Gun Makers Facing Parkland Backlash from BlackRock

Parkland Students Speaking Up in televised town meeting

Major gun makers Strum Ruger and American Outdoor Brands (formerly known as Smith and Wesson) are facing pressure from BlackRock, Inc., the world’s largest asset management company, to do something about gun violence.  BlackRock owns a 17 percent stake in Strum Ruger and an 11 percent stake in American Outdoor Brands. This gives the $6.7 trillion asset management firm a controlling interest in both gun makers at a time when Americans are beginning to reassess their love affairs with the AR-15 rifle in the wake of the Parkland Massacre.

Both Strum Ruger and Smith and Wesson division of American Outdoor Brands manufacture versions of the AR -15 rifle used in the Parkland Massacre, dropping a red hot potato in BlackRock’s lap as BlackRock’s institutional clients are pressing the company to divest itself from the gun makers.  This isn’t, however, a story about gun violence. It is a story about how to get ahead of a story that you are behind the eight ball on.

Getting ahead of a story, in public relations parlance, means anticipating the blowback from a breaking news story and marshalling the resources required to deflect public criticism before the shit hits the fan. This is half of what public relations people do for a living. The other half is getting the news media to cover the stories you want them to cover. Sometimes, however, the two halves of a public relations consultant’s job overlap to the point where they are one and the same.

Knowing that enterprising reporters would soon notice BlackRock’s investment in the gun makers, BlackRock issued a press release that got picked up in a copyrighted Reuters article by Ross Kerber and Trevor Hunnicutt, “BlackRock, Inc. issued a statement that it will speak with weapons manufacturers and distributors ‘to understand their response’ to the second-deadliest shooting at a public school in U.S. history, putting pressure on companies such as Sturm Ruger & Company, Inc. and American Outdoor Brands Corp.”

Sounds good. Means nothing. What are they going to say? Don’t make guns? Don’t sell them?

In effect, Reuters published a press release from BlackRock deflecting attention from the key fact. Here is the key fact that does not appear in the Reuters article: BlackRock’s really big problem is that the AR15 used in the Parkland Massacre was manufactured by American Outdoor Brands, the company formerly known as Smith and Wesson, and BlackRock owns a controlling 11 percent interest in American Outdoor Brands. That’s the real hot potato.

Fortune Magazine is currently posting an article on its website that quotes Broward County Sheriff Scott Israel saying the gun used in the Parkland Massacre was, in fact, manufactured by American Outdoor Brands. The article never mentions the fact that BlackRock holds 11 percent of American Outdoor Brands. That makes two failures in reporting. (To be fair, Fortune picked up this article from Bloomberg, which means that THREE news organizations have so far missed this connection. There are certainly others.)

But hold on there. In yet another Fortune article, also picked up from Bloomberg, it was indeed reported that, “In Florida, site of the latest tragedy, teachers expressed frustration that their retirement funds own gun stocks, following revelations that holdings included the maker of the assault rifle used to kill 17 students and educators at Marjory Stoneman Douglas High School in Parkland.”

You guessed it. The Florida teachers pension funds are invested with BlackRock.

Asset management funds like those operated by BlackRock purchase and hold an array of different companies that are selected to provide a mixture of security and growth potential for their investors. Strum Ruger and American Outdoor Brands are embedded in BlackRock’s $6 billion iShares U.S. Aerospace and Defense ETF. Getting those particular fleas out of their ETF mix is going to be a real headache for BlackRock because both Strum Ruger and American Outdoor Brands are profitable ventures that contribute to the ETF fund’s profitability.

BlackRock really has only two choices, neither of which is very palatable. As their largest shareholder, BlackRock could simply use its clout to force Strum Ruger and American Outdoor Brands to “get out of the gun business.” Unfortunately, there would be no business left in either case without the gun business, which means that BlackRock would be destroying companies that it has invested in on behalf of the fund participants. Forcing the companies out of the gun business would be outright misfeasance by the leadership at BlackRock.

BlackRock knows this. They also know that the other choice – simply selling off their holdings in the gun makers – accomplishes nothing because someone else has to buy those shares in order for BlackRock to sell them off. Net effect on the gun makers: zero. Net effect on gun violence: zero. Net effect on Blackrock: a miniscule drop in profits and three days of good publicity, except among certain investors, with whom their name will be mud for awhile.

An exploded view of the AR 15 ready to assemble courtesy of ThingLink

BlackRock’s disinvestment from Strum Ruger and American Outdoor Brands would, however, accomplish absolutely nothing to control gun violence. At last count (ten minutes ago; that’s how fast things change) there are 136 companies that “manufacture” AR15 rifles.  (The list included in this article referenced 386 companies that make either the complete firearm or parts of assemblies.) The word “manufacture” is in quotes because most of these companies don’t actually manufacture anything. The AR15 is a modular firearm constructed from interchangeable parts that are produced by a group of real manufacturing facilities that almost never build complete weapons. Most of the AR15 “manufacturers” purchase and assemble interchangeable parts to build their products.

Anyone with some cash to play with can get into the gun making business in a few weeks. It is, in fact, completely possible to build your own AR15 from parts which are legally available over the counter or by mail. The only part that is restricted by regulation – the lower assembly – can be machined from blanks that are freely available.

With pension funds operators and bank card issuers discussing plans to divest themselves of investments in the firearms industry, while severing ties with the National Rifle Association, BlackRock may face a sell-off of at least one of their asset funds specifically because they are invested in the gun business.

Pension funds, universities, and other institutions are major investors in BlackRock’s ETF inventories. If those institutions decided to divest themselves of investments in the firearms industry, either BlackRock has to sell off their shares in the gun makers or face significant losses in the share prices of their ETF products that are invested in firearms.

The BlackRock press release indicates that the company will do neither. Instead it will “talk” with manufacturers and distributors to find out what they are doing about gun violence. That will be good for around three days of positive publicity. After that, no one will remember that BlackRock is still holding 17 percent of Ruger and 11 percent of the company that used to be called Smith and Wesson.

Unfortunately, the good publicity would only be appreciated by the general public. For investors, the net result of the whole exercise would be less faith in BlackRoad. Remember, I said it was a hot potato.