Patalinghug – Volume 7, Issue 2 (2016) 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.