A lot has been written about institutional investors' turn toward issues of corporate social responsibility. One CSR topic that has received a lot of attention in the last few years has been firearms safety. In this post, published last week on The Harvard Law School Forum on Corporate Governance and Financial Regulation, a coalition of investors, including CalPERS, CalSTRS, Rockefeller Asset management and State Street Global Advisors, has developed The Responsible Civilian Firearms Industry Principles, intended to encourage companies involved in the manufacture, distribution, sale and enforcement of regulation of the firearms industry to take action in support of the responsible use of firearms. According to the post, in asserting its "role as investors," the group identifies "expectations for the firearms industry that will reduce risks and improve the safety of civil society at large. Further, we commit to monitoring progress by companies over time and engaging with them regularly on this issue, especially in support of enterprises that champion adoption of responsible practices....We call on companies within the civilian firearms industry to publicly demonstrate and publish their compliance with each of these principles, failing which, we will consider using all tools available to us as investors to mitigate these risks."

The post lays out five principles for companies in the civilian firearms industry:

  • "Principle 1: Manufacturers should support, advance and integrate the development of technology designed to make civilian firearms safer, more secure, and easier to trace.
  • Principle 2: Manufacturers should adopt and follow responsible business practices that establish and enforce responsible dealer standards and promote training and education programs for owners designed around firearms safety.
  • Principle 3: Civilian firearms distributors, dealers, and retailers should establish, promote, and follow best practices to ensure that no firearm is sold without a completed background check in order to prevent sales to persons prohibited from buying firearms or those too dangerous to possess firearms.
  • Principle 4: Civilian firearms distributors, dealers, and retailers should educate and train their employees to better recognize and effectively monitor irregularities at the point of sale, to record all firearm sales, to audit firearms inventory on a regular basis, and to proactively assist law enforcement.
  • Principle 5: Participants in the civilian firearms industry should work collaboratively, communicate, and engage with the signatories of these Principles to design, adopt, and disclose measures and metrics demonstrating both best practices and their commitment to promoting these Principles."

Similarly, earlier this year, another investor coalition, representing $634 billion in assets and led by the 140-member Interfaith Center on Corporate Responsibility, signed a Statement on Gun Violence that called on, not just gun manufacturers, retailers and distributors, but also companies with financial ties to these industries, to take meaningful action to address gun violence. Because governmental efforts have been "stalled," the statement contends, corporations "have an important role to play both to ensure that they are not indirectly complicit in these lethal events, and in advancing the solutions that may help prevent them." Accordingly, companies are urged to consider "how their operations, business relationships, supply chain policies, marketing practices and public voices might be used to counter gun violence and foster safer communities." Measures advocated include stopping the manufacture of military-style semi-automatic assault weapons, including high-capacity magazines, for use by civilians; developing high-tech safety measures for all other guns and accessories; and expanding background checks. In addition, the coalition recommended that banks and other financial institutions prohibit lending to gun manufacturers that sell, produce or design these weapons. Moreover, all companies were advised to "thoroughly investigate their direct operations, trade relationships and supply chains, and assess where potential risks may exist so they can take the necessary steps to mitigate them," including revisiting political spending and lobbying activities.

Moreover, in the past year, a number of large institutional investors and asset managers, such as BlackRock, CalSTRS, State Street and Calvert, have upped their game with regard to the level of their engagement with firearms manufacturers and retailers (although see this NYT DealBook column advocating that they go further). A number of major retailers have reacted to recent events and investor pressure by curtailing their sales of certain types of firearms as well as sales to persons under 21 years of age, and at least two of the largest U.S. banks imposed restrictions on the sale of firearms by its business customers. (See this article and this article.) Some institutional investors have gone so far as to withhold support for the reelection of certain directors. (See this letter from one institution.)

Another approach used by gun safety advocates has been to submit shareholder proposals to companies involved with firearms. Proposals related to firearms safety have rarely succeeded in the past, in part because many investors focused on social responsibility do not own shares in firearms manufacturers. However, as reported by Bloomberg, index funds own about 25% of the shares of U.S. gun manufacturers, and many of those funds have begun to vote more frequently in favor of some social proposals. (See this Pubco post, this PubCo post and this PubCo post.) And, as noted above, some institutions have even signed on, in their role as investors, to encouraging "action in support of the responsible use of firearms." As a result, proposals related to gun safety may begin to find more support.

For example, in 2018, a proposal was submitted to a gun manufacturer requesting a report on gun safety. The proposal requested that the report address "[e]vidence of monitoring of violent events associated with products produced by the company," "[e]fforts underway to research and produce safer guns and gun products," and "[a]ssessment of the corporate reputational and financial risks related to gun violence in the U.S." As discussed in this article, the reference to research on safer guns refers to "smart gun technology (such as using thumbprint readers, like those used on smartphones)." The proposal received a vote in favor of 68% of votes cast, including favorable votes from the company's largest holder, BlackRock. Proxy advisory firm ISS had also recommended a vote in favor of the proposal. According to Georgeson/Proxy Insight, the favorable vote was "almost double the average level of support for all E&S proposals this year."

To be sure, whether the incidence of shareholder proposals on gun safety increases this proxy season remains to be seen. One wild card may be the choice of environmental and social issues that James McRitchie and his wife—both members of the Chevedden group and prolific and persistent proponents of shareholder proposals—decide to champion. As discussed in this PubCo post, they recently announced that they have decided to turn their attention to shareholder proposals on environmental, social and political spending issues and that John Chevedden and Kenneth Steiner are also expected to broaden their focus beyond governance issues. However, as to the specific issues selected, they have yet to show their hand.

SideBar

Notably, some previous shareholder proposals related to gun safety sought adoption of policies that actually precluded the manufacture or sale of high-capacity firearms. However, at least one of those proposals to a large retailer was successfully excluded, including through a circuit court challenge, under the "ordinary business operations" exclusion of Rule 14a-8(i)(7). (See this PubCo post.) Nevertheless, although the proposal was successfully excluded, the retailer subsequently announced that, in light of shifting consumer demand, it would stop selling AR-15s and other high-capacity semiautomatic rifles.

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