||This article has an unclear citation style. (September 2014)|
|Michael C. Jensen|
November 30, 1939 |
Rochester, Minnesota, U.S.A.
|Institutions||Monitor Group 2000-
Harvard University 1985-00
University of Rochester 1967-88
|Alma mater||University of Chicago|
|Doctoral advisor||Merton Miller|
|Known for||Financial economics
Michael Cole "Mike" Jensen (born November 30, 1939), an American economist, works in the area of financial economics. Between 2000 and 2009 he worked for the Monitor Company Group, a strategy-consulting firm which became "Monitor Deloitte" in 2013. He holds the position of Jesse Isidor Straus Professor of Business Administration, Emeritus, at Harvard University.
Michael Jensen was born on November 30, 1939 in Rochester, Minnesota, United States. He received his A.B. in Economics from Macalester College in 1962. He received both his M.B.A. (1964) and Ph.D. (1968) degrees from the University of Chicago Booth School of Business, notably working with Professor Merton Miller (1990 co-winner of the Nobel Prize in Economics).
Between 1967-1988, Jensen was a professor of finance and business administration at the William E. Simon Graduate School of Business Administration of the University of Rochester. He also founded and managed between 1977-88 the Managerial Economics Research Center at the University of Rochester. Since 1985, Michael Jensen also joined the Harvard Business School, keeping a double appointment until 1988, when he left the University of Rochester remaining only at Harvard. In 2000 Jensen retired from academic work, remaining a Professor Emeritus at Harvard, and joined the consulting firm Monitor Group.
He was also a visiting scholar at the University of Bern (1976), Harvard University (1984–85, before joining the faculty) and the Tuck School of Business at Dartmouth College (2001–02). In 1992 he held the chair of president of the American Finance Association. He became a member of the American Academy of Arts and Sciences in 1996 and, since 2002, has been a board member of the European Corporate Governance Institute. Jensen is also the founder and editor of the Journal of Financial Economics.
Prof. Jensen has played an important role in the academic discussion of the capital asset pricing model, of stock options policy, and of corporate governance, developing a method of measuring fund manager performance, the so-called Jensen's alpha.
Jensen's best-known work is the 1976 paper he co-authored with William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, one of the most widely cited economics papers of the last 40 years. Besides reigniting interest in the theory of the public corporation as an owner-less entity made up of only contractual relationships (a field pioneered by Ronald Coase), the paper laid the foundation for the widespread use of stock options as executive compensation tools.
It was a 1990 Harvard Business Review article CEO Incentives: It's Not How Much You Pay, But How by Jensen and Kevin J. Murphy that prescribed executive stock options in order to maximize shareholder value. The justification they gave was that shareholders were the "residual claimants" of the corporation, meaning that they had the sole right to profits. This idea that shareholders are the sole residual claimants was later challenged by legal scholars and some (e.g., Stout 2002) actively reject it in favor of other arguments for shareholder primacy.
After Jensen and Murphy (1990), Congress passed a law, making it cost effective to pay executives in equity. As a result, executives had a financial incentive to focus their efforts on increasing stock price. In the short run, some executives even manipulated accounting numbers (e.g., Enron, Global Crossing) to achieve this goal.NYT article 2005 In the long run, executives outsourced labor to reduce costs, then used the resulting cash flows (from the labor cost savings) to repurchase stock, thus increasing their own compensation as well as enriching shareholders. Over the last 20 years, stock buybacks total a few trillion dollars.[full citation needed]
Notes and references
- "Michael C. Jensen". Harvard Business School. Harvard Business School. Retrieved 2015-06-12.
He joined the Monitor Company in 2000 as Managing Director of the Organizational Strategy Practice, became Senior Advisor in 2007 and as of 2009 is no longer associated with Monitor.
- Author page at ISI
- CV on his Harvard Business School page
- Bad and Not So Bad Arguments for Shareholder Primacy, Social Science Research Network
- Section 162(m) of the U.S. Internal Revenue Code (1993)
- Weisbenner (2004), Fenn and Liang (2001)
- "Werner Erhard's Scholarly Papers". Social Science Research Network. Retrieved March 4, 2013.
- Creating Leaders: An Ontological/Phenomenological Model, Social Science Research Network - THE HANDBOOK FOR TEACHING LEADERSHIP, Chapter 16, Scott Snook, Nitin Nohria, Rakesh Khurana, eds., Sage Publications, 2012.
- Personal page at the Harvard Business School website
- Author page at the SSRN (Social Science Research Network) website
- BEING A LEADER & THE EFFECTIVE EXERCISE OF LEADERSHIP: An Ontological/Phenomenological Model