Summarize Hershey Company case study into 4 paragraphs.? Should Hershey be held ethically responsible for child labor conditions in the West African cocoa communities? – If it is not poss

498 Case 12 The Hershey Company’s Bittersweet Success

This material was developed by Dianne Kroncke, Harper Baird, and Sarah Sawayda under the direction of O.C. Ferrell and Linda Ferrell, © 2019. Shelby!Wyatt provided updates. It is intended for classroom discussion rather than to illustrate effective or ineffective handling of administrative, ethical, or legal decisions by management. Users of this material are prohibited from claiming this material as their own, emailing it to others, or placing it on the!Internet.

Introduction Chocolate is enjoyed by millions, mainly in decadent desserts, candies, and drinks. Dark chocolate, chocolate with at least 70 percent cocoa, is known for its health benefits, such as reducing blood pressure, improving blood flow, and increasing good cholesterol. As society learns more about the health benefits of dark chocolate, demand for the product continues to grow. Developing countries are discovering that cocoa beans improve their sweet treats and candies, thus creating even greater worldwide demand. Cocoa beans grow mostly in tropical climates, mainly in West Africa, Asia, and Latin America, with the largest exporters being Ghana and the Ivory Coast.

With more than $7.7 billion in annual sales, the Hershey Company is one of the world’s largest produc- ers of chocolate and candy products. Hershey’s products are sold in more than 70 countries and include Hershey’s Kisses and Hershey’s Milk Chocolate Bars, as well as brands such as Reese’s, Whoppers, Almond Joy, and Twizzlers. Although Hershey strives to be a model company and has several philanthropic, social, and environmental programs, the company has struggled with ethical problems related to labor issues in West African cocoa communities. These issues have included child labor. Hershey has developed several initiatives to improve the lives of West African cocoa workers and is involved with a number of organizations that are involved in cocoa communities. However, critics argue that Hershey is not doing enough to stop labor exploita- tion on cocoa plantations. This case examines some of the issues related to the Hershey Chocolate Company and West African cocoa communities.

Hershey’s History The Hershey Chocolate Company was founded in 1894 by candy manufacturer Milton Hershey in Lancaster, Pennsylvania. As a candy entrepreneur, he had two bankruptcies before his eureka moment while making candy caramels with fresh milk. Hershey’s chocolate business started off as a side project, a way to create sweet chocolate coatings for his caramels; however, the company soon began producing baking chocolate and cocoa and then selling the extra product to other confectioners. The successful sale of Hershey’s excess

products was enough to make the chocolate department its own separate entity.

Despite the company’s immediate success, Milton Hershey still craved more chocolate, especially milk chocolate. At the time, milk chocolate was perceived as a treat only the wealthy could afford to enjoy. Hershey set out to find a less expensive way to produce milk chocolate while still maintaining its quality. In 1896, Hershey bought a milk processing plant in Derry Township, Pennsylvania, and began working day and night until 1899 when he created the perfect milk chocolate recipe—a recipe that could be manufactured cheaply and efficiently while maintaining a high level of quality. The company soon opened a factory and began introducing new chocolate treats. The most popular of these was the Hershey’s Kiss, a small dollop-shaped chocolate candy wrapped in foil.

The Hershey’s Kiss was only the beginning. Hershey soon came out with Mr. Goodbar and Krackel, both of which remain popular today. In 1923, Hershey began collaborating with another famous confectioner: H.B. Reese. H.B. Reese was a former employee at the Hershey Company who started his own candy company that focused on a single product, the peanut butter cup. Due to his ties with the Hershey Company, the chocolate coating for the Reese’s peanut butter cups was supplied by Hershey.

Throughout the mid-twentieth century, the Hershey Chocolate Company continued to expand. The com- pany’s entrepreneurial spirit continued after Milton Hershey’s death in 1945. The company acquired several other firms, including Reese’s, and was renamed the Hershey Foods Corporation in 1968. From 1969 to 2004, the company grew from $334 million to $4.4 billion in net sales. The company changed its name to the Hershey Company in 2005.

Today, Hershey employs more than 14,930 people worldwide, with the company headquarters in Hershey, Pennsylvania. The company has a formal “Code of Conduct” and was ranked number 252 on Forbes’ “Best Employer List.” In March 2017, Michele Buck was named President & CEO, making her Hershey’s first female chief executive. She was later named to Fortune’s “50 Most Powerful Women” list. Hershey’s stock price has increased 40 percent since Buck joined the company.

Hershey, which had $7.7 billion in sales in 2018, now includes the following brands: Hershey’s, Kisses,

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Reese’s, Kit Kat, 5th Avenue, Almond Joy, Brookside, Cadbury, Heath, Mounds, Mr. Goodbar, Krackel, Whatchamacallit, Skor, Symphony, York, Whoppers, Allan, Good & Plenty, Jolly Rancher, Pelon Pelo Rico, Twizzlers, Breath Savers, Bubble Yum, ICE BREAKERS, Milk Duds, PAYDAY, Rolo, Zagnut and Zero. In September 2018, Hershey acquired Pirate Brands, which includes Pirates Booty, Smart Puffs, and the Original Tings, for $42 million and Amplify, the parent company of SkinnyPop, for nearly $1 billion.

After 125 years of business, Hershey is still innovat- ing. The company plans to make a larger dent in the $88 billion snacking industry by introducing more snack products, evidenced by their acquisition of SkinnyPop’s parent company, Amplify, Hershey’s largest acquisition to date. Hershey is evolving to accommodate changing consumer preferences, including changes in the way people shop. In 2019 Hersey introduced stand-up pack- aging, which was designed to look good on the shelf in a store as well as appear appealing on mobile devices. By encouraging retailers to implement creative cross-selling solutions to their e-commerce platforms that encourage shoppers to add candy to their carts, Hershey hopes to appeal to online shoppers who purchase groceries online and order in bulk.

Thanks to Milton Hershey, the company has a long history of philanthropy and stewardship. He supported education, building the Milton Hershey School, a private school for lower income children. He also built parks and a hospital, as he put his employees’ well-being over his personal profits. At the time of his death, he bequeathed most of his estate to the Hershey School.

Ethics, Values, and Social Responsibility Hershey’s commitments to their stakeholders through ethical behavior are outlined in the Code of Ethical Business Conduct. The code covers issues from conflicts of interest and antitrust to fair trade, sustainable sup- ply chain management, and workplace diversity. The company encourages ethics reporting through a variety of channels, including management, human resources, executives, and third-party reporting. All employees go through ethics training and certify their adherence to the code every year. Hershey’s Ethical Business Practices Committee provides oversight and guidance in all ethical issues at the company.

Values Hershey’s four core values are centered on the idea of “One Hershey”:

1. Open to Possibilities: “We are open to possibilities by embracing diversity, seeking new approaches and striving for continuous improvement.”

2. Growing Together: “We are growing together by sharing knowledge and unwrapping human potential in an environment of mutual respect.”

3. Making a Difference: “We are making a difference by leading with integrity and determination to have a positive impact on everything we do.”

4. One Hershey: “We are One Hershey, winning together while accepting individual responsibility for our results.”

Corporate Social Responsibility Strategy Hershey’s corporate social responsibility (CSR) strategy, called Shared Goodness Promise, centers on engagement with their stakeholders and continually improving their CSR performance. The company also incorporates their values into their programs and initiatives. The company believes that “The Hershey Company’s commitment to CSR is a direct reflection of our founder’s life-affirming spirit.” Hershey uses their value chain to categorize their social responsibility activities into four groups: Shared Futures, Shared Planet, Shared Business, and Shared Communities.

Shared Futures Hershey’s Shared Futures pillar focuses on helping chil- dren succeed through education and nutrition. Hershey introduced The Heartwarming Project in 2018 aimed at helping children build meaningful connections while promoting inclusivity and empathy. Hershey partnered with organizations such as The Boys & Girls Club of America and WE Charity to reach more than 6 million children in the program’s first year.

Additionally, Hershey aims to bring nourishment to children around the world with a variety of nutrition programs. In 2015 Hershey introduced ViVi, a fortified nutritional supplement, to students in Ghana to improve nutrition as well as increase school attendance. In 2018, a study by the University of Ghana showed that anemia rates decreased by 11 to 81 percent and attendance rates improved by 84 to 95 percent in the 57,700 children that received ViVi daily. In 2018 Hershey partnered with Annamrita, a nonprofit in India, to provide school lunches to more than 6,400 children. Additionally, they conducted an assessment of the nutrition of children in underserved areas of Mumbai with the purpose of creat- ing a snack to address any nutritional needs identified. These efforts, among others, demonstrate Hershey’s commitment to improving access to food and nutrition in its communities worldwide.

Shared Planet Maintaining the environment is important to Hershey, and they are taking many steps to reduce their impact on the environment, including sustainable product designs, sustainable sourcing, and efficient business operations. Some specific programs include the following:

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• Sustainable palm oil sourcing: Palm oil comes from the African oil palm tree and is used in a wide variety of products, including Hershey’s chocolate. However, the production of palm oil is highly controversial because of its impact on ecosystems. To combat concerns, Hershey became a member of the Roundtable of Sustainable Palm Oil (RSPO) and purchases their palm oil only from suppliers that are also RSPO members.

• Sustainable paper: In 2011, Hershey began to purchase paper for their office from suppliers that use sustainable forestry practices and are Forest Stewardship Council or Sustainable Forestry Initiative certified.

• Recyclable packaging: More than 80 percent of Hershey’s packaging is recyclable, including syrup bottles, foil, paper wrappers, and boxes. Additionally, Hershey aims to reach a company-wide recycling rate of 95 percent by 2025.

• Zero waste-to-landfill facility: The Reese’s manufactur- ing plant is a zero-waste-to-landfill facility, meaning that none of the plant’s routine waste goes to a landfill. Today, 15 Hershey manufacturing plants and facilities have achieved zero waste-to-landfill. The waste that is not recycled goes to an energy incinerator and is used as a source of fuel.

Shared Business Hershey strives to conduct business fairly and ethically by focusing on the integrity of their supply, consumer well-being, and alignment with customers. For Hershey, the integrity of supply includes not only the ingredients but also the people and processes used to grow, process, and acquire those ingredients (the entire supply chain). Cocoa is of particular concern to Hershey, and the company is involved in a number of cocoa-sector initia- tives and partnerships to make progress in sustainable cocoa farming and fair labor. These issues are explored in greater detail later in this case.

The company sponsors several consumer health initiatives and programs, including Moderation Nation, a national consumer education initiative that promotes bal- anced lifestyles, which is sponsored by the Hershey Center for Health & Nutrition (HCHN) and the American Dietetic Association (ADA). The company also hosts Hershey’s Track and Field Games across the U.S. to encourage children ages 9–14 to engage in sports and a healthy lifestyle.

Shared Communities Hershey’s idea of shared communities begins with employee engagement and volunteerism and extends to investing in the communities in which Hershey operates. Hershey wants to provide value to their employees and make the company a desirable place to work by focus- ing on safety, wellness, openness, and inclusion. The company has strong diversity policies and focuses on continuous safety improvements in their manufacturing

facilities. However, this does not mean that Hershey never faces workplace issues. In 2011, over 400 foreign students working for Hershey went on strike after Excel, one of the company’s subcontractors, misled and underpaid them. OSHA later fined the subcontractor $283,000 for health and safety violations.

Hershey has continued to improve their workplace practices. In 2015, the company was listed in Corporate Responsibility magazine as one of America’s “Best Corporate Citizens.” The firm launched an initiative called the Manufacturing Apprenticeship Program to recruit, train, and retain employees with physical or intel- lectual disabilities for their manufacturing plants. In 2019, Hershey was named one of the “Best Places to Work for LGBTQ Equality” by the Human Rights Campaign.

Hershey’s biggest philanthropic contribution is through their Milton Hershey School. Milton Hershey and his wife, Catherine, started the school in 1909 to help orphan boys receive an education while living in a nurturing environment that included meals and clothes. The school was a cause dear to the couple’s heart because they were unable to have children of their own. After his wife’s death, Milton Hershey created the Hershey Trust Fund, to which he donated most of his money to be used for the support of the school. To this day, the fund remains the company’s biggest shareholder and largest beneficiary. It holds a 30 percent stake in Hershey.

Although the school is Hershey’s biggest philan- thropic contribution, the company also donates to and supports over 1,400 organizations, including the American Red Cross, Habitat for Humanity, Junior Achievement, Dress for Success, and the Children’s Miracle Network. The company has also designed a way to get their employees involved in the community. Hershey designed a program called “Dollars for Doers” in which employees who participate in 50 hours of com- munity service over one year are rewarded $250, by the company, to donate to an organization of their choice.

Board Changes Despite their strong record of social responsibility, in 2016, Hershey experienced a board upheaval when the Hershey Trust Company settled with the Pennsylvania attorney general’s office. The attorney general’s office had begun investigating concerns that board members were overpaid, received reimbursements for excessive travel expenses, and exceeded 10-year term limits. There were also questions about whether board members of the trust were acting in the best interests of the Milton Hershey School. The board had rejected different offers by other firms to acquire Hershey. The local community of Hershey, Pennsylvania, encouraged Hershey to remain independent, but some believed that selling the company would have been the most beneficial option for the school. The Hershey Trust holds 81 percent of the voting power, which gives it the power to control votes on mergers or acquisitions.

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The allegations were serious enough that Hershey agreed to make corporate governance changes. Some of the board members resigned. In addition, Hershey developed a legal document that caps board member terms as well as compensation. This lapse in corporate governance was a slight blow to Hershey’s reputation, but it also offered the firm an opportunity to learn from their mistakes and develop more sound leadership for the future.

Labor Issues in the Cocoa Industry Although The Hershey Company strives to engage in ethical and responsible behavior, the realities of the cocoa industry present several ethical challenges related to the fair and safe treatment of workers, especially children. Chocolate is one of the world’s most popular confections, but few people consider the sources of the chocolate they consume.

The process of making chocolate spans several coun- tries and companies even before the ingredients arrive at the manufacturing plant. It starts with the cocoa bean, which is found within the Theobroma cacao, also known as the cocoa pod (fruit). The harvest process is labor-intensive and starts when the seeds (cocoa beans) are extracted by splitting the pod with a machete. Each pod can contain anywhere from 20 to 50 beans, and around 400 beans are needed to produce one pound of chocolate. After the beans have been extracted, they are laid out to dry in the sun for several days in order to acquire the flavor needed for chocolate. The beans are then packed into bags and sent out for shipment.

The cocoa bean supply chain is extensive and elaborate; at times, the cocoa bean can go through up to 12 different stages before getting to the chocolate manufacturers, and the price per pound of cocoa beans changes significantly throughout the supply chain. By the time the beans reach the chocolate manufacturers, they are a mix of beans from hundreds of cocoa plantations.

Although the process of manufacturing chocolate requires many steps before it can begin, most of the major ethical and legal issues are related to the source of the cocoa bean. Cocoa plantations are found in areas with rainy, hot, tropical climates and high amounts of vegetation. The global cocoa market is currently sup- plied by mostly poor nations, with 70 percent supplied by Africa (Ivory Coast, Ghana, Nigeria, and Cameroon). The Ivory Coast supplies 40 percent of the entire global market, and Ghana supplies 20 percent. This is followed by 19 percent from Asia and Oceania (Indonesia, Papua New Guinea, Malaysia), and 11 percent from South America (Ecuador, Brazil, Colombia).

With the majority of the global cocoa supply com- ing from Africa, the need for workers on plantations never dwindles. This has brought about the booming business of child labor, slavery, and human trafficking

across African borders. Many cocoa farms do not own the cocoa plantation and pay the landowner 50 to 66 percent of each year’s crop. To keep costs low, farmers often use their own family members as a source of labor.

Children who work on cocoa plantations are usually somewhere between 12 and 15 years old but can be as young as five years old. Many of them work in hazard- ous conditions on the plantations, with workdays often lasting eight to twelve hours. Poverty in the Ivory Coast and Ghana causes parents to rely on their children to help provide for the family’s basic survival. The average number of children in a household range from 5 to 17. Children work in all segments of cocoa production including land preparation, planting, farm maintenance, harvesting, and post-harvest. They clear land; fell and chop trees and brush; burn; spray insecticides; and apply fertilizers and fungicides.

It is not uncommon for traffickers to abduct small children from the neighboring African countries of Burkina Faso and Mali, some of the poorest countries in the world. Boys are sent to the fields, often in hot, humid conditions with little food and water. They are taught to use chainsaws to cut through the forest, while others climb and work on trees higher than 9 feet. They use machetes to cut the cocoa bean pods, and then put the pods in sacks that weigh up to 100 pounds. The children are then required to either drag or carry the sacks out of the forest. Other children receive the pods and use their machetes or cutlasses to open the pod’s hard shell to harvest the cocoa beans.

Once the cocoa seeds have been removed, young girls assist women in processing or grinding the beans by hand. Some girls work on the farms for a few months, while others stay for the rest of their lives. This labor- intensive operation has been done by hand for centuries. Along with the physical demands, workers experience poor health services, little access to drinkable water, food insecurity, and lack of education.

Insect and pest control is a major problem for the growers. To mitigate this issue, children are sent to spray the pods with large amounts of industrial and toxic chemicals and pesticides, without the benefit of protec- tive clothing. Exposure to these poisons creates damage to their neurological and physical development.

Although governments and corporations are aware of this problem, no accurate information, aside from estimates, exists regarding the true number of children working on cocoa plantations. The difficulty of obtain- ing accurate data can be attributed to the immense quantity of cocoa plantations across Africa, totaling well over 1,000,000 small plantations (average size 2 to 4 hectares), with between 600,000 and 800,000 planta- tions located throughout the Ivory Coast.

Nonetheless, it is estimated that two-thirds of African farms use child labor. Research conducted by the International Labor Organization (ILO) stated that

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in 2007 there were 284,000 children who worked in hazardous conditions related to cocoa in the Ivory Coast. Furthermore, according to surveys conducted by both Tulane University and the Government of the Ivory Coast, an estimated 819,921 children in the Ivory Coast alone are working in some area of the cocoa business. According to an ILO investigation in 2002, an estimated 12,000 child laborers in the Ivory Coast had no relatives anywhere near the plantations, which suggests that they may have been trafficked.

In addition to child labor, many cocoa plantations engage in the exploitation of other workers. While some non-family workers are paid, others may be enslaved or work in abusive conditions. They may have been trafficked from neighboring countries or tricked into owing large amounts of money to their employers. The workers are often threatened with physical punishment or death if they attempt to leave the plantation. Hershey introduced a human rights policy in 2019 as a sign of its commitment to human rights issues in the supply chain such as child labor, women’s rights and empowerment, living wage and income, and forced labor. The goal of the policy is to create awareness around human rights issues across the company, identify training needs, and improve the company’s supplier code conduct and social audit program.

Global Help and a Little Green Frog The issues of child labor, human trafficking, and forced labor in West Africa have drawn the attention of many organizations, as well as the companies that procure products from that region. They have implemented many different initiatives, laws, and other precautionary measures in order to reduce the use of children for cocoa farming in terms of manual labor. In Africa, individuals under the age of 14 are not allowed by law to work within the business sector, which does not include family farms. This law seems to be effective, but in reality, it does almost nothing when considering the large number of family cocoa farms and the ease of hiding non-family laborers.

To help change labor practices without relying on governmental or legal support, several organizations are working to encourage the ethical sourcing of cocoa. Most of these organizations focus on the fair treatment and education of cocoa producers and raising voluntary support from companies. The following are some of the global organizations and programs that are working to combat the labor problem within the cocoa industry:

• World Cocoa Foundation (WCF): An organization devoted to improving cocoa farmers’ lives through sustainable and responsible cocoa farming practices.

• Sustainable Tree Crops Program (STCP): Farmers learn to improve their cocoa crop yields and earn more money through nine-month field training courses.

• Harkin-Engel Protocol: An initiative enacted in 2001 to commit the chocolate industry to fighting the worst cases of child labor. The agreement was signed by eight chocolate manufacturers, including The Hershey Company.

• International Cocoa Initiative (ICI): An independent foundation established in 2002 under the Harkin-Engel Protocol to address the worst forms of child labor and adult forced labor on cocoa farms in West Africa. The organization works to inform and educate communities on child labor and how to create community-based solutions.

• International Labor Organization (ILO): An organiza- tion working to combat the various child labor-related problems within West Africa. The different programs initiated by the ILO have focused on creating sustainable ways of removing children from child labor in the cocoa business, improving community initiatives to fight child labor, and increasing overall income for the adult sector to prevent the need for child labor.

The International Cocoa Organization was established in 1973 by the United Nations. Membership is composed of cocoa producers and representatives from countries that import cocoa. It developed seven formal economic agreements that address funding of projects, sustainable development, disputes, consultations, and research and marketing. It also established a set of standards for a “Sustainable World Cocoa Economy.”

Today, there are three main certifying organizations for cocoa: Fair Trade USA, UTZ, and Rainforest. Their mission is to provide assurance that the product is produced in a sustainable manner. They have a formal “Code of Conduct” and “Certifications” that address farming methods, working conditions, and care of the environment.

Fair Trade USA Fair Trade Certified is a non-profit organization that was founded in 1981 by the Institute for Agricultural Trade Policy and involves a network of producers, companies, consumers, and organizations that are concerned about the environment and making people a priority. Fair Trade sets standards and criteria that protect ecosystems and stipulate farmers work in safe conditions and receive a harvest price while protecting the environment. Fair Trade guarantees a minimum price to farmers and a guaranteed premium payment per ton. While this is an improvement in financial remuneration to the farmers, it is still not enough to eliminate poverty for families. Their certification provides child labor monitoring, as well as remediation programs for those farmers who are caught abusing child labor laws. Fair Trade USA was a member of Fairtrade International until September 2011 when they resigned their membership because of disagreements as to the “best paths forward” in their certification and expansion missions.

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Today, more than two billion people live on less than two dollars a day according to U.N. poverty statistics. Fair Trade created Co-Op Link to provide cooperatives with funding for capital access and increased quality standards. It also limits child labor, the use of pesticides, herbicides, and genetically modified products (GMOs), and establishes standards for contracts and importers that must be met before certification. It also allows a set of standards for democratic decision-making, so farmers will have an opportunity to have input into how the Fairtrade premiums are invested.

Universal Trade Zone and Rainforest Alliance Universal Trade Zone (UTZ) was founded in 2002 as UTZ Kapeh, or “good coffee,” by Nick Bocklandt, a Belgian-Guatemalan coffee grower, and Ward de Groote, a Dutch coffee roaster. Both men were committed to implementing sustainable farming practices. In October 2007, cocoa certifications were added. Today, more than 750,000 cocoa farmers from 21 countries producing 1.5 million tons of cocoa are now UTZ certified. UTZ has a “Certified Code of Conduct” and includes trace- able growing practices that address farm management, farming practices, labor and living conditions, and the environment. UTZ is also a full member of the ISEAL Alliance, the global sustainability standards association.

Rainforest Alliance Rainforest Alliance ensures that agriculture, rain forests, and farm workers and their families meet standards that protect against environmental and social hazards. Cocoa certified by the Sustainable Agriculture Network (SAN)/ Rainforest Alliance makes up more than 13.4 percent of the world’s cocoa supply. SAN is a non-profit conserva- tion organization that has partnered with the Rainforest Alliance to help sustainable cocoa farming become mainstream. The SAN/Rainforest Alliance certification program was created to protect natural ecosystems and teach farmers about sustainable agricultural principles. This includes how to protect against insect infestations, prevent disease of cocoa trees, and safe farming tech- niques that protect workers as well as the environment.

Rainforest Alliance addresses the use of child labor by prohibiting minors under 15 years of age from working on the farms as part of its certification process. Young people between 15 and 18 are allowed to work but are restricted in the tasks they

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