By Rob Cox
NEW YORK (Reuters Breakingviews) - When does taking a stand against social harm outweigh a financial objective? It’s a reasonable question for the likes of Lazard and BlackRock. The Wall Street investment bank advised AR-15 maker Remington on its restructuring days before Wednesday’s school shooting in Florida, perpetrated with a similar rifle – yet its asset managers talk about responsibility. So does Larry Fink, who runs BlackRock, the $6 trillion fund-management giant and top owner of firearms makers’ shares. They could be helping reduce American carnage.
Fink’s missive to occupants of corner offices this year was, as he surely intended, widely interpreted as a shot across corporate America’s bow. “Society is demanding that companies, both public and private, serve a social purpose,” Fink wrote a month ago. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
Like BlackRock, Lazard’s investment-management arm embraces principles of responsibility and good stewardship. These are, however, hard to square with the blue-chip firm’s advisory experts doing work intended to make Remington a more financially robust seller of deadly firearms.
Wall Street can’t on its own prevent school shootings like this week’s atrocity at Marjory Stoneman Douglas High, church massacres such as the one at Sutherland Springs, Texas in November, or the Las Vegas outdoor-concert bloodbath in October. Solving America’s exceptional gun-violence epidemic is a job where lawmakers in Congress need to show leadership. But financial-industry luminaries could make a difference – while also minimizing one risk to their hard-won reputations.
A day after the latest American mass shooting involving a military-style assault rifle, it is worth reviewing Fink’s words. BlackRock is the largest owner of shares in publicly traded manufacturers of what is arguably the most lethal consumer product of any kind. The firm’s funds hold 16 percent of Sturm Ruger, 12 percent of Vista Outdoor and around 11 percent of American Outdoor Brands, the parent of Smith & Wesson, according to Eikon.
BlackRock’s holdings are driven by its big indexing business, but it is not alone. Vanguard, which oversees $4.5 trillion of other people’s money, is the second-biggest owner of Sturm Ruger and a close third in the registers of AOB and Vista. Fidelity Management tops the roster at Vista with 15 percent, but doesn’t figure in the other two.
These increasingly engaged broad-brush investment firms, as well as more focused Wall Street advisers, could start with a simple thesis. Something common to most of the shooting horrors in recent years is the AR-15 class of semi-automatic weapons. In a country with as many firearms as people, eradicating murders, suicides and accidental deaths may never be possible. But reducing the lethality of those who would do harm is achievable by making these weapons – which were adapted from versions designed for military use on battlefields – harder to purchase or banning them outright, as some states have already done.
Denying the purveyors of assault rifles the financial means to produce and distribute them is a power that financial firms do possess. Many banks and brokers already avoid the gun industry, which scores low on most so-called ESG screens – for environmental, social and governance – in part because of the regular controversies surrounding the lethal misuse of their products.
To be fair to Lazard, its work for Remington was part of a long-standing relationship with Cerberus, the private-equity firm that acquired a number of gunsmiths, including the maker of the Bushmaster that was used to murder first-graders and teachers at Sandy Hook Elementary School in Newtown, Connecticut, in 2012. The firm was hired by Cerberus days after that tragedy, when pension funds threatened to withdraw their money.
In one sense, the goal was to help its client get out of the gun trade, a mission that will presumably be accomplished in a few weeks when nearly $1 billion of Remington debt will be converted into equity, none of which will be owned by Cerberus.
That should end Lazard’s involvement, but it will usher in a new set of owners for the maker of the Panther Arms DPMS GII rifle, which it markets as “Designed II Dominate.” Among the new shareholders, according to Reuters, may be Franklin Templeton and the asset-management arm of JPMorgan.
JPMorgan, for its part, is distancing itself from Remington ahead of the deal. “We are not an intentional shareholder, and we do not intend on being a long-term shareholder,” the company said in a statement. “Our asset-management group historically owned some of the company’s high-yield debt on behalf of its clients, and that debt is now being converted into equity. Any holding we have would be minority, passive and temporary.” That’s arguably the safest position to take for the largest U.S. bank.
But a more active approach to Remington and other makers of weapons targeted at consumers could serve the broader public benefit of reducing gun violence. The new investors could, for instance, insist on an end to the production and marketing of AR-15s and similar hardware, encourage smart-gun safety technology, or even urge reduced funding for the National Rifle Association’s political campaigns.
With Remington, a new group of owners is about to take over and they need to consider their collective priorities. BlackRock, though, has easy access to Sturm Ruger, Vista and AOB as a leading shareholder.
With 17 families in Florida preparing to bury sons, daughters, brothers and sisters, Fink could pick up the phone to just three CEOs and remind them of what he asked on behalf of BlackRock’s clients just last month: “To demonstrate the leadership and clarity that will drive not only their own investment returns, but also the prosperity and security of their fellow citizens.”
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