Guns and the Boardroom
By Jan Alexander

Why directors can’t sidestep the gun-control debate.

Keith Mestrich, the CEO and president of Amalgamated Bank in New York as well as a board member, is no stranger to the gun safety debate.

Amalgamated has been a mission-driven bank since its founding in the 1920s, and support for gun control is part of its present-day mission. It has a long-held policy of not lending money to gun or ammunition manufacturers and offers its clients a choice of social impact funds that don’t invest in firearms as well as activist funds that support changes at gun manufacturing companies.

The credit policy and trust committees review the bank’s lending and investment policies every year to make sure loans and its $45 billion investment portfolio are aligned with its mission. So when Everytown for Gun Safety, the nonprofit started by former New York City Mayor Michael Bloomberg, teamed up with representatives from Levi Strauss late this summer and asked CEOs across the country to sign a letter to the U.S. Senate requesting that Congress pass more thorough gun safety laws, Mestrich knew the board would approve.

He was one of 150 chief executives who signed the letter, which Everytown circulated in reaction to the mass shootings in Texas and Ohio in August, and has been vocal about his support for gun control. It’s an issue that should hit home for everyone, he says. Amalgamated has held workplace violence training sessions for its employees, and Mestrich’s children have active shooter drills in their school.

“Many of my fellow CEOs and board members have realized that we have a voice,” he says. “And we should use it to the extent that we have some influence over changes that need to happen.” 

The CEOs who signed the letter come from a cross section of industries, none directly connected to gun manufacturing. Amalgamated, with its policy of not providing capital to gun makers, and Dick’s Sporting Goods CEO Edward Stack, who has taken a very public stance against selling assault-style rifles in his stores, are among the few whose only tie to guns is that they’ve opted out of financing and selling them.

For others — the list includes  Brian Chesky, CEO of Airbnb; Roger Lynch, the CEO of Condé Nast; and Dara Khosrowshahi, the CEO of Uber, to name a few — the closest link to guns is what the letter states: “…we have a responsibility and obligation to stand up for the safety of our employees, customers and all Americans in the communities we serve.”

That seems to sum up the message behind the next wave of corporate responsibility when it comes to the gun control issue: Even in unrelated industries, boards often have to decide whether it is their fiduciary duty to take a position on gun safety, including pushing for changes in the law.

There are those who believe it is not their role — or that having the company’s leaders speak out in favor of gun control would turn off customers or investors and thereby be financially irresponsible. However, a board member never knows when the company might be indirectly implicated in a shooting.

Consider, for example, the tragic mass shootings at WalMart stores in Southaven, Mich., and El Paso, Texas, this summer. The board and senior managers responded by announcing the retailer would tighten up its existing policies, banning open carry and the sale of handguns (which it had previously stopped selling everywhere but Alaska), handgun ammunition and short barrel rifle ammunition. CEO Doug McMillon has publicly asked Congress and President  Donald Trump to pass more stringent gun safety laws.

“Whether your business is directly related to guns or not, I don’t think you can stay silent,” says Lynn Fox, the chairman of the board at Amalgamated Bank.

Social activist investors, too, have begun to take their efforts farther afield, increasingly asking companies across the industry spectrum to take a stand on gun control — and to some extent finding they can get only so far without policy changes.

It was a victory for activist investors when Chubb Insurance stopped underwriting the National Rifle Association (NRA)-branded policy called Carry Guard, which gave liability coverage to gun owners who shot in self-defense, except that state laws seemed to have played an even stronger role in the decision.  An individual investor had filed a shareholder resolution in 2018 asking the company to report on ways it could prevent or minimize public health harms from the products. Chubb successfully challenged the resolution on a technicality — the investor didn’t provide sufficient proof of his stock ownership — but later in the year, facing fines from New York state and investigations in California, New Jersey and Washington state over whether the Carry Guard policy violated state insurance laws, the insurer pulled out.

Other investor efforts to cut off capital that might in one way or another enable a culture of shooting have pointed to a roadblock when companies face the idea of setting standards above and beyond legal requirements.

A coalition of 38 socially responsible investment firms has asked 18 major banks and credit card companies to enact policies that include requiring their merchant customers to prevent the sale of high capacity magazines and other equipment that enables rapid fire and require universal background checks, regardless of the sale venue. Citigroup made some changes along that line last year, and Bank of America has announced it won’t lend money to manufacturers of military-style weapons for civilians. But the predominant response, according to a follow-up statement from the investor coalition, was that the financial institutions agreed that action to curtail gun violence is urgently needed, “but such action should only be taken by public policy makers.”

The investor coalition takes the position that if a bank says it must adhere to a legal standard that is clearly inadequate, it is time to push for policy change. “Guns are a pretty small part of their business, but we believe that gun violence is also a systematic economic risk” says Holly Testa, the director of shareowner engagement at First Affirmative Financial Network in Colorado Springs, one of the firms in the coalition. “All companies are impacted.”

Because many boards and senior managers see gun safety as a public policy issue, however, increasingly the push from activist investors is to ask companies to follow the lead of those who signed the CEO letter and take a stance in the political arena.

Boards have to decide if taking a side in the gun divide is going to improve shareholder value. It is easy and often mandatory for the board, of a company with a socially responsible or mission-driven brand, to take such a stance — but less so for others.

“The board has the discretion to decide on something that they believe will work in the  best long-term interest of shareholders in terms of protecting value,” notes Steven Haas, a partner at the law firm Hunton Andrews Kurt, who specializes in corporate law and corporate governance.  “Boards at retail companies, for example, can say the risk of a lawsuit from the use of guns, or the risk of a consumer boycott, justifies a decision to stop selling certain weapons, even if they lose money at the beginning.”

There has been backlash against companies that take on the issue, of course. When Yeti Coolers, which makes coolers that people take on hunting trips to store the carcasses, announced it was ending its discounts for NRA members, some customers blew up their Yeti coolers and posted videos.

Haas thinks that at least in some cases, it is asking too much to expect corporate boards to set policies that go beyond the federal or state laws about gun control. It is a board’s duty to make sure the corporation acts lawfully, so if the laws about gun control change, the issue is definitely in the board’s purview.

Otherwise, though, he notes that big changes in society, which boards would also have a duty to adhere to, are likely to come only from changes in the market.

“I’d say the greatest success in pushing companies to adopt gun safety policies has been with the retailers,” he adds. “That’s the market force. Pressuring retailers hits the gun manufacturers’ bottom line, and that can be a force for real change.” 

For the most part, however, retailers are going to act in response to market forces, not spearhead them. That is why, when it comes to gun control, says Haas, “the decisive blow is going to be part of an overall movement.” 

Board members need to keep a close watch on the gun control movement and the market — and be proactive in determining the stance the company is going to take. 

Jan Alexander is a writer who specializes in corporate thought leadership and investor activism. Her articles have appeared in Institutional Investor, Strategy+Business, and Forbes.

 


Issue: 
2019 Fourth Quarter

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