May 8, 2018 / 5:33 PM / 14 days ago

Breakingviews - Cox: Guns, nuns and funds get ready to rumble

NEW YORK (Reuters Breakingviews) - Ever since 1633 when Galileo was found guilty of heresy for arguing the earth rotates around the sun, the Catholic Church has gotten a bad rap over its approach to science. So it’s somewhat surprising to see a group of nuns and church officials leading a campaign to harness technology and science to help resolve America’s tragically exceptional level of gun violence.

Rifles are seen at the Sturm, Ruger & Co., Inc. gun factory in Newport, New Hampshire January 6, 2012. REUTERS/Eric Thayer

Taking on the U.S. firearms lobby may not be quite as big a lift as proving our planet is the center of the universe. But in the highly partisan soup of American politics, it’s no small endeavor. And it comes to a head on Wednesday in the Arizona desert, where the sisters will exhort the shareholders of gunsmith Sturm, Ruger to embrace innovations in safety as a path to sustainable profitability. Their prayers deserve to be answered, and not just for moral reasons.

Sturm’s annual meeting is taking place in Prescott, Arizona, a city of 39,000 situated two hours from Phoenix – and 2,500 miles from Sturm’s headquarters in tony Southport, Connecticut. The Sisters of the Holy Names of Jesus and Mary of Marylhurst, Oregon are asking stockholders to vote on a proposal requiring Sturm to issue a report on its “activities related to gun safety measures and the mitigation of harm associated with gun products.”

Sturm’s account of its business, to be produced at reasonable expense, should cover three main issues, according to its proposers. They want a rundown of how the $1 billion Sturm monitors violent events associated with its products; an assessment of the corporate reputational and financial risks related to gun violence; and lastly, but perhaps most critically from a capitalist perspective, more information on its efforts to research and produce safer guns and gun products.

“Since 1987 Sturm, Ruger products have been used in seven mass shootings, responsible for killing 60 people and wounding 70 more,” the sisters argue in their plea to stockholders. “Evidence shows that the American public, in ever greater numbers, is demanding safer guns and responsible firearm manufacturers. We urge shareholders to vote for this proposal.”

Colleen Scanlon, the chief advocacy officer for Catholic Health Initiatives, which operates hospitals and care sites in 18 states, will be in Prescott to put forward the motion. She’s not bringing a bodyguard, she says, “but maybe a little of the Holy Trinity.” Anyway, she scoffs at the idea that she should be perceived as anything but an engaged shareholder. “We really want to work with what we see as our companies.”

She won’t be alone in that broad endeavor. By dint of its inclusion in various stock market indexes, Sturm’s largest shareholder is BlackRock with a 16 percent holding, according to Eikon. The giant asset manager is also the top investor in American Outdoor Brands, the parent of Smith & Wesson, with a 10.5 percent stake. A similar motion filed by the sisters will be put to a vote at that company’s annual meeting in the autumn.

Even getting such proposals onto the agenda again at next year’s annual meetings – which requires the backing of 3 percent of shareholders this time – is a win, Scanlon argues, because it means investors must keep thinking about the issues. Over time, that “can influence corporate behavior,” in the same way that shareholders eventually compelled Exxon Mobil to disclose the impact on its business of compliance with global climate-change guidelines.

Scanlon could find BlackRock in her corner, though the fund giant hasn’t said how it will vote. Chief Executive Larry Fink argued earlier this year that “companies, both public and private, serve a social purpose.” Since BlackRock manages $6 trillion, making it the largest fund manager in the world, Fink’s demand that firms not only deliver financial performance but show how they make a positive contribution to the communities in which they operate was a shot heard round the corporate universe.

Even if only one big fund manager votes its holdings in favor of the proposal – aside from BlackRock, Vanguard has 9.5 percent of Sturm and State Street 2.5 percent – the sisters could probably get their proposal considered again next year.

But 3 percent is a low bar. All shareholders have reasons to favor the sisters’ plan on investment grounds, even if they don’t want to associate themselves with the ethical or moral questions it raises. The reputational risk is a valid concern, for one thing. That’s partly why proxy advisers Institutional Shareholder Services and Glass Lewis are backing the proposal.

And for another, shareholders should want to know how Sturm and American Outdoor Brands are approaching the adoption of new technology in their products, especially as it relates to safety. Biometrics and facial recognition are becoming common on iPhones, but the gun makers’ response to the idea of adopting such things for their products has, thus far, been downright luddite.

Sturm, which opposes the nuns’ resolution, said: “Despite assertions to the contrary, effective ‘smart gun’ technology does not exist; those devices advanced thus far have proven unreliable, easily defeated, or both.” The company added: “Fundamentally, the advocated purpose of so-called ‘smart guns’ is to prevent unauthorized access to firearms.”

Well, yes, that’s the point, says Sister Judy Byron, an Adrian Dominican congregant leading Seattle’s Northwest Coalition for Responsible Investment, which filed the American Outdoor Brands proposal. She’s not a gun expert, but she’s right in saying that Sturm and Smith & Wesson are skilled at creating appetite for their products. For now, they primarily use fear of random acts of violence and the prospect of new firearms regulations to gin up sales – with assistance from the National Rifle Association, which just hired as its new president Oliver North, a central figure in the 1980s Iran-Contra affair in which the U.S. government secretly helped sell arms illegally to Iran.

While Sturm and its peers may not be satisfied with the state of current smart-gun technology, to dismiss it out of hand hardly sounds like the sort of long-term thinking that shareholders, such as BlackRock, would desire. Gunsmiths might be able to charge a premium for innovative features at a moment when gun sales are flagging (background checks fell 20 percent in April from March, according to the FBI). To ignore the possibility suggests a lack of vision.

After all, when an iPhone is lost, it’s easy to find. It comes installed with a chip that enables location targeting, as well as software encryption that makes it difficult, even impossible, for someone other than its rightful owner to use it. The maker of an AR-15 assault-style rifle with a 30-round magazine capable of killing dozens of people in minutes, should be intrigued by technology that ensures it can be tracked if it goes missing and that only its rightful, background-checked owner can use it. Surely Sturm, Ruger and the rest would embrace that kind of safety feature – wouldn’t they?

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