of corporate culture: A history of the histories of Cadbury. Human Relations, 46(3), 299-326.
Savitz, A. W. (2006). The triple bottom line: How today's best-run companies are achieving economic, social and environmental success - and how you can too. San Francisco: Jossey-Bass.
Schulze, W. S., Lubatkin, M. H., & Dino, R. N. (2002). Altruism, agency, and the competitiveness of family firms. Managerial and Decision Economics, 23(4-5), 247-259.
Scott, P. & Walker, J. (2010). Advertising, promotion and the competitive advantage of interwar British department stores. Economic History Review, 63(4), 1105-1128.
Shleifer, A., & Summers, L. (1988). Breach of trust in hostile takeovers. In A. Auerbach (Ed.), Corporate takeovers: Causes and consequences (pp. 33-68). Chicago: University of Chicago Press.
Sraer, D., & Thesmar, D. (2007). Performance and behavior of family firms: Evidence from the French stock market. Journal of the European Economic Association, 5(4), 709-751.
Thomsen, S. (1996). Foundation ownership and economic Performance. Corporate Governance: An International Review, 4(4), 212-221.
Thomsen, S. (1999). Corporate ownership by industrial foundations. European Journal of Law and Economics, 7(2), 117-137.
Villalonga, B. & Amit, R. (2006). How do family ownership, control, and management affect firm value? Journal of Financial Economics, 80(2), 385-417.
Villalonga, B. & Amit, R. (2009). How are U.S. family firms controlled? Review of Financial Studies, 22(8), 3047-3091.
Villalonga, B. & Amit, R. (2010). Family control of firms and industries. Financial Management, 39(3), 863-904.
Woloson, W. A. (2002). Refined tastes: Sugar, confectionery, and consumers in nineteenth-century America. Baltimore: Johns Hopkins University Press.
Yin, R. K. (2009). Case study research: Design and methods (4th ed.). Thousand Oaks, CA: Sage Publications.
Yip, G. S., & Coundouriotis, G. A. (1991). Diagnosing global strategy potential: The world chocolate confectionery industry. Planning Review, 19(1), 4-14.
Zingales, L. (1995). What determines the value of corporate votes? Quarterly Journal of Economics, 110(4), 1047-1073.
