‘Air’ Is a Cautionary Tale About ESG

The 30 days since publication have more than passed and so I’m posting my joint op/ed with Don Boudreaux here.

‘Air’ Is a Cautionary Tale About ESG

Michael Jordan’s lesson for investors: Avoid uncertainty. 

By Donald J. Boudreaux and David R. Henderson

April 13, 2023 at 6:34 pm ET

Some movies not only entertain and inspire but convey broader lessons. “Air” is one of them. The film is about Nike’s efforts in 1984 to secure Michael Jordan’s endorsement of its basketball shoes, which soon after became the iconic Air Jordans. But it also tells anyone who will listen that ESG investing—environmental, social and governance—is a trap.

When the company begins its quest for Mr. Jordan (played by Damian Young), Nike is an underdog. He and his parents are leaning toward a Converse or Adidas sponsorship, as these companies are more established in basketball. Adidas is a front-runner until Nike alerts Mr. Jordan to a problem with that company. Nike’s determined employee, Sonny Vaccaro (Matt Damon) tells Mr. Jordan’s mother, Deloris (Viola Davis), that because the head of Adidas has just died, there will be turmoil at the top of the company that would hurt her son’s interests by creating uncertainty about his sponsorship.

The Jordan family’s meeting with Adidas makes it apparent that the company has no clear leader or vision on how it would deal with Mr. Jordan in the future. This sense of confusion helps persuade the Jordans to sign with Nike, where leader Phil Knight is securely ensconced, ensuring against any radical change of direction in Nike’s relationship with Mr. Jordan.

The Jordans’ decision conveys an important message about investing in companies, especially when it comes to ESG. With uncertainty about who will be a company’s next CEO comes uncertainty about the company’s strategies. Michael Jordan wasn’t willing to invest his personal brand in a fluctuating operation.

Investors should be even more wary when considering companies that pursue ESG. At the time of Mr. Jordan’s sponsorship decision, everyone at least agreed that the lone goal of a company was to maximize value for shareholders. Under ESG investing, by contrast, conflicts arise not only over how best to pursue company goals but over what the goals are. In his 2022 testimony before the U.S. Joint Economic Committee, Hoover Institution economist Joshua Rauh noted that ESG investment “is plagued by inconsistent and changing definitions that ultimately have reduced managerial accountability to shareholders.” Because maximum shareholder value is no longer management’s exclusive aim, managers will wrangle endlessly over which goals to pursue and how to trade them off against one another and against shareholder value. That’s bad for both investors and the economy.

If you watch “Air” for the entertainment value, you’ll enjoy a great story and some inspiration. If you watch as an investor, don’t be surprised if you pass up the next pro-ESG investment opportunity.

Mr. Boudreaux is an economics professor at George Mason University. Mr. Henderson is a research fellow with Stanford University’s Hoover Institution and editor of the Concise Encyclopedia of Economics.

By the way, I saw the movie after we wrote our piece, relying on Don to have gotten it right. He did.

It’s a great movie and only the second one I’ve seen in a movie theatre since Newsom locked down. It’s good old-fashioned drama and they didn’t feel the need to put in a romance when there wasn’t one.

Here’s the trailer, which gave me goose bumps.

Nell Minow, on Twitter, called our thinking “idiotic.” Then she went further, using that oldest of arguments, the ad hominem that doesn’t even fit the facts, suggesting that our research was funded by Koch. I wish. Minow might not know this, but the Wall Street Journal actually pays. Twitter, at least in the use of some tweeters such as Nell, is a vast wasteland.