Gun-Company Shareholders Really Don't Like Guns

But that probably doesn't matter as long as customers do.

Time to talk about it?

Bloomberg / Contributor

This post originally appeared in Money Stuff.

A strange thing that has happened in modern American financial capitalism is that most gun companies are owned mostly by people who do not like guns. That is: The gun companies' biggest shareholders are mostly big index funds and quasi-indexed institutional investors, whose ultimate owners -- the people whose money the funds are managing -- have no special interest in guns, and whose managers -- the financial-industry professionals in New York and Boston and California and Philadelphia -- are probably less fond of guns than the average American. On the other hand the companies' customers are, by definition, more fond of guns than the average American.

And so after the Parkland school shooting there has been a weird dynamic. The professional managers who own most of the gun companies have been pressured by their own investors to put pressure on the gun companies to do something to reduce gun violence, and probably themselves feel that the companies should do something about gun violence. But they are professional money managers with fiduciary duties to their investors, and so they cannot quite bring themselves to say "gun violence is bad and the gun companies must do something about it." Instead they warn that gun violence might be bad for the business of the gun companies, despite a distinct lack of evidence for that proposition.

And to assuage their consciences, and their investors, they promise to sit down with the gun companies and ... you know ... talk about it? There are a lot of listening tours planned. BlackRock Inc. has "reached out to the major publicly traded civilian firearms manufacturers and retailers to engage in a discussion of their business practices." Capital Group is "engaging with gun manufacturers to understand their plans to ensure the safe use of these products." Wells Fargo & Co. -- not a gun-company owner, but the biggest lender to those companies and to the National Rifle Association -- "is reaching out to customers that legally manufacture firearms to discuss what they can do to 'promote better gun safety.'" (Vanguard Group, on the other hand, is an outlier, saying "We believe mutual funds are not optimal agents of social change.") 

I kind of wonder what those meetings are like. I assume there's a line of mutual-fund managers at the door, and each one dutifully troops into the gun-company executive's office and asks "so, um, what are you going to do about gun violence?" And the gun executive says "literally nothing," perhaps while stroking a gun. And the index-fund manager shrugs helplessly and slinks out and sends in the next one. I mean, here is the response to BlackRock's inquiries from the manufacturer of the gun used in the Parkland shooting:

“We do not believe that our stockholders associate the criminal use of a firearm with the company that manufactures it,’’ American Outdoor said in its response, posted on its website. “We do believe, however, that there would be far greater reputational and financial risk to our company if we were to manufacture and market products containing features that consumers of our products do not desire, or if we were to take political positions with which consumers of our products do not agree.’’

That first sentence is plainly wrong: The fact that BlackRock and others are asking the questions pretty strongly suggests that they do associate the criminal use of guns with the gun manufacturers. But the drift of the answer is surely right: American Outdoor's commercial interests are probably best served by catering to its customers, who like guns and dislike gun restrictions, rather than to its shareholders, who are more concerned about gun violence. I suspect a lot of the shareholders know this, which is why they are expressing their concerns about gun violence in the form of listening tours rather than proxy proposals or share sales.

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