Originally published in WealthManagement.com
In the 30 days since the Parkland, Fla. school massacre, we have seen an incredible level of activism led by Florida high school students and students across the country.
The resulting backlash toward the National Rifle Association has been huge, and it demonstrates the power of grassroots activism. Several companies, including United, Delta Airlines, Symantec, Avis and Hertz, have announced they will end their discount programs and sponsorship relationships with the over-five-million NRA member organization. Retailers Dick’s Sporting Goods, Fred Meyers and Walmart have joined the call, announcing they will raise the gun purchasing age to 21 in their stores.
All of these actions are steps in the right direction, and yet, to make significant progress, a multi-pronged approach is required to reduce gun violence in America. And now is time for investors to take action.
Time to Step Up
The resulting consumer and legal pressure is yielding positive results thus far. The parent company of Smith & Wesson recently reported a 33 percent year-over-year decline in quarterly net sales and a 65 percent drop in profits. The company’s shares are down 26 percent year-to-date.
Trillium Asset Management recently called on asset managers to “get off the sidelines.” We fully support this call to action and urge us all to go further. It’s time for the financial industry to stop hiding behind “fiduciary responsibilities” and to own what we own.
One way to heed Trillium’s call-to-action is through shareholder engagement.
Coordinated shareholder action can include dialogue with managers, letter writing and formal proposals. This proven approach pressures companies to do the right thing. And, if a company is already headed in the right direction, shareholder activism can accelerate the process. We see engagement as both an investor right and a responsibility.
One idea is to urge companies to add more diversity to their leadership teams, a strategy we’re trying at Nia Impact Capital. Research suggests that an increase in diverse voices and life experiences can lead to stronger financial bottom lines. So, we choose companies whose core business models are solution-focused for a sustainable economy. We’re looking to improve their governance strategies, not seeking to change their very reason for being.
Targeting the Gun Industry
This shareholder activism approach has historically worked with many companies in diverse sectors across the economy. However, engaging with the weapons industry is an entirely different matter. Talking to gun manufacturers about how to make their products safer, asking them to distance themselves from the NRA, or to help lobby for stricter background checks is akin to asking the fox to do a better job of watching the hen house. It’s just not in their business plans to make these potentially revenue reducing changes.
That is where divestment becomes a vital strategy. Investors can help bring an end to the availability of automatic weapons by removing these companies from their portfolios.
Given that the most common investment strategy these days is to track large indexes, most investors, from pension plan participants to 401(k) plan holders, actually own stocks in companies that manufacture, market and distribute automatic weapons and/or ammunition. By starving gun and ammunition manufacturers of profitability and shareholder appreciation, we collectively send a strong message to these corporations.
As an industry, we need to lay a clear path to help those who wish to divest from the gun industry. In fact, just like cigarette warning labels, we ought to label investment products that contain stocks of companies whose products may be harmful to human beings. Investment capital is largely what fuels the economy, and investors need to know exactly what they’re fueling.
The Role of Advisors
Advisors can do their part by pointing out which products contain weapons or ammunition producers, marketers or distributors.
Financial advisors need to be aware of the products that support the weapons industry and be willing to help clients steer clear of these companies. Advisors can point out which companies support the NRA, such as Hyatt Hotels or Fed Ex, for example.
By helping clients know what’s in their investment portfolios, appropriate divestment strategies can be developed.
We as shareholders and members of pension plans have the opportunity to bring about sensible gun laws by using our investment portfolios as tools for change.
Kristin Hull, Ph.D., is founder, CEO and chief investment officer of Nia Impact Capital, a women-led investment management firm focused on impact investing.