In the April 14th, 2023, print edition of the Wall Street Journal, David Henderson and I drew a lesson from the movie Air about ESG investing. You can read our op-ed in full beneath the fold. (Note: Our op-ed’s title – which wasn’t chosen by us – is a bit inaccurate: the lesson that David and I draw about ESG investing comes from only one part of the movie rather than being the, or even a, main theme of the movie.)
‘Air’ Is a Cautionary Tale About ESG
Michael Jordan’s lesson for investors: Avoid uncertainty.
By Donald J. Boudreaux and David R. Henderson
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.