Bio: Michael Jensen, the Jesse Isidor Straus Professor of Business Administration, Emeritus, at the Harvard Business School, joined the faculty there in 1985. In 1999 he became managing director of Monitor Company’s organizational strategy practice. He was LaClare Professor of Finance and Business Administration at the William E. Simon Graduate School of Business Administration, University of Rochester, from 1984 to 1988.
Professor Jensen is the author of numerous scientific papers, articles, and editorials on a wide range of economic, finance, and business topics. He is the author of Foundations of Organizational Strategy (Harvard University Press, 1998) and Theory of the Firm: Governance, Residual Claims, and Organizational Forms (Harvard University Press, 2000). In 1973 he founded the Journal of Financial Economics and served as managing editor from 1987 to 1997. In 1993 he cofounded the Social Science Research Network (SSRN) and currently serves as chairman.
In 1996, Professor Jensen was elected to the American Academy of Arts and Sciences, and he has received many awards throughout his career. In 1990, he was named Scholar of the Year by the Eastern Finance Association and one of the Year’s 25 Most Fascinating Business People by Fortune magazine. He received the 1989 McKinsey Award from the Harvard Business Review for his article “Eclipse of the Public Corporation.”
He earned an A.B. from Macalester College. His M.B.A. in finance and his Ph.D. in economics, finance, and accounting are from the University of Chicago. He has been awarded honorary degrees by Universite Catholique de Louvain in Belgium, the University of Bern in Switzerland, and the University of Rochester’s William E. Simon Graduate School of Business Administration.
Expertise: The Agency Costs of Overvalued Equity
Fellowship Focus: Michael Jensen will be the keynote speaker at the Batten Institute conference “Investing in Emerging Markets: Governance, Ownership, and Organization,” to be held on May 29 and May 30, 2003. His address, which will be the debut of a new paper, and the discussion that follows will be taped, and a studio interview with Jensen will be videotaped. A CD-ROM will then be produced that will feature the interview, his paper, related text and comments, and links to relevant resources. The CD-ROM is intended for use in the classroom or as an introduction to the impact of agency on investment value.
In his paper, Professor Jensen will examine the organizational and social costs that result from situations in which the market price of a company’s stock is substantially higher than its true underlying value. The corporate scandals associated with the recent bubble in stock prices provide vivid evidence of the damage of overvaluation—in some cases leading to the complete destruction of firms. Because these agency costs of overvalued equity cannot be easily resolved by the capital markets, and equity-based compensation makes them worse, the solution falls mainly on organizational governance systems. Jensen outlines how managers and governance systems can limit such costs.
The theory of agency is a subfield of economics that covers issues such as governance, ownership structure, and organization of the firm. A paper that Professor Jensen coauthored with William Meckling in 1974, “Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure,” is generally regarded as the seminal document in the field and was identified in 1984 as one of the most cited items in its field by the Institute for Scientific Information.