Academic journal article Journal of Corporation Law

Charity Trusts and the Shareholder vs. Stakeholder Debate

Academic journal article Journal of Corporation Law

Charity Trusts and the Shareholder vs. Stakeholder Debate

Article excerpt

I. INTRODUCTION II. BACKGROUND       A. Charity Trusts: A General Background       B. Background of Shareholder and Stakeholder Approach           1. Shareholder Approach           2. Stakeholder Approach       C. Laws Governing Charity Trusts           1. Power of State Attorneys General           2. Congressional Act Requiring Diversification       D. Hershey Trust and the 2002 Saga           1. Hershey and the Hershey Trust           2. The Hershey Conundrum           3. The Community's Reaction           4. The Pennsylvania Government Gets Involved           5. End of the 2002 Saga       E. Hershey's Recent Sale       F. The Recent Trend III. ANALYSIS.       A. Role the Theories Play with Charity Trusts       B. Benefits and Disadvantages of Taking a Shareholder Approach           1. Benefits of Taking a Shareholder Approach           2. Disadvantages of Taking a Shareholder Approach           3. Shareholder Theory Analysis of Whether to Relocate              Business       C. Benefits and Disadvantages of Taking a Stakeholder Approach           1. Benefits of Taking a Stakeholder Approach           2. Disadvantages of Taking a Stakeholder Approach           3. Stakeholder Theory Analysis of Whether to Re-locate              Business       D. Hershey Trust: How Shareholder and Stakeholder Theory              Played a Role           1. Hershey Trust's Historical Approach           2. The 2002 Conundrum Approach           3. Hershey Trust: Going Forward       E. Charity Trusts: Shareholder vs. Stakeholder IV. RECOMMENDATION       A. Should It Be Left to the States?       B. Should Congress Get Involved to Regulate Charity Trusts? V. CONCLUSION 

I. INTRODUCTION

In recent years, charity trusts have grown in both donations received and the benefits bestowed. (1) This is also accompanied by the recent trend of the extremely wealthy to pledge the vast majority of their wealth to charity upon their death. (2) This increased philanthropy has obvious benefits; however, it brings a concern about how the charity trusts should operate. When the charity trusts are using their new wealth, they are faced with the decision of following a shareholder or stakeholder approach. As it turns out, this decision may not be left to charity trusts.

In 2002, the Hershey Trust--the charitable trust associated with Hershey Foods-- attempted to sell its majority stake in Hershey Foods. The Pennsylvania government intervened and decided that the Hershey Trust could not sell its shares in Hershey Food due to the potential effect on the community. Situations like these present the question of whether state governments should be allowed to interfere with the decisions of other expansive charity trusts--such as the Bill & Melinda Gates Foundation--and dictate what type of approach is followed as charity trusts continue to grow. This Note seeks to address this question.

To accomplish this task, Part II will lay out the necessary background information. This Part will cover the basics of charity trust and the history and fundamentals of the shareholder and stakeholder theories. Then, Part II will proceed to discuss some of the relevant laws governing charity trusts--both state and federal. Furthermore, it will proceed to delve into the facts and results of the 2002 Hershey Trust conundrum. Finally, Part II will set the stage for the potential conflict as charity trusts continue to grow in size.

In Part III, the benefits and disadvantages of the shareholder and stakeholder theory will be weighed and analyzed to see how these two approaches affect charity trusts and which approach would be best for charity trusts to follow. Finally, Part IV assesses how this question should be answered--either by sticking to the current path and letting the states dictate the outcome, or congress stepping in and legislating the approach for charity trusts to follow.

II. BACKGROUND

This Part lays out a general background of charity trusts, the shareholder and stakeholder approach, and the general steps taken by states and Congress. …

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