Yesterday, Bloomberg reported that Dick’s Sporting Goods’ CEO, Ed Stack, cost his company a whopping $150 million last year when he made the decision to limit gun sales at Dick’s and Field & Stream stores. Since then, he’s yanked all guns and hunting gear from scores of their locations nationwide.
As Bloomberg notes,
At the time, Dick’s was a major seller of firearms. Guns also drove the sale of soft goods—boots, hats, jackets. What’s more, Stack, the retailer’s chief executive officer, suspected the position could drive off some of his customers on political principle.
He was right. Dick’s estimates the policy change cost the company about $150 million in lost sales, an amount equivalent to 1.7 percent of annual revenue. Stack says it was worth it.
Was it? Dick’s is a publicly traded company. Its board and officers have a fiduciary duty to the company’s shareholders to act in the firm’s best interests and maximize their return.
Stack figured that the positive PR he’d get from the mainstream media over the anti-gun virtue signaling would outweigh the negative effect of alienating a significant portion of his customer base.
Some people applauded the CEO’s decision and promised to show their appreciation with their business—a phenomenon called “buycotting”—but those people didn’t stick around. “Love is fleeting. Hate is forever,” Stack said.
It certainly is. Ask respected, Second Amendment-supporting companies like Ruger and Smith & Wesson how long some gun buyers’ memories are.
Then there’s Field & Stream. The outdoor label, which includes kayaks, camo jackets and sleeping bags, is the company’s top-selling private brand. Stack acknowledged that the gun decision has hurt Field & Stream sales and that the company faces a potentially larger decision about its 35 Field & Stream stores, located mostly in the south and Northeast.
So reading between the lines, the anti-gun moves may actually kill off the company’s Field & Stream stores. If you think any of that has Stack wavering about his decision, think again.
Stack’s not finished, though. For almost a year, Dick’s has been working with Glover Park Group to lobby for gun reform. Last month, Stack was one of just four CEOs to sign a letter supporting a universal gun control bill that recently passed in the house, and he recently joined the business councilof Everytown for Gun Safety, a non-profit that advocates for gun control.
Shareholders have probably been placated by the fact that despite the revenue hit, the company’s stock price is up from a year ago.
Dick’s shares, which didn’t move much following the announcement last February, have climbed 14 percent in the 13 months since, outpacing the 4 percent rise in the benchmark Russell 3000 Index. On Friday, the company’s shares rose as much as 0.6 percent in New York.
Still, shareholders might wonder how much higher the stock price would be today with $150 million more in sales over the last year.
Stack made a political decision he knew would hurt the company’s bottom line. Shareholder lawsuits over such moves aren’t unusual. But according to directorpoint.com, that’s not an easy case to make.
The “business judgment rule” protects boards and board members from lawsuits for simply making bad choices. As LegalMatch shares, “The business judgment rule requires that courts defer to the board of directors in business matters.
The only exception to the business judgment rule is if shareholders can show that the board of directors engaged in fraud, illegal activities, or were grossly negligent while managing the corporation.”
In other words, boards are afforded the right to make bad business choices as long as there is evidence they were acting in good faith.
That doesn’t mean an opportunistic attorney or two won’t try to recruit some shareholders to try to make the case in court that Stack’s decision to alienate a good size segment of his customer base in order to make a political point was negligent and reduced the value of their shares. If that happens, Dick’s will spend even more of the company’s money defending itself, further hurting the bottom line.