Finance

Investors Should Be More Embarrassed Than Gunmakers

Instead of asking companies to stop producing firearms, just avoid the shares.

You could just not own gun manufacturers...

Bloomberg

This post originally appeared in Money Stuff.

What should you do, as a shareholder, if you think guns are bad? Well, you could buy shares in big retailers and then encourage those retailers not to sell guns. You could buy shares in banks and encourage them not to finance gun manufacturers. You could refuse to buy shares in gun manufacturers, thereby driving up those manufacturers’ cost of capital and reducing the production of guns. These all seem like plausible, though incremental, approaches.

Or you could buy shares in gun manufacturers and lobby them to stop manufacturing guns. This is a more extreme approach, and I am not convinced that there is a coherent way to do it. For one thing, if you buy shares in a gun manufacturer and tell it to shut down its business, and it does, then you will probably lose your whole investment. (You could tell it to pivot to manufacturing ball bearings or whatever, but presumably the pivot would have substantial costs; presumably gun manufacturers are better suited to manufacturing guns than ball bearings.) Given that obvious problem, you’ll have a hard time getting management to agree to your plan, and you will need to run a proxy fight to replace management; for the same reason, you’ll have a hard time getting other shareholders to vote for your plan. If you have limitless money you could perhaps do it anyway—just buy 51 percent of all the gun manufacturers and shut them down—but even that might not work. Presumably people would just start up new gun manufacturers, and you’d have to pay a premium to acquire them to shut them down, and you’d just keep paying premiums to gun manufacturers and end up subsidizing the gun business.

Anyway that concludes my weird hypothetical in which shareholders actually influence the actions of the companies they own. Here meanwhile is real life:

Sturm, Ruger & Co. will prepare a report on risks related to the company’s business, following a shareholder vote during the firearms manufacturer’s annual meeting on Wednesday afternoon. The vote does not require the company to change the products it manufactures. 

“The proposal requires Ruger to prepare a report. That's it: a report,” said chief executive officer Christopher John Killoy. “The shareholders have spoken and we will follow through on our obligation to prepare that report in due course. What the proposal does not and cannot do is force us to change our business, which is lawful and constitutionally protected.”

The lead filer of the proposal was Colleen Scanlon of Catholic Health Initiatives, who was joined by a variety of other investors, many affiliated with religious groups.

Imagine being so concerned about gun violence that you … buy shares in a gun manufacturer and … vote for it to … produce a report … about manufacturing guns? You could just not own gun manufacturers, you know? I wrote yesterday that embarrassment “seems to be the principal mechanism of corporate governance,” but I cannot see how this report would embarrass Sturm Ruger into changing its business. (As the CEO said!) Really the shareholders should be embarrassed here.

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    To contact the author of this story:
    Matt Levine at mlevine51@bloomberg.net

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