Firearms and the Proxy Season

Cydney S. Posner is special counsel at Cooley LLP. This post is based on a Cooley memorandum by Ms. Posner. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here) and Social Responsibility Resolutions by Scott Hirst (discussed on the Forum here).

As you know, topics related to corporate social responsibility have ascended to the forefront for many stakeholders, and CSR is sometimes viewed to comprise issues related to firearms safety. With the renewed national debate on gun safety, and in light of apparent continued government gridlock, will investors, customers, employees and other stakeholders turn to companies to “do something”? Will they begin to apply more pressure to companies involved with firearms, including retailers and banks, to reexamine their relationships with the gun industry? For the 2019 proxy season (unlike 2018), we did not find any shareholder proposals directly addressing gun safety (although some did indirectly) that were submitted for shareholder votes. Will current events reignite the topic of gun safety as a subject for shareholder proposals in 2020?


Here’s an incredibly disheartening sign of the times: this WSJ article regarding companies adding risk factors about active shooters. Companies such as restaurants, hotels, retail stores, movie theaters and event venues are some of the categories of companies that have disclosed this type of risk, including disclosure about the potential impact on the company’s reputation and customer traffic. The article observes that companies “have long warned of the risks posed by catastrophic events such as hurricanes and terrorist attacks. Calling out the specific risk of an active shooter event reflects the internal conversations taking place at companies about how they should plan for the risk of an attack.” Those conversations certainly involve questions about the context and appropriateness of the disclosure; according to a former Corp Fin director quoted in the article, “‘[p]eople are legitimately trying to think through whether it’s responsible to put a risk factor like this in the document.’”

Proposals related to firearms safety have rarely succeeded in the past. However, more recently, many institutions and index 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 below, some institutional investors have even signed on, in their role as investors, to encouraging “action in support of the responsible use of firearms.” In fact, in 2018, proposals submitted to two companies—each requesting a report on the company’s activities related to gun safety measures, monitoring and mitigation of harm and assessment of corporate reputational and financial risks related to gun violence— received majority votes in favor, including in at least one case, favorable votes from the company’s largest holder, BlackRock. In 2019, instead of proposals specifically addressing gun safety, some companies received proposals requesting adoption of comprehensive human rights policies. Given the nature of gun products, the proponents argued, there is a great risk of “adverse human rights impacts,” which could result in reputational risks and financial costs.

In addition, some previous shareholder proposals submitted to retailers have sought adoption of policies that would have precluded the sale of high-capacity firearms. In one case involving a large retailer, although the proposal was successfully excluded (including through a circuit court challenge) from the retailer’s proxy statement under the “ordinary business operations” exclusion, the retailer subsequently announced that, in light of shifting consumer demand, it would stop selling high-capacity semi-automatic rifles.

In 2018, a number of stakeholders publicly addressed the gun safety issue. In this 2018 post on this Forum, a coalition of investors, including CalPERS, CalSTRS, Rockefeller Asset management and State Street Global Advisors, discussed 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.”

Also in 2018, 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.

Last year, a number of large institutional investors and asset managers, such as BlackRock, CalSTRS, State Street and Calvert, increased the level of their engagement with firearms manufacturers and retailers. For example, in 2018, BlackRock stated its belief that for “manufacturers and retailers of civilian firearms, we believe that responsible policies and practices are critical to their long-term prospects. Now more so than ever. That is why, over the past week, we have reached out to the major publicly traded civilian firearms manufacturers and retailers to engage in a discussion of their business practices. We have already had constructive discussions with some, and we are continuing to pursue our engagement with them all.” In addition, BlackRock added two new investment funds that screen to exclude civilian firearms. Some institutional investors have gone so far as to withhold support for the reelection of certain directors. (See this letter from one institution.)

In addition, last year, a number of major retailers curtailed 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.)

All of which raises the question: Will the increased focus on CSR, together with the impact of recent events, fuel a more extensive movement for shareholder proposals on gun safety?

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