The post-Parkland move to bring the United States to the sensible gun safety rules adopted by other countries has now moved from protests and politics to where the money is, the corporate executives and directors who run the companies that manufacture and sell guns and determine the millions of dollars the NRA spends on political contributions and lobbying. A shareholder resolution at one gun company got 70 percent of the vote. But the biggest institutional investors, like BlackRock, do not always live up to their stated policies of standing up to corporate insiders when they fail to respond to shareholder concerns.
Like other “social” issues raised at corporate annual meetings over the years, from apartheid to tobacco to climate change, guns are now seen as a quantifiable risk and return issue to be raised by investors in considering corporate strategy and executive compensation.
This means more focus on the members of the boards of directors, to make sure that they have the information and ability required to consider the future of an industry under unprecedented political oversight, and the likelihood of legislative and regulatory action. Shareholders of Sturm, Ruger & Company, makers of Ruger firearms, submitted a shareholder proposal calling for a report on the company’s activities related to safety measures and mitigation of harm associated with company products, including efforts to improve gun safety and assessment of the corporate reputational and financial risks related to gun violence in the U.S. The proposal was successful, with 7.2 million votes in favor and 3.3 million votes cast against.
Shareholder proposals are advisory only and corporate executives and directors are not obligated to comply. The New York Times reported:
Christopher J. Killoy, Ruger’s chief executive, was defiant after the vote, saying that Ruger would not “adopt misguided principles by groups that do not own guns and do not understand guns.” “This proposal requires Ruger to prepare a report,” Mr. Killoy said. “That’s it, a report.” He added, “It cannot force us to change our business, which is lawful and constitutionally protected.”
This defiant attitude indicates a lack of open-mindedness about either preparing or evaluating the data in the report. It also suggests a lack of understanding of how corporations work. Whether or not the 70 percent of the company’s shareholders who supported the proposal own guns or not, they own stock in the company, and that gives them the right to insist that its managers respond to changes in culture, politics, and technology.
Shareholders also challenged members of the board who were up for re-election, including Sandra Froman, who collaborated closely over many years with the late “eugenicist” and theorist of Black racial inferiority Professor William Shockley. She has been and may still be affiliated with the secretive Council for National Policy whose blandly generic name is intended to conceal the extremist agenda of many of its members. From the shareholder filing with the Securities and Exchange Commission:
RGR director Sandra Froman has been nominated for re-election to the Board of Directors at RGR’s annual meeting. Froman served as Vice-President of the National Rifle Association (“NRA”) from 1998 to 2005, President of the NRA from 2005–2007, and as an NRA board member from 1992 to the present; she holds a lifetime appointment to the NRA Executive Council.2 She serves on the Risk Oversight, Compensation and Nominating and Corporate Governance Committees of RGR’s Board.
Froman’s presence on the board has already sparked controversy:
Froman praised the 2000 boycott of Smith & Wesson, launched by the NRA and other gun groups after the company agreed to a Clinton administration request that they adopt certain gun safety measures, as an appropriate response to a company that makes a “deal with the devil” by compromising with gun control activists. Froman was an NRA Vice-President at that time.
You may think you are not connected to this effort because you do not own stock in Sturm, Ruger. But you probably do, through one of the four financial institutions that hold 42.7 percent of the stock. They are the same financial institutions who manage mutual funds, 401(k)s, pension funds, and other retirement plans for everyday working people. The largest investor is BlackRock, with more than 16 percent of Sturm, Ruger’s stock, followed by Vanguard, with 9.5 percent. Both voted in favor of Ms. Froman and the other members of the board.
BlackRock CEO Larry Fink got a lot of attention for his letter to CEOs earlier this year, which said,
Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.
Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education.
The time has come for a new model of shareholder engagement — one that strengthens and deepens communication between shareholders and the companies that they own….BlackRock recognizes and embraces our responsibility to help drive this change.
Just last month, he pointed to BlackRock’s success in casting voted against directors of Exxon/Mobil to persuade them to change their policy of refusing to meet with investors. But they have not taken this step at Sturm, Ruger, which has also refused to meet with investors, making private, informal, constructive engagement impossible. Symbolic votes against directors (who are elected no matter how small the vote in favor when, as here, they run unopposed) provide the only opportunity to meet that responsibility. BlackRock and the other financial institutions voted in favor of the members of the board at the 2018 annual meeting.
As an advocate for shareholder response to corporate executives who fail to meet their obligations to investors, it is time for BlackRock customers and investors to send a message to Mr. Fink that we expect him to expect more from portfolio companies, especially those where BlackRock holds the largest block of stock. It is time for BlackRock to put its money where Larry Fink’s mouth is.
NOTE: Individuals who want to learn more about the impact they can have with corporations, directly or indirectly via the firms that handle their retirement accounts should check out Proxy Democracy.