Quick Takes (v30): Guns and Money

Quick Takes

Most of us are familiar with the old adage "all roads lead to Rome." We intuitively know that every single road doesn't lead to Rome, but that there are many ways to get there, some of which require more effort and stick-to-it-iveness than others. 

For the purposes of today's post, let's recognize (and celebrate, in my case) that there's more than one way to 'get thee' and do something about guns in America. Here's a headline that appeared in the business section of my local paper:

Investors push gun industry for reforms

The article, from Bloomberg, talked about a group of 13 investors, including state pension funds in California, Florida and Connecticut, among others, that collectively have trillions of assets under management, and who are

banding together for the first time to pressure gun manufacturers and sellers to make firearms "safer, more secure and easier to trace."

The approach is not to threaten to divest from the manufacturers; instead, it's to apply pressure on manufacturers to encourage them to make changes that comply with five Principles for a Responsible Civilian Firearms Industry which focus on new technology; dealer standards; training and education programs; best practices in background checks, inventory management, and point of sale policies; proactive assistance to law enforcement; and collaboration with the signers of the Principles moving forward.

Christopher Ailman, who's the Chief Investment Officer for the California State Teachers' Retirement System (CalSTRS), said that

As investors, we're focused on taking steps to reduce risks while increasing the long-term value of the companies in which we invest. But as individuals, we are also deeply saddened by the gun-related tragedies our country is experiencing. We hope these principles serve as the start of a new conversation to address gun safety in the civilian firearms industry, and we look forward to progress through the reasonable and broad framework for engagement they provide. 

Ailman also noted that CalSTRS has tried this before. According to this NY Times article from December 2012, after the Sandy Hook shooting, the fund had about $750M invested in Cerberus Capital Management, which in turn was invested in the Freedom Group, which manufactured the Bushmaster rifle used in Sandy Hook. Here's what CalSTRS had to say:

At this point our investment branch is examining the Cerberus investment to determine how best to move forward given the tragic events of last Friday in Newtown, Conn.

Back then, there was little expectation that things would change. The problem? Firms like Cerberus and others are obligated to maximize their investors' funds, even if that means holding positions in 'sin' companies such as guns, gambling and tobacco.

Similarly, it might be a while before any impact from these Principles and these investors is seen. After all, there's long been concern from manufacturers that things could change - and yet... Here's just one example, excerpted from a note to investors about a (shelved) IPO that predates Sandy Hook:

The regulation of firearms and ammunition may become more restrictive in the future and any such development might have a material adverse effect on our business, financial condition, results of operations or cash flows. In addition, regulatory proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer perceptions. 

Two manufacturers -  American Outdoor and Sturm, Ruger - both recently had shareholder proposals approved, asking for reports on gun violence and the risks of selling guns. And while the reports didn't spur any changes in product offerings, I think it's safe to say that Americans will continue trying to find ways to deal with our mass shooting problem, whether we call it a gun problem, a mental health problem, a domestic terrorism problem, or something else entirely. A rose by any other name, and all.

Whether it's investment, divestment, or other shareholder actions; changes to the background check process; voluntary changes by manufacturers, perhaps to include limiting sales of ammunition or or eliminating the sale of bump stocks; increased opportunity for mental health treatment; ER research on gunshot victims; or what have you, sooner or later, I think we'll reach some kind of critical mass where common ground can be found.