When lawmakers stumble, companies lead

Flower growing in pavement

Since the election of Trump and the subsequent rollback of regulations, we have seen companies show leadership on important issues where policy falls unacceptably short. We wrote about this following this year’s Super Bowl, where companies chose to use their costly ad time to send strong messages about social justice and sustainability. We have seen it in relation to climate change, too, with businesses standing strong on their commitments to reduce emissions and increase renewable energy development. Why is this trend so exciting to us? It shows the impact that companies can have when they take the lead on an issue. Perhaps more importantly, though, it gives us hope that the progress made on so many important issues is unlikely to be erased by one administration.
Recently, we have observed this trend of private ordering playing out on firearms. Gun control has long been a political hot potato – and one that companies were not keen to discuss. With the Parkland shooting, it seems that we have entered a new era around firearms in the U.S., where, for many companies in the firearms ecosystem, keeping quiet is no longer acceptable. Doing nothing, or even just complying with the laws, falls short. Companies are rewriting the rules for how gun transactions happen in the U.S. market and are doing it without the help of lawmakers.
Retailers are restricting the types of guns they sell, and to whom.
Retailers, including Dick’s Sporting Goods, Walmart, Kroger, and L.L. Bean, have announced new policies restricting the types of guns they sell and to whom, increasing the purchase age from 18 to 21, removing assault rifles from shelves, and strengthening pre-purchase vetting. Impressed by the Dick’s announcement, we wrote about it in March. Dick’s raised the bar again when it announced that it would destroy the assault-style rifles that it pulled from its shelves (instead of selling them back to the manufacturers). This means fewer assault rifles in circulation.
When retailers don’t step up, financial institutions are stepping in.
Citigroup, in an effort to prevent guns from getting into the wrong hands, has put restrictions on how and when its clients, primarily retailers, can sell guns. The company states that the retailers that use Citi services are prohibited from selling firearms to anyone under the age of 21 or who has not passed a background check. It is prepared to sever ties with retailers that do not comply. If more financial institutions put these measures in place, it would effectively set new minimum standards for firearms sales. Of course, some will choose to transact firearms sales via cash to avoid these restrictions, but we think raising the standard for gun sales is progress.
Bank of America also announced recently that it would no longer lend to companies that make “military-style firearms” for the civilian market. This move limits access to capital for these companies and also sends a message to the market that lending to makers of assault rifles is risky. While the announcement is mostly symbolic at this point, it has the potential to increase the cost of capital for these businesses, which could hamper their ability to grow and produce more weapons.
Large asset managers are using their shareowner influence to push firearms manufacturers on safety issues.
In the weeks following the Parkland shooting, BlackRock announced that it would continue to invest in companies that make and sell civilian firearms in its passive strategies and engage with them. While Blackrock has a history of very private company engagement, it took the rare step of outlining publicly the questions it would be asking of these companies – questions around risk management, distribution standards, and the development of safer weapons. It is hard to say how much Blackrock will be able to influence these companies, but we sleep better at night knowing that large asset managers are asking these questions. Further, Blackrock’s decision to be public about these engagements makes the company accountable for having something to show. We will be paying close attention to this and are hopeful that Blackrock can help these companies step up their games on firearm safety.
Feeling that they can no longer sit on the sidelines, companies are moving into new roles as social arbiters and using their influence to address issues where the response by policy and lawmakers falls short. While we still want to see policy change (and applaud the State of Vermont for leadership on firearms safety legislation), we are pleased to see companies keeping the debate alive and moving things forward. Perhaps, by raising the standards for gun sales, companies are charting the course for lawmakers. New regulation may be easier to pass if it reflects what the market is already doing.