Michael C. Jensen, an economist and Harvard Enterprise Faculty professor whose evangelizing for inventory choices, golden parachutes and leveraged buyouts helped reshape trendy capitalism and empower Wall Road’s greed-is-good period, died on April 2 at his residence in Sarasota, Fla. He was 84.
The dying was confirmed by his daughter Natalie Jensen-Noll. She didn’t specify a trigger.
Even earlier than he launched into a peculiar late-career mental partnership with Werner Erhard, the controversial self-help guru who created est, Professor Jensen’s colleagues thought-about him among the many most freethinking and divisive economists of his era.
“Mike was a form of born proselytizer,” Eugene F. Fama, a College of Chicago professor and Nobel laureate in economics who collaborated with Professor Jensen, mentioned in an interview. “He was very positive of himself by way of his concepts being appropriate and, you realize, pathbreaking.”
They have been additionally incendiary.
In his e book “The Golden Passport: Harvard Enterprise Faculty, the Limits of Capitalism, and the Ethical Failure of the MBA Elite” (2017), the journalist Duff McDonald referred to as Professor Jensen an “instrument of mental violence” who “created a Frankenstein that nobody is aware of methods to kill.”
Professor Jensen started his tutorial profession within the late Sixties, when a seismic shift in financial concept was underway. For many years, college students finding out administration — particularly at Harvard Enterprise Faculty — have been taught that executives (and their corporations) ought to have a social conscience.
Then, in 1970, the economist and free-market theorist Milton Friedman printed his groundbreaking essay “A Friedman Doctrine — The Social Accountability of Enterprise Is to Improve Its Income,” in The New York Instances Journal.
A enterprise that “takes severely its obligations for offering employment, eliminating discrimination, avoiding air pollution,” Mr. Friedman wrote, is “preaching pure and unadulterated socialism.”
Professor Jensen, a free-market adherent himself, endorsed Mr. Friedman’s essay. However he detected a gap within the argument, which he explored in a seminal paper, “Theory of Firm: Managerial Behavior, Agency Costs and Ownership Structure,” written in 1976 with William H. Meckling whereas they have been each professors on the College of Rochester.
The paper explored the misalignment of pursuits between managers and the businesses’ house owners, the stockholders, which they mentioned made it unimaginable for corporations to exist solely for rising income.
A chief govt, for instance, may worth hiring a chauffeur for a better commute over decreasing prices that eat into income, or rent extra workers for the standing increase of working an even bigger firm, or reinvest income into short-term, sure-thing initiatives slightly than taking up riskier long-term concepts.
“This was the start of breaking open the black field of the agency,” Professor Jensen mentioned in an interview printed within the Journal of Utilized Finance. “Clearly, corporations don’t act, solely people act, however corporations have conduct, and this conduct relies on the system as a complete.”
To align the pursuits of each events, Professor Jensen inspired the usage of inventory choices and fairness as major types of compensation. He endorsed taking up debt to purchase different corporations as a result of mortgage funds and lowered free money circulate would drive executives to raised handle prices. And he blessed golden parachutes — the big funds executives obtain if they’re compelled to go away after a merger or the outright sale of an organization.
“Take into consideration the issue within the following approach: High-level managers and the board of administrators act as stockholders’ brokers in offers involving a whole bunch of thousands and thousands of {dollars},” he wrote in Harvard Enterprise Assessment. “If the choice offering the very best worth to stockholders is sale to a different firm and the retirement of the present administration staff, stockholders are not looking for the managers to dam a bid in worry of dropping their very own jobs.”
Executives stroll away with their pockets comfortably lined with money, the idea goes, however so do traders.
“He was clearly some form of genius,” mentioned Nicholas Lemann, the previous dean of the Graduate Faculty of Journalism at Columbia College, who interviewed Professor Jensen for his e book “Transaction Man: The Rise of the Deal and the Decline of the American Dream” (2019). “I feel he’s way more necessary in shaping the America we reside in now than most individuals acknowledge.”
That shaping largely transpired at Harvard Enterprise Faculty, which Professor Jensen joined in 1985, on the peak of President Ronald Reagan’s pro-business financial insurance policies. Two years later, in Oliver Stone’s film “Wall Road,” Michael Douglas portrayed a fictional company raider, Gordon Gekko, who declared: “Greed, for lack of a better word, is good. Greed is true. Greed works.”
Professor Jensen taught his theories in a category he referred to as “Coordination, Management and the Administration of Organizations,” probably the most widespread electives on the enterprise college.
“Have little doubt about it, probably the most highly effective man at HBS within the early Nineties was Michael Jensen,” Mr. McDonald wrote. “He was way more engaged with college students, these college students have been all going to Wall Road, and Wall Road corporations have been all sending a reimbursement to HBS.”
Michael Cole Jensen was born on Nov. 30, 1939, in Rochester, Minn. His father, Harold, was a linotype operator at a newspaper and drove a taxi. His mom, Gertrude (Cole) Jensen, managed the house. The Jensens struggled financially; Michael’s father drank and gambled closely.
“The concept that there is likely to be another lifestyle for anyone within the household appeared fanciful,” Mr. Lemann wrote. “Mike Jensen assumed that he can be a linotype operator, too.”
A instructor on the vocational highschool Michael attended really useful him to a recruiter at Macalester Faculty in St. Paul. He had no plans to attend school, however he requested the recruiter if the varsity had lessons on the inventory market.
“Sure, we do, the recruiter mentioned,” Mr. Lemann wrote. “It’s referred to as economics.”
He enrolled. After graduating in 1962, he paid his approach by way of graduate college on the College of Chicago — the mental residence of Mr. Friedman and different free-market theorists — by working the evening shift within the press room of The Chicago Tribune. He earned an M.B.A. in finance and a doctorate in economics in 1968, then moved to New York State to hitch the College of Rochester.
His marriages to Dolores Dvorak and Toni Wolcott resulted in divorce. Along with his daughter Natalie, he’s survived by one other daughter, Stephanie Jensen; a sister, Gayle Marie Jensen; and 4 grandchildren. He had properties in each Sharon, Vt., and Sarasota.
Later in life, after Wall Road had been besieged by company inventory choice scandals and politicians derided extreme compensation packages, Professor Jensen acknowledged that his concepts had spiraled uncontrolled.
He told The New Yorker in 2002 that basing compensation so closely on choices incentivized executives to lie about monetary outcomes. Inventory choices had develop into “managerial heroin,” he mentioned; what the enterprise world lacked was integrity.
Round 2012, with Mr. Erhard, he based the Erhard-Jensen Ontological/Phenomenological Initiative. They provided weeklong seminars on management, which they taught in far-flung locations, usually close to seashores. The fee: $3,000 per individual. Mr. Lemann attended one in Bermuda.
“I used to be concerned in reorganizing the monetary trade,” Professor Jensen mentioned onstage, based on Mr. Lemann’s e book. However by then, he mentioned, the world of finance was “staggeringly unhealthy,” including “I’m sickened by it.”
Embracing integrity was, for Professor Jensen, a profound expertise.
“Essentially the most fantastic issues occur when you’ve got integrity,” he mentioned onstage. “I used to be incomplete as a human being. Was I profitable? Positive I used to be profitable. However I used to be incomplete.”
