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Gun Prohibitionists And Shareholder Proposals

When I was a child growing up Catholic, I was taught to respect and admire nuns. These women religious had taken vows of poverty, chastity, and obedience. They served the poor and the downtrodden, they worked to heal those that were ill, and they taught children in all phases of their education. Indeed, my Great-Aunt Tessie, one of my maternal grandfather’s older sisters, was a Sister of Charity who took the name Sr. Joseph Scholastica.

Thus, I am dismayed and angered when I see the continuous effort at gun prohibition by certain orders of Catholic nuns. Their tool is to buy a minimal number of shares of a firearms company and then submit a shareholder proposal advocating for certain reports on “gun violence” or adoption of the UN’s Guiding Principles on Business and Human Rights. If they can get buy-in from one of the proxy advisory firms such as Glass Lewis or Institutional Shareholder Services (ISS), they have a good chance of passing their proposal regardless of the harm it will do to the firearms company and its business. This is because many institutional investors just go along with whatever the proxy advisor says to do.

Such is the case in an effort by the Adrian Dominican Sisters of Adrian, Michigan with their shareholder proposal now before shareholders of Smith and Wesson Brands, Inc.

Their proposal, states in part:

As investors, we seek to identify and assess human rights risks and impacts in portfolio companies because they can have direct implications for shareholder value and, depending on how they are managed, can affect a company’s long-term viability.
Given the lethality of firearms products and the potential for their misuse, the risk of adverse human rights impacts is especially elevated for all gun manufacturers, including SWBI…
While SWBI has a number of corporate policies, including a Corporate Stewardship Policy and a Code of
Ethics, the information available on its website does not mention a public commitment to respect human
rights.

This is utter nonsense. I wonder if the good sisters are now pushing any other shareholder proposals that call out the many companies that have recently stated post-Dobbs that they will pay for travel expenses for employees to get an abortion. Abortion is most certainly against Catholic doctrine. Meanwhile, Catholic doctrine since the time of St. Thomas Aquinas and his Just War Theory has recognized the right to self-defense. The current Catechism of the Catholic Church recognizes the moral duty to defend not only one’s own life but that of others. This includes, if necessary, the use of lethal force and the killing of the aggressor.

Smith & Wesson is not caving to these demands. Indeed, they are calling them out on it.

First, they note that this is the fifth year in a row that the Adrian Dominican Sisters have submitted such a shareholder proposal and that the company has engaged them and other shareholders directly on their concerns.

Then they point out:

Our approach is guided by the knowledge that we are responsible for safeguarding stockholder value in a highly politicized environment. These safeguards are swept aside by the proponent’s insistence on the singular path of the UNGP, the essence of which is to require companies to “remedy” harms that are identified by third-parties that have no financial interest in those companies. Indeed, the proposal on its face insists that we do so “regardless of legal requirements.” Multiple groups estimate these extra-legal
“human rights costs” at $280 billion per year.
It is not necessary to expose our stockholders to this risk. Our proven approach – of working with stockholders to identify and manage specific financial risks and impacts through active oversight – is superior to the proponent’s imposition of an external convention that supplants stockholder control.

S&W points out they have established a Environmental, Social, and Governance Committee on the board, published fact sheets dealing with environmental factors as well as the firearms market, established a video library on safe firearms handling, and adopted a corporate stewardship policy.

S&W then brings out the big guns, so to speak:

The proponent now has acknowledged that the proposal seeks to harm our business. For the past five years, we have explained that the proponent is part of a well-funded and well-organized campaign that aims to damage our business. The proponent has recently confirmed our concerns by:
• Calling for a ban of lawful firearms, including some of our most popular products.
• Calling on stockholders of service businesses, particularly banks and insurers, to engineer a boycott
of our industry.
• Targeting credit card companies to compel them to cease processing payments for certain firearm
products.

They document each of these assertions in the footnotes.

Finally, they point out the experience of Ruger with these nuns and other like groups in which these so-called human rights groups with no financial stake in the company would “design the program that will establish Ruger’s liability– liability ‘above and beyond legal and regulatory matters.'”

I don’t know whether this proposal will end up passing or not. A lot will depend upon how institutional investors such as pension funds and mutual funds vote. My personal opinion is that the managers of index funds should not have a vote on proxy matters. They only invest in the stock because it is part of an established index and not because of the product, the management team, or how it is governed. But that is only my own personal opinion in which others may differ.

Nuns Meddling Again

You may remember that last year that a group of Catholic nuns sponsored shareholder resolutions at both Ruger and American Outdoor Brands (S&W). The resolutions passed and both companies were forced to issue reports on “gun violence” (sic). According to a letter sent out today by American Outdoor Brands Corporation, they are back again with a new resolution. This new proposal, couched in terms of a UN Human Rights policy, “seeks to impose an obligation for the company to assume liability for undefined
“societal impacts” of violence committed with firearms.”

Think about that: American Outdoor Brands would be liable for the criminal misuse of Smith & Wesson firearms. No company in its right mind would voluntarily assume such liability. It is as if Ford, GM, Toyota, etc. would now assume the liability for people driving their cars while drunk and injuring or killing someone. It’s ludicrous!

Here is the proposal:

RESOLVED: Shareholders request that the Board of Directors of American Outdoor Brands adopt a
comprehensive policy articulating our company’s commitment to respect human rights, and which includes a
description of proposed due diligence processes to identify, assess, prevent and mitigate actual and potential
adverse human rights impacts.

WHEREAS,

The UN Guiding Principles on Business and Human Rights (hereinafter UNGPs) state:

The responsibility to respect human rights requires that business enterprises: (a) Avoid causing or contributing to
adverse human rights impacts through their own activities, and address such impacts when they occur; [and] (b)
Seek to prevent or mitigate adverse human rights impacts that are directly linked to their operations, products or
services by their business relationships, even if they have not contributed to those impacts.

In order to meet their responsibility to respect human rights, business enterprises should have in place policies
and processes appropriate to their size and circumstances, including . . . [a] policy commitment to meet their
responsibility to respect human rights.

As investors, we seek to identify and assess human rights risks and impacts in portfolio companies as they have
direct implications for shareholder value and, depending on whether and how they are managed, are a bellwether
for a company’s long-term viability.

Given the lethality of firearms products and the potential for their misuse, in direct contradiction with the
company’s stated objective of providing “next-generation guns for sport, recreation, protection and personal use”,
the risk of adverse human rights impacts is especially elevated for all gun manufacturers, including American
Outdoor Brands.

Companies exposed to human rights risks may incur significant legal, reputational and financial costs that are
material to investors. A public-facing human rights policy that includes a human rights due diligence process is
essential to managing these risks. For this reason, hundreds of global corporations have adopted human rights
policies, including British American Tobacco, Exxon and Walmart.

The Board of Directors are not amused by the Sisters of the Holy Names of Jesus and Mary, U.S.-Ontario.

Proponent’s Resolution and supporting statement cites the UN Guiding Principles on Business and Human Rights and
uses vague terms that do not alert shareholders to the specific obligations the Resolution, if adopted, would impose on our
company. The Proponent discusses a “human rights policy” and “human rights risks” but nowhere are those terms
explained. Given that the Proponent is a signatory to a statement seeking the regulation of the private ownership of
firearms, their failure to explain the specific application of their proposal to our company is, by itself, a significant
deficiency in the proposal and reason for rejection. But even worse is that the Resolution requires our company to address
all of what Proponent would claim are the societal impacts of violence committed with firearms, beyond any legal
obligation to do so. Simply put, the Resolution if adopted could potentially hold our company responsible for the illegal
misuse of firearms and the violence associated with such misuse.

Similarly, Proponent insists on “due diligence processes to identify, assess, prevent and mitigate actual and potential
human rights impacts.” Again, not a single one of these terms is defined or explained by Proponent. The Proponent’s
failure to explain and define their request makes it quite literally impossible for anyone to understand not only what
Proponent would claim is the scope of the obligation, but also its costs.

The full letter and proposal can be found here.

While many investment companies voted with the nuns last year, I would hope that they have the good sense to realize the implications of the passage of such a dangerous proposal. It is nothing less than a call for the destruction of a company founded more than a century and a half ago. Though raised and still nominally a Catholic, I am having less than pious thoughts about this group of nuns and those that would vote with them.