Activist investment came for fossil fuels. What about firearms?

The message after a mass shooting, this time at a Texas elementary school, was clear: People who want to curb gun violence should “vote in November.” That’s how Senator Chuck Schumer, Senate Majority Leader and Democrat of New York, put it Wednesday.

But not everyone will have to wait until then. On June 1, when shareholders of Connecticut-based arms maker Sturm Ruger tune in to the company’s virtual annual meeting, they can vote on a shareholder proposal that states that due to ” the inherent lethality of firearms”, Ruger must hire an outside firm. study its impact on human rights, “beyond legal and regulatory issues”.

The human rights study is an unlikely crusade at Ruger, similar to an effort at Smith & Wesson, another rare publicly traded firearms company in a largely private and opaque industry. The non-binding proposals pit a nun, who leads one militant group, and a hospital director, who leads another, against arms manufacturers who have so far been unwilling to compromise.

They may not be typical Ruger investors, but they are representative of a certain kind of activist investing: buying stock in a public company so you can have a say in how it is run.

Shareholder activism can mean several things. Some activists want to take over a company and govern it differently for financial reasons. Some, like those pushing Ruger to study human rights, invest in companies to push them to change on social issues.

On Wall Street, the field of ESG is booming. It represents environmental, social and governance issues in corporate stewardship, and decision-making with an ESG perspective leads some investors to avoid certain industries, such as fossil fuels, private prisons and tobacco, while d Others advocate for change within organizations.

In the case of Ruger, an investor group led by CommonSpirit Health, a Chicago-based nonprofit hospital chain, wants the company to conduct a human rights impact assessment of its products and its business practices. The push is part of a larger effort coordinated by the Interfaith Center on Corporate Responsibility.

Representatives for Ruger did not respond to calls and emails seeking comment.

“If we can move corporations, that’s a really big lever for systemic change because of how much money and how much power American corporations really have today,” said Laura Krausa, Advocacy Director of CommonSpirit.

Ms. Krausa and her allies have little to lose and an increasingly important precedent to follow to successfully push corporate behavior.

The growing attention to ESG issues has led banks and other financial firms to cut funding for the dirtiest fossil fuels. It has also forced myriad companies to diversify their boards by adding more women and minorities.

The changes brought about by the individual shareholder resolutions were not material in themselves. But together they have pushed companies to a greater awareness of how their actions affect the whole world.

The willingness of shareholders to vote in favor of ESG-oriented proposals increases. In 2021, for example, 44% of Smith & Wesson shareholders voted in favor of an investor proposal seeking the company to adopt a human rights policy. That was more than the 36% of shareholders who backed a similar proposal filed in 2019.

“It’s kind of a Hail Mary,” said Dr. Jonathan Metzl, chair of the Department of Medicine, Health and Society at Vanderbilt University, whose research focuses on guns in America. Shareholder resolutions are weak, Dr. Metzl said, because they can only sway one company at a time, and without broader, more coordinated pressure, individual arms makers have no incentive to act. .

Ruger opposes the current human rights proposal and described CommonSpirit’s interest in the company’s real day-to-day operations as tenuous.

“Despite the tiny ownership of the company’s stock, supporters are using the proxy system to advance the gun control agenda they have been unable to achieve through legislative and other means,” Ruger wrote, urging shareholders to vote against the proposal.

Even if it passes next week, the resolution will not compel the company to act. But the view of activist investors is that any kind of influence on the arms industry is better than none at all.

The recent history of corporate agitation for change, as gun control advocates say, is largely a history of failure.

When Ed Shultz, who was the general manager of Smith & Wesson in the late 1990s, struck a deal with the Clinton administration to enact new safety measures for its products, retailers and the National Rifle Association boycotted the company and nearly bankrupted it, driving Mr. Shultz out of the industry.

When companies like Citigroup, retailer Dick’s Sporting Goods, and Delta Air Lines declared their support for gun control measures and pledged to promote gun safety by changing their own business practices, groups like the NRA campaigned against them.

Investors, however, can be harder to ignore. Boards have a duty to listen and respond.

In 2018, a measure urging Ruger to produce a study on the safety of its products won a majority of shareholder votes, and the company responded with a two-dozen-page report.

“The misuse of firearms for criminal purposes is a complex societal problem, which cannot be solved by more laws or new technologies,” the report says. “We have long warned that there is no foolproof firearm, and there is no substitute for personal responsibility and common sense in the safe handling, use and storage of firearms.”

Activists said that didn’t actually answer their questions, but at least it was a start.

Some investors have also campaigned to remove members of Ruger’s board of directors, including Sandra S. Froman, the former president of the National Rifle Association who the left-leaning group Majority Action revealed had worked with the eugenicist William Shockley in the early 1970s to develop his inherent nature theories. black inferiority publicly acceptable.

Ms Froman said at the time that she did not recall working with Mr Shockley.

Efforts to create turnover on the board failed. And Ruger and Smith & Wesson tried to fight back. When investor groups began proposing shareholder resolutions, corporations appealed to the United States Securities and Exchange Commission to try to get them off their agendas. The SEC refused.

But after that, a surprising thing happened: Ruger and Smith & Wesson both started talking to the investors who had made the proposals.

“We never imagined this could ever happen,” Ms. Krausa said. “I don’t think these companies typically engage like that.”

In 2019, CommonSpirit offered for the first time a human rights assessment similar to that offered by Ruger this year. Ruger offered to engage in a dialogue if the investors withdraw their proposal. They agreed. But the company insisted that she sign nondisclosure agreements before the talks. Ms Krausa said CommonSpirit refused when Ruger asked to speak on the same terms earlier this year.

Sister Judy Byron, a religious member of the Adrian Dominican Sisters, another shareholder of Ruger and Smith & Wesson, said she was inspired by past victories spurred by shareholder activism. Resolutions beginning in the 1970s urging companies like General Motors to stop doing business in South Africa bolstered the anti-apartheid movement, she said, although nearly two decades passed before their objectives are not achieved.

“I’ve been doing this job now since 1998 and I’ve really seen the support from other shareholders, the vote, go up,” she said.

Sister Byron and the Dominican Adrian sisters need additional support from other investors, and that support is far from guaranteed.

Major asset managers like BlackRock, State Street, Vanguard and Charles Schwab as well as quantitative fund manager Renaissance Technologies make up a large portion of Ruger’s shareholders. On Wednesday, Ms. Krausa emailed some of those big shareholders asking for their support.

Representatives from each of the companies said they could not comment on how they would vote. But on Thursday, Vanguard executives held a phone call in which Ms. Krausa and others argued for the assessment.

BlackRock voted against a similar measure proposed for Smith & Wesson in 2020, noting in a summary of its voting decisions that year that “the request is either not clearly defined or too prescriptive, not within the purview of shareholders, be unduly burdensome for the company.”

Brian Beades, a spokesperson for BlackRock, argued that BlackRock’s holdings in Ruger did not mean the company had taken an active investment stance on firearms.

BlackRock has found its own ways to voice its concerns about gun corporate governance. In 2018, after the school shooting in Parkland, Florida, where a gunman killed 17 people, BlackRock announced it was “engaging” with gunsmiths to ask them questions about their business practices. He said his discussions would remain private.

In 2021, he voted against the Smith & Wesson director’s re-election as chair of the company’s corporate responsibility committee due to concerns about how the company recognized the risks posed by gun violence. He cast a vote against a Ruger manager for similar reasons. But the votes were not part of any coordinated campaign, and the directors still won a majority of votes.

Advocates like Ms. Krausa know that a human rights report is a far cry from a law that, for example, would ban AR-15s or require people to be 21 to buy a semi-automatic weapon. But they see it better than the current posture of heads in the sand.

“This resolution is poised to help the company understand its role in resolving a crisis of colossal proportions,” she said of the proposed human rights assessment of CommonSpirit.

Dr. Metzl saw only slim prospects for change. It didn’t help, he said, that gun stocks boomed during the coronavirus pandemic, when gun sales soared and images of people waiting in queues around the block to buy them prompted manufacturers to increase production.

“We should try everything we can,” he said, “but I would say that if it’s the only avenue, it’s a reflection of a much bigger problem.”

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