Smith & Wesson Under Siege by Investors, Cops and Priests
(Bloomberg) -- Mitchell Saltz serves on the boards of several gun and security companies, a legacy from his time leading Smith & Wesson. That potential for conflict has prompted protests as he seeks re-election at American Outdoor Brands Corp., the gunmaker’s parent company.
At the heart of the matter is a decision by American Outdoor to stop training courses for police officers and soldiers -- while another company picked up contracts for similar training using virtual reality simulators. Saltz’s position on the boards of both companies is gaining scrutiny from shareholder advocates even as the company faces questions over gun safety from the religious leaders, a national police group and investors.
American Outdoor had long provided firearms training at its 57,000-square-foot Smith & Wesson Academy in Springfield, Massachusetts. The company, where Saltz is a board member and shareholder, stopped holding classes there this year. Shortly afterward, VirTra Inc. -- where he is also a director and investor -- gained several contracts for its technology-based training service.
It’s unclear if Saltz was involved in American Outdoor’s decision to scale back its training operations. But Glass Lewis & Co., a shareholder adviser, is urging investors to vote against Saltz at the company’s annual meeting on Sept. 25, saying he is compromised by his failure to disclose his role at VirTra to American Outdoor shareholders.
Institutional Shareholder Services Inc., another advisory firm, isn’t calling for Saltz’s ouster. But it argues that Saltz doesn’t qualify as an “independent” director as the company claims, because he was the CEO of American Outdoor’s predecessor, Smith & Wesson Holding Corp., with a severance agreement that requires the company to lease office space from him in Scottsdale, Arizona.
American Outdoor’s corporate policy prohibits board members from working for competitors as board members or consultants. Glass Lewis says that regardless of whether VirTra is a competitor, Saltz should have been required to disclose his role there because VirTra is a publicly traded company.
In a written response to Glass Lewis, American Outdoor said Saltz’s role at VirTra didn’t present a conflict because the two companies weren’t direct competitors. It also said the fact that VirTra wasn’t mentioned in American Outdoor’s corporate biography of Saltz was inadvertent.
American Outdoor’s training programs are a “customer service” to teach police to transition to Smith & Wesson firearms and generate less than 0.5 percent of company revenue, the company said in a Sept. 6 filing with the Securities and Exchange Commission. Classes once held at the academy are now done in the field, it added.
Neither Saltz nor American Outdoor responded to requests for comment for this article. VirTra declined to comment.
Saltz’s VirTra ties are just one issue that’s attracted criticism lately to American Outdoor, the successor to the famed gunmaker, whose products were wielded by Annie Oakley, Jesse James and the U.S. Cavalry.
On Thursday, the Major Cities Chiefs Association, which represents chiefs of police of dozens of cities, joined with medical and religious groups to call on American Outdoor to “carry out a multifaceted plan minimizing the harmful impacts” of its products across the country. The Interfaith Center on Corporate Responsibility said one of its members would seek to present a gun-safety resolution at American Outdoors’ call-in shareholder meeting.
“The legal, financial and reputational risks to AOBC [American Outdoor] mount on a daily basis due to violence involving its weapons,” the group wrote on Friday. “Understanding how the company can better monitor and prevent the unsafe use of its guns could well hold the key to its survival as a company.”
After a gunman killed 17 people at a Parkland, Florida, school in February, BlackRock Inc., the world’s largest fund manager and American Outdoor’s top shareholder with a 12.4 percent stake, pressed it to detail plans to improve the safety of its products.
In response to BlackRock, American Outdoor countered in a letter that “there would be far greater reputational and financial risk to our company if we were to manufacture and market products containing features that consumers of our products do not desire, or if we were to take political positions with which consumers of our products do not agree.”
Separately, Majority Action, a left-leaning shareholder activist group that holds American Outdoor shares, faults the company for “abruptly” shuttering the Smith & Wesson Academy without adequately disclosing its plan and for insufficient enforcement of company policy regarding conflicts. It also recently accused company managers of violating an investor resolution regarding political contributions. The group said American Outdoor should have disclosed $1.5 million in gifts to the National Rifle Association and the National Shooting Sports Foundation.
The company has denied any infractions, saying that the contributions were tax-deductible and that they didn’t fall under a 2014 shareholder resolution requiring disclosure of political contributions. It said Majority Action was using the proxy process to advance its own anti-firearm agenda.
‘Stale and Insular’
American Outdoor’s leadership has been a sore point for shareholders in the past. Saltz resigned 15 years ago as chairman and CEO of Smith & Wesson Holding one week after it disclosed that the SEC was investigating the late filing of its earnings statements. Two other senior executives also stepped down. None was accused of wrongdoing in the matter.
The following year, James Minder, a director bumped up to chairman shortly afterward, resigned after a news report that he had a previously undisclosed past: He was once known as the “shotgun bandit” for a series of Michigan armed robberies that sent him to prison for 15 years.
Saltz, who remained on the Smith & Wesson board after he stepped down as chairman, serves with directors who have been in place for an average of about 10 years. Majority Action described the board as “stale and insular” and called for new directors to be chosen.
Over the years, American Outdoor’s directors have shared various financial interests well beyond the company. For example, Saltz and another American Outdoor director, Chairman Barry Monheit, are on the board of Modern Round, a VirTra partner in a budding chain of entertainment facilities combining virtual-reality shoot-outs with food and beverages. Saltz is Modern Round’s chairman and majority shareholder. That involvement, which the two men disclosed to investors, presumably gives the pair an interest in the prosperity of VirTra, Majority Action says.
In addition to Saltz, Glass Lewis initially called for the ouster of Monheit and three other directors because of what it called lapses in their oversight of Saltz. But Glass Lewis scaled back its removal recommendation to only Saltz after the company provided additional disclosures in a supplemental securities filing.
Monheit didn’t respond to requests for comment.
Saltz, Monheit and two other American Outdoor directors are also all on the board of a publicly traded commercial trash hauler and recycler, Quest Resource Holding Corp. Saltz is Quest’s chairman and largest shareholder; Monheit is a former chief executive.
When directors sit on more than one board together, even in different businesses, they may become more loyal to their personal network than to their companies, said Nell Minow, a former ISS president now with ValueEdge Advisors.
“It’s a 1980s syndrome you don’t see much on boards anymore,” Minow said. “It suggests a coziness that makes it hard to argue directors are truly independent.”
American Outdoor’s Smith & Wesson Academy unit trains police and government agencies, its website says. VirTra uses virtual-reality technology to train law enforcement and military personnel to respond to bad guys. Both firms say they offer training to respond to “active shooter” situations.
On June 20, American Outdoor announced that it was closing the Massachusetts academy, its flagship training center. Less than a week later, VirTra said it had secured training contracts with three metropolitan police departments worth a total of more than $1 million.
Tempe, Arizona-based VirTra had revenue of $16.5 million in 2017. Its stock has gained 7 percent to $5.24 over the last year.
Saltz acquired 20,000 VirTra shares in March that are now worth roughly $106,000. Over the last decade, he’s decreased his holdings in American Outdoor from 2.6 million shares to 69,000, worth about $1 million.
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