June 15, 2016
Michael Jensen and the Continuing Doubts about Shareholder Primacy
Posted by Matt Bodie

Last night, as part of the NPR Marketplace series "The Price of Profits,"  a report by Scott Tong provided an intellectual history of shareholder primacy, from Milton Friedman through Gordon Gekko and on to the present.  The overview was fairly long for a news program -- my wife wondered if we had stumbled into a podcast -- and sought to provide an in-depth look at the shareholder primacy phenomenon.  Lynn Stout was quoted in her role as the loyal opposition.  Perhaps the newsiest part of the segment was the perspective of Michael Jensen, long one of the intellectual godfathers of primacy.  Although Jensen defended the initial discipline that shareholder primacy imposed on markets, he backed away from any sort of muscular approach to the doctrine.  Here's the excerpt:

“Has it happened the way I wanted it to happen? Eh, probably not,” Jensen said. “There’s always going to be some people who take it too far. And then cause damage.”

Jensen said focusing solely on stocks and stockholders is a “misreading” of his scholarship. He wrote in 1990 that CEOs should “do what’s in the shareholders’ best interests.”

“I wouldn’t put shareholders at the center," he said. "I’m still unhappy about the situation where people end up thinking that shareholders are primary. That they are our only bosses. No.”

Jensen has backed away from his scholarship -- or, at least, the commonly understood ramifications of his scholarship -- before.  In 2007, he told the New York Times that "I would never award the standard executive stock option again," despite his early advocacy for such compensation packages.  

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