Championing EDI and ESG While Using Child Labour: The Hershey Paradox Custom Case Solution & Analysis

1. Evidence Brief

Financial Metrics

• The Hershey Company committed 500 million dollars to its Cocoa For Good program through 2030 to address systemic supply chain issues.
• Cocoa prices are influenced by the Living Income Differential (LID), a 400 dollar per metric ton premium mandated by Ivory Coast and Ghana to alleviate farmer poverty.
• As of 2020, Hershey reached its goal of sourcing 100 percent certified and sustainable cocoa, yet child labor reports persisted.
• The company reported 2022 net sales of 10.4 billion dollars, reflecting a 16.1 percent increase over the previous year.

Operational Facts

• Approximately 70 percent of the world cocoa supply originates from West Africa, specifically Ivory Coast and Ghana.
• The supply chain involves millions of smallholder farms, making direct oversight and auditing difficult.
• Hershey utilizes the Child Labor Monitoring and Remediation System (CLMRS) to identify and address labor violations.
• By 2025, Hershey aims for 100 percent visibility into its supply chain in Ivory Coast and Ghana.

Stakeholder Positions

• Michele Buck (CEO): Positions Hershey as a purpose-led organization focusing on EDI and ESG as core growth drivers.
• International Rights Advocates: Filed federal lawsuits alleging Hershey and other chocolate makers knowingly benefited from forced child labor.
• West African Governments: Demand strict adherence to the LID to ensure farmer survival, occasionally accusing multinationals of bypassing the premium.
• ESG Investors: Increasingly scrutinizing the gap between corporate EDI rhetoric and human rights performance in the tier 3 supply chain.

Information Gaps

• Specific percentage of cocoa sourced through direct-buying vs. open-market commodities where traceability is lower.
• The exact effectiveness rate of CLMRS in preventing re-entry of children into the workforce after remediation.
• Internal data regarding the correlation between LID payments and actual household income increases for the lowest-earning farmers.

2. Strategic Analysis

Core Strategic Question

• How can Hershey reconcile its public identity as an EDI and ESG leader with the structural reality of child labor in its primary ingredient supply chain?
• Can the company move from compliance-based certification to outcome-based elimination of labor abuses without compromising its cost structure?

Structural Analysis

The cocoa industry suffers from a fragmented supplier base. With millions of smallholders, the bargaining power of suppliers is paradoxically low at the farm level but high at the governmental level through COCOBOD and the Conseil du Cafe-Cacao. Hershey’s reliance on certification bodies has proven insufficient because these models often prioritize environmental standards over social enforcement. The value chain is broken at the point of origin; poverty is the primary driver of child labor, and current pricing models do not cover the cost of adult labor replacement.

Strategic Options

Option 1: Radical Vertical Integration and Direct Sourcing. Hershey would bypass traditional commodity markets to establish direct long-term contracts with specific cooperatives.
Trade-offs: Higher procurement costs and reduced supply flexibility.
Requirement: Significant investment in local infrastructure and direct auditing teams.

Option 2: Technology-Led Traceability. Implement blockchain-based tracking for every bag of cocoa from farm-gate to factory.
Trade-offs: High initial capital expenditure on technology and farmer training.
Requirement: Universal smartphone penetration or local digital kiosks for farmers.

Option 3: Strategic Diversification. Shift sourcing to emerging cocoa regions (e.g., Latin America) with higher mechanization and lower labor risks.
Trade-offs: Risk of political backlash from West African nations and potential flavor profile changes.
Requirement: Multi-year R&D for recipe adjustment.

Preliminary Recommendation

Hershey must adopt Option 1. The current certification model is a reputational liability. By shifting to a direct-sourcing model, Hershey can enforce labor standards through contract law rather than relying on third-party audits that have failed to detect systemic issues. This aligns the company’s ESG claims with its operational reality.

3. Implementation Planning

Critical Path

• Phase 1 (Months 1-6): Audit and Segment. Identify top 20 percent of cooperatives providing the highest volume. Terminate relationships with intermediaries unable to provide farm-level geo-spatial data.
• Phase 2 (Months 7-18): Direct Contracting. Establish multi-year purchase agreements that include a Poverty Premium above the LID, specifically earmarked for adult labor subsidies.
• Phase 3 (Months 19-36): Scaling CLMRS. Expand the monitoring system to cover 100 percent of the direct-contracted farms with unannounced third-party inspections.

Key Constraints

• Infrastructure Gaps: Many West African farms lack the digital connectivity required for real-time reporting.
• Political Sensitivity: Aggressive direct sourcing may be viewed as an attempt to undermine national marketing boards in Ivory Coast and Ghana.
• Economic Volatility: Rising cocoa prices may tempt farmers to sell contracted beans to side-buyers for immediate cash.

Risk-Adjusted Implementation Strategy

To mitigate execution risk, Hershey should launch a pilot program in one specific district in Ghana. This pilot must demonstrate that increased farm-gate prices directly reduce child labor participation before a global rollout. Contingency plans include a 15 percent buffer in the cocoa procurement budget to account for the transition from commodity-grade to identity-preserved beans.

4. Executive Review and BLUF

BLUF

Hershey faces a fundamental disconnect between its ESG marketing and its West African supply chain operations. To protect brand equity and mitigate litigation risk, the company must transition from a reliance on ineffective third-party certifications to a direct-sourcing model. The current paradox threatens the credibility of its EDI initiatives. Success requires a shift from viewing cocoa as a commodity to treating it as a high-risk specialty ingredient requiring total oversight. The financial cost of this transition is significant but lower than the potential loss of market capitalization resulting from human rights litigation or consumer boycotts. Hershey must act now to secure its supply chain or risk permanent reputational damage.

Dangerous Assumption

The analysis assumes that paying the Living Income Differential (LID) or additional premiums will automatically result in the removal of children from the workforce. In reality, deep-seated cultural norms and the lack of educational infrastructure in rural West Africa may mean that higher income does not immediately translate to social change.

Unaddressed Risks

Unconsidered Alternative

The team did not fully explore a Product-Line Exit strategy. Hershey could phase out low-margin products that rely most heavily on commodity-grade cocoa from high-risk regions, focusing instead on premium brands (e.g., Scharffen Berger) where the price point supports the cost of a clean supply chain.

Verdict: APPROVED FOR LEADERSHIP REVIEW