Gunmaker Sturm Ruger faces investors amid breakdown in dialogue

Faith investors say gunmaker has shut down “constructive dialogue”

US gun manufacturer Sturm, Ruger & Co. holds its annual general meeting tomorrow (May 8), overshadowed by a breakdown in dialogue between the company and responsible investors and a row over voting advice from governance firm ISS.

US-based faith investment body the Interfaith Center on Corporate Responsibility (ICCR) has claimed that the under-fire firm “inaccurately” defended its record on gun safety engagement in a letter to shareholders filed at the SEC late last month (30 April).

Ruger’s letter was responding to the call by the ICCR and US non-profit Majority Action for shareholders to vote against the company’s chair Michael Jacobi and controversial Director Sandra Froman at the AGM in New Hampshire.

The ICCR issued its call to investors following the publication of what it termed Ruger’s “inadequate” report on gun safety in February, which had 69% shareholder backing the year before at the company’s annual meeting in the wake of the Parkland school massacre.

Ruger’s report effectively shuts down any “constructive dialogue”, the ICCR states in its ‘exemption solicitation’ filed with the SEC (9 April), by rejecting “any corporate responsibility for improving gun safety and mitigating the potential harm its products cause”.

Advisory firm Institutional Shareholder Services (ISS) also found Ruger to have “responded insufficiently” to last year’s shareholder proposal, concluding in its voting advice: “Sturm, Ruger board’s lack of engagement and responsiveness point to leadership failures on the part of the chair and the lead director/ governance committee chair, who would have been reasonably expected to be champions of effective board engagements with shareholders.”

It recommends shareholders to ‘withhold’ votes for Jacobi along with two different directors, John A. Cosentino and Amir P. Rosenthal, who chair the company’s governance and risk oversight committees.

The company, however, has branded ISS plain “wrong” in its assessment and has defended its report, pointing in the letter to the recommendation by rival proxy firm Glass Lewis that shareholders “FOR” vote for all its directors.It states: “It was not our duty to tell the proponents what they wanted to hear or embrace their agenda. Rather our duty was to provide a truthful report explaining the Company’s position and practices and the rationale for them. That is what we did.”

It added: “ISS apparently reached these conclusions without engaging the proponent group of the shareholder resolution. Rather, ISS engaged Majority Action, which is not one of the 12 proponents of the resolution and which proudly espouses an anti-gun agenda.”

Last week, however, the ICCR and Majority Action issued a press release stating that both “ICCR member shareholder proponents and representatives of Majority Action” discussed the report with ISS, contradicting Ruger’s assertion.

The ICCR also highlights that the company has seen a 12.9% decline in total shareholder return since the November 2016 US election, while pursuing what it terms a “short-termist strategy of ‘fear-based’ sales to existing gun owners” rather than pursuing alternatives “including potentially higher-margin, technology-driven, product safety innovation” that could “provide competitive differentiation and improve long-term shareholder value”.

Hope for further engagement with Ruger’s current board was dampened by the ICCR who noted that the company had refused to meet its two largest shareholders BlackRock and Vanguard on the issue in 2018, citing fair disclosure issues.

Sister Judy Byron, OP, Director of the Northwest Coalition for Responsible Investment, said: “Sturm, Ruger’s refusal to engage with shareholders is unprecedented, and does not serve either the public or investor interests. Contrary to Ruger’s claims, we were present during the discussion with ISS and made clear our strong preference for productive dialogue over stronger actions like the ones we are now being forced to take.”

All eyes will now be on the vote tomorrow to see the verdict reached by investors.