Editorial: Investors Take Aim, and Shortsighted Ruger Goes on the Defensive

Tuesday, May 15, 2018

Activist investors fired a warning shot during Sturm, Ruger & Co.’s annual meeting last week in Prescott, Ariz., and management would be wise to pay attention.

At the meeting, shareholders adopted a resolution by the Interfaith Center on Corporate Responsibility, which includes a coalition of nuns and health care networks, that requires the Connecticut-based gun maker, which has a large manufacturing presence in Newport, N.H., to report by February on how it tracks violence committed with its products; its efforts to develop safer firearms; and its assessment of the reputational and financial risk to the corporation of gun violence.

Ruger’s board and management had urged investors to reject the proposal, but it apparently attracted support from two large institutional investors, BlackRock and Vanguard, that hold significant stakes in the company. BlackRock, in fact, asked Ruger for much the same information following the school shooting in Parkland, Fla., in February that left 17 people dead, a request that was essentially rebuffed.

Ruger CEO Chris Killoy was defiant in response to the shareholders’ 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 do, 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.”

This is unduly defensive and shortsighted in a couple of respects. Gun safety advocates note that mass shootings are a small part of the gun violence problem in America (by some calculations, less than 2 percent of U.S. gun fatalities last year occurred in shootings in which there were four or more victims). They point out that the everyday gun violence that disproportionately affects communities of color is driven by a huge market in the illegal trafficking of handguns. The development of safety features such as so-called smart-gun technology could render illegally diverted firearms useless, they argue; and ensuring that distribution chains are made up solely of responsible dealers could put a big dent in unregulated sales, theft and straw purchases.

Gun makers surely have no desire to fuel violent crime, so they should be open to doing what they can to curb it. Ruger’s motto is “Arms Makers for Responsible Citizens.” But arms makers must also be responsible corporate citizens. That requires the company to abandon its traditional stance of non-engagement with its critics and take seriously finding ways in which its products can be made safer and less susceptible to misuse.

Investors call the tune in many respects for publicly traded companies such as Ruger, including voting for members of the board of directors, who in turn hire and fire top managers and are duty bound to look out for the shareholders’ best interests. The very modest step that Ruger’s shareholders approved at the annual meeting came even as they rejected gun activists’ efforts to distance the company from the National Rifle Association, to which it paid $9 million over the past two years for promotional and advertising services, according to The New York Times. So in that sense, Ruger dodged a bullet. But it’s reasonable to expect that activist shareholders will continue to seek to influence behavior across the gun manufacturing industry, and Ruger would do well to anticipate what the changing gun-safety landscape portends for its future.