Eighty-four days after a gunman killed 17 classmates and staff in one of the deadliest school shootings in U.S. history, investors in gunmaker Sturm, Ruger & Co. prepared to vote on whether the company should be required to report on its role in preventing further gun violence.
The measure – a shareholder proposal requiring Ruger to share its plans for monitoring gun violence and developing safer firearms – had the backing of proxy advisory firm Institutional Shareholder Services and Ruger’s largest investor, BlackRock. The giant asset manager had indicated in February – days after the lethal shooting at Marjory Stoneman Douglas High School in Parkland, Florida, and four months after a gunman killed 58 concertgoers at a Las Vegas musical festival – that it would use its significant weight as a shareholder to address the issue of gun safety.
At Ruger and elsewhere, the groundwork for shareholder activism had already been laid. Before Parkland, and before Vegas, a group of investors had already begun to coalesce around the problem of gun violence in the U.S.
Led by – among others – a Seattle nun, this coalition of churches, religious orders, and faith-based health organizations two years ago began purchasing shares of gun manufacturers and retailers. It wasn’t because they thought firearms were a good investment.
“Many religious organizations would not own gun stock,” says Colleen Scanlon, the chief advocacy officer at Catholic Health Initiatives. “They bought stock in Sturm, Ruger and American Outdoor Brands and Dick’s Sporting Goods so that they could be activists.”
Catholic Health Initiatives, a nonprofit health system where Scanlon leads advocacy efforts, was one of the leading members of the shareholder coalition, and the primary filer of the Ruger resolution. At the gunmaker’s annual meeting in May, it was Scanlon who put forward the proposal asking that Ruger prepare a report on gun violence and the development of safer firearms.
It passed with 69 percent of the vote.
“It was amazing,” says Sister Judy Byron, the director of the Northwest Coalition for Responsible Investment and a co-filer of the resolution. “Sixty-nine percent of shareholders asking Sturm, Ruger to do something.”
According to its backers, the shareholder proposal was the first of its kind to be approved by firearms investors: Sixteen years earlier, similar resolutions filed with Ruger had failed.
“The CEO said very clearly that it’s just a report, nothing more,” Scanlon says. “But to have that significant of a vote certainly suggests the interest and desire of shareholders to have Sturm, Ruger address the issue of gun safety.”
Scanlon, Byron, and the rest of their coalition are aiming to win another victory next month, when Byron will present a similar resolution at the annual meeting of American Outdoor Brands Corp., the company formerly known as Smith & Wesson Holding Corp. It will be just the latest act of shareholder activism by members of a community that has for decades been using its investment portfolios to advance social causes and influence corporate America: the community of faith-based institutional investors.
In 1971 an Episcopal bishop stood in front of General Motors Co. executives and presented a resolution asking the auto company to withdraw its business from South Africa until apartheid was abolished. It was the first religious shareholder proposal focused on social impact, according to the Interfaith Center on Corporate Responsibility, which was founded that same year.
Since then the ICCR has been bringing together institutional shareholders of various religious backgrounds to advocate for change at public companies and engage corporate executives on issues like social justice and the environment.
“The idea – a pretty simple idea, but pretty revolutionary at the time – was that investments could achieve some goal other than an economic goal,” says Rob Fohr, director of faith-based investing and corporate engagement at the Presbyterian Church (U.S.A.), one of the founding members of the ICCR. “It was revolutionary at the time because there wasn’t really a socially responsible investing universe back then.”
From the apartheid divestment movement in the 1970s and ’80s to the gun safety campaign now being spearheaded by Scanlon and Byron, the ICCR and its members have played a prominent role in the last 47 years of shareholder activism. Today the organization says it averages around 300 dialogues with 200 companies each year. When conversation isn’t enough, or a company refuses to engage, members file shareholder resolutions like the one voted on at Ruger in May.
“What we’ve tried to and what many organizations are trying to do is think about how investments can be used for the best possible outcome,” says Scanlon. “Some of that may involve divestment of things that are incongruent with your values, but it could also mean using your investment to be a voice at corporate tables.”
Take the tobacco industry, for instance. As both a faith-based investor and a health organization, Catholic Health Initiatives is an unlikely investor in tobacco companies. But the health system has kept a nominal amount of tobacco stock in a separate fund for years, purely so it can keep filing resolutions with tobacco companies on the health risks of their products.
Another active religious shareholder is the Mennonite Church U.S.A. Its financial services arm, Everence, engages with about 20 to 30 companies a year through its Praxis Mutual Funds, according to Mark Regier, the firm’s vice president of stewardship investing and a former board chair at ICCR.
“Our screens are a baseline articulation of our values, but our highest values are shown by the engagement we do,” he explains. “That’s what changes the world. Divestment and avoidance don’t do anything to change the practices we hate. Companies don’t care if you don’t invest in them.”
Over the last few years, Everence has targeted the cocoa industry, pushing companies including Hershey Co. and Mondelez International to address the widespread use of child labor on African cocoa farms. At the latter company, Regier says the focus has been on helping cocoa farmers diversify their income so they don’t turn to child slavery to support their families.
Other recent activism campaigns at Everence have dealt with toxic chemicals and climate change.
“While companies never come to these conversations with terrible excitement, they eventually get what is at stake,” Regier says. “Eventually they have staff that are very invested in these projects.”
Some campaigns go better than others. Out of the three companies targeted by Byron and her cohort of religious activists in their gun safety campaign, two – Ruger and American Outdoor Brands – did not respond to their shareholders’ overtures. The third, Dick’s Sporting Goods, agreed to discuss the group’s concerns around gun violence.
In early January – one month before the school shooting in Parkland – Dick’s CEO Edward Stack spoke on the phone with the ICCR members, answering questions and sharing his company’s policies related to firearms.
“We learned enough that we felt we could continue dialogue and withdraw the resolution,” Byron says. Ruger and American Outdoor Brands, however, remained unresponsive until after the Parkland tragedy, when BlackRock joined the faith-based activists in questioning firearms dealers on gun safety pressures.
On March 6, American Outdoor Brands released a statement responding to BlackRock’s inquiry.
“The solution is not to take a politically motivated action that has an adverse impact on our company, our employees, our industry, our shareholders, the economies we support, and, significantly, the rights of our law-abiding customers, but results in no increase in public safety,” wrote chair Barry Monheit and CEO James Debney in a letter to BlackRock’s head of stewardship. (The company’s board of directors has since recommended that investors vote against the religious activists’ shareholder proposal.)
The following week Ruger released a statement of its own in the form of a regulatory filing, arguing that “many of the proposals being advanced, while well-meaning, run counter to what our customers actually want.”
As Ruger’s annual meeting drew nearer, the gunmaker continued to push back against gun safety activists. In the company’s March 27 proxy statement, its board of directors recommended that shareholders vote against the proposal put forward by the faith-based investor group.
“Existing laws, if properly enforced, are sufficient to address the ‘public health crisis’ of gun violence, which, first and foremost, is a law enforcement issue,” the board stated.
Even after the proposal was passed at Ruger’s annual meeting in May, the company stood its ground, with CEO Christopher Killoy emphasizing on a shareholder earnings call that its business would not change as a result of the vote.
“The proposal requires Ruger to prepare a report – that’s it, a report,” he said. “What the proposal does not and cannot do is to force us to change our business, which is lawful and constitutionally protected. What it does not and cannot do is force us to adopt misguided principles created by groups who do not own guns, know nothing about our business, and frankly would rather see us out of business.”
“If you’re a shareholder supporting a corporate engagement, you’re doing it hopefully to maximize shareholder value, not purely to impact policy,” says Brad Smith, a partner at consulting firm NEPC. Among NEPC’s clients, which include pension funds, endowments, foundations, and health care organizations, Smith says there has been growing interest in shareholder activism as a way to make an impact with their investments.
This is because corporate engagement “has the highest impact of change” compared to other forms of socially responsible investing, explains Kelly Regan, a senior consultant who sits on NEPC’s Impact Investing Advisory Committee.
Alexander Ryan, an attorney at Groom Law Group who advises employer plan sponsors on fiduciary law, echoes the need for a strong business case for undertaking shareholder activism, which, beyond its potential effect on investment returns, can be a costly and time-consuming process.
“The current labor department is concerned about plans’ fiduciaries using significant amounts of plan assets to engage with companies – assets that may otherwise be put to other uses,” he says. “With shareholder activism and proxy voting, the plan fiduciaries really have to make the economic case for these types of decisions.”
With churches being exempt from federal rules on employer-sponsored retirement plans, many faith-based investors have more freedom than the average corporate pension or health organization, although Ryan notes there are still some legal questions over which organizations count as churches.
At the Presbyterian Church and elsewhere, however, financial obligations to beneficiaries are still a serious consideration. “In anything we do there’s a business case,” Fohr says. “We believe any issue we’re engaging on backs up our church’s policy on social issues, but also what we see as unmanaged risk.”
Recently, for instance, the Presbyterian Church has focused on preventing human trafficking violations, targeting travel and tourism companies, including all of the major airlines. In the last year the church has expanded its efforts to smaller and midsize airlines like JetBlue and Spirit Airlines. It has not participated in shareholder engagement with gun companies, which are kept out of its portfolios through negative screens.
“The notion that you have to give up returns to make an impact or have ESG integration into your process is getting dispelled a bit,” says Elizabeth Jourdan, deputy CIO at Mercy Health. The Catholic hospital system revised its investment policy in 2015 to place more emphasis on socially responsible investments, with the investment team focused on finding opportunities in areas like health care and life sciences that can simultaneously advance public health and generate an attractive return.
While Jourdan says Mercy has “not engaged proactively in shareholder activism yet,” she notes that it votes proxies through ISS in accordance with policies set by the U.S. Conference of Catholic Bishops.
Azzad Asset Management, an investment firm whose products and services adhere to Islamic principles, has similarly relied on proxy voting guidelines based on religious teachings. More recently, however, the firm has taken a “deep dive” into shareholder advocacy, says Joshua Brockwell, the firm’s investment communications director.
“It’s been a gratifying experience,” he says, pointing to recent efforts surrounding genocide in Myanmar. The firm assembled a coalition of shareholders to target Chevron Corp., which has a sizable operation in the country formerly known as Burma. Since the filing of their first shareholder resolution, Brockwell says Chevron has engaged with Myanmar’s government and pledged publicly to “push for a business environment that respects human rights.”
“The work is not done by any means,” Brockwell says, “but we consider that a win.”
Next month a “win” for the faith-based shareholders facing off with American Outdoor Brands would force the firearms manufacturer to take more accountability for the violence that is ejected from the pointed end of its product.
But whatever the outcome of the vote, the work won’t be done.
The ultimate goal for activists like Byron and Catholic Health Initiatives is to end gun violence. Shareholders forcing firearms companies to develop safer weapons is a step in that direction, but Byron is also hoping for legislation at the state, if not the federal, level.
“There’s been a lot of action on this issue, and I really believe the credit goes to the kids and their response to what happened [in Parkland],” she says. “We can’t let them down; we can’t let them do the heavy lifting. Whether we’re investors, moms, voters – whoever we are, we need to stand up for this issue.”