Michael Cole "Mike" Jensen (born November 30, 1939) is an American
economist
An economist is a professional and practitioner in the social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this field there ar ...
who works in the area of
financial economics
Financial economics, also known as finance, is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade". William F. Sharpe"Financia ...
. 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
''Emeritus'' (; female: ''emerita'') is an adjective used to designate a retired chair, professor, pastor, bishop, pope, director, president, prime minister, rabbi, emperor, or other person who has been "permitted to retain as an honorary title ...
, at
Harvard University
Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of highe ...
.
Early life
Born 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
The University of Chicago Booth School of Business (Chicago Booth or Booth) is the graduate business school of the University of Chicago. Founded in 1898, Chicago Booth is the second-oldest business school in the U.S. and is associated with 10 ...
, notably working with Professor
Merton Miller
Merton Howard Miller (May 16, 1923 – June 3, 2000) was an American economist, and the co-author of the Modigliani–Miller theorem (1958), which proposed the irrelevance of debt-equity structure. He shared the Nobel Memorial Prize in Economic ...
(1990 co-winner of the
Nobel Prize in Economics).
Career
Between 1967 and 1988, Jensen taught finance and business administration at the
William E. Simon Graduate School of Business Administration of the
University of Rochester
The University of Rochester (U of R, UR, or U of Rochester) is a private research university in Rochester, New York. The university grants undergraduate and graduate degrees, including doctoral and professional degrees.
The University o ...
, culminating in his 1984-1988 appointment as the LaClare Professor of Finance and Business Administration. From 1977 to 1988, he served as the founding director of the University's Managerial Economics Research Center. He joined the
Harvard Business School
Harvard Business School (HBS) is the graduate business school of Harvard University, a private research university in Boston, Massachusetts. It is consistently ranked among the top business schools in the world and offers a large full-time ...
on a half-time appointment in 1985 (dividing his time between Rochester and Harvard) before taking a full-time appointment at the latter institution in 1988. He cofounded the
Social Science Research Network
The Social Science Research Network (SSRN) is a repository for preprints devoted to the rapid dissemination of scholarly research in the social sciences, humanities, life sciences, and health sciences, among others. Elsevier bought SSRN fro ...
in 1994. In 2000, Jensen retired from academic work, retaining emeritus status at Harvard, upon assuming his position at Monitor.
He was also a visiting scholar at the
University of Bern
The University of Bern (german: Universität Bern, french: Université de Berne, la, Universitas Bernensis) is a university in the Swiss capital of Bern and was founded in 1834. It is regulated and financed by the Canton of Bern. It is a compreh ...
(1976),
Harvard University
Harvard University is a private Ivy League research university in Cambridge, Massachusetts. Founded in 1636 as Harvard College and named for its first benefactor, the Puritan clergyman John Harvard, it is the oldest institution of highe ...
(1984–1985, when he joined the faculty), and the
Tuck School of Business at
Dartmouth College
Dartmouth College (; ) is a Private university, private research university in Hanover, New Hampshire. Established in 1769 by Eleazar Wheelock, it is one of the nine colonial colleges chartered before the American Revolution. Although founded t ...
(2001–2002). 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
The American Academy of Arts and Sciences (abbreviation: AAA&S) is one of the oldest learned societies in the United States. It was founded in 1780 during the American Revolution by John Adams, John Hancock, James Bowdoin, Andrew Oliver, ...
in 1996. Since 2002, he has been a board member of the
European Corporate Governance Institute. Jensen is also the founder and editor of the ''
Journal of Financial Economics''.
The
Jensen Prize in
corporate finance
Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to ...
and organizations research is named in his honor.
Research
He has played an important role in the academic discussion of the
capital asset pricing model
In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
The model takes into accou ...
, of
stock options
In finance, an option is a contract which conveys to its owner, the ''holder'', the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified da ...
policy, and of
corporate governance
Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context (such as accounting, finance, corporate law, law, or management) often adopt narrow ...
. He developed 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, it implied the theory of the public corporation as an ownerless entity, made up of only contractual relationships, a field pioneered by
Ronald Coase
Ronald Harry Coase (; 29 December 1910 – 2 September 2013) was a British economist and author. Coase received a bachelor of commerce degree (1932) and a PhD from the London School of Economics, where he was a member of the faculty until 1951. ...
.
His 1983 paper ''Reflections on the Corporation as a Social Invention'' argued that corporations' sole responsibility was to shareholder value via short-term stock price increases.
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 to maximize shareholder value. The justification they gave was that shareholders were the "residual claimants" of the corporation so they had the sole right to profits. The idea that shareholders are the sole residual claimants was later challenged by legal scholars, and some (such as Stout 2002) actively reject it, in favor of other arguments for shareholder primacy. However, recent literature (such as Rojas 2014) builds upon Jensen's work arguing in favor of a dynamic model of the corporation and theory of corporate governance.
After Jensen and Murphy (1990), Congress passed Section 162(m) of the U.S. Internal Revenue Code (1993), 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 (
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. B ...
,
Global Crossing) to achieve the goal.
Jensen has collaborated several times with
Werner Erhard. The backbone of their study is an ontological/phenomenological model.
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.
References
External links
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
{{DEFAULTSORT:Jensen, Michael C.
1939 births
American economists
Fellows of the American Academy of Arts and Sciences
Harvard Business School faculty
Living people
Place of birth missing (living people)
University of Chicago Booth School of Business alumni
Presidents of the American Finance Association