Harvard Business School’s Michael Jensen spoke about Agency Theory at the Business Law Symposium on Friday, March 22

Michael Jensen of Harvard Business School stated during his keynote address at the Wake Forest Law Review symposium on Friday, March 22, “If you are having trouble sleeping take a look at your life and see where in your life you are out of integrity. If you put it back in, you will sleep and your health will get better.”

Jensen’s presentation was part of the Law Review Spring Business Law Symposium, “Agency Theory: Still Viable?,” held  in the Worrell Professional Center.

In 1976, Jensen expounded the agency costs theory of the modern corporation. He is considered the most famous and most cited living economist.

“’Agency theory’ is at the heart of modern business,” says Alan Palmiter, the Wake Forest Howard L. Oleck Professor of Business Law.  “The notion that corporate executives should be seen as agents working for corporate shareholders underlies modern corporate governance.”

Jensen’s goal of the talk was to begin the development of a language and model to deal with the effects of integrity on corporate, market, personal and policy issues in finance, accounting, governance and compensation.

He based his talk off of these definitions of integrity from the Webster dictionary: “Integrity is (1) the quality or state of being complete; unbroken condition; wholeness; entirety (2) the quality or state of being unimpaired; perfect condition; soundness.”

Workability was also discussed in relation to integrity and how it is the bridge to value creation.

Jensen capitalized on the idea that to have integrity a person or organization must align what they say, know and expect. Being in integrity with a person or organization means meeting their expectations.

Agency theory has had a big impact on businesses so far, but it has not solved all the problems, Jensen stated. He focused the majority of his talk on the philosophy behind what integrity is and how it impacts organizations, specifically in finance.

He used countless examples of where integrity is lacking in finance theory. For example, Jensen asked his audience to consider the common recommendation for managers with an overvalued stock to issue new stock at the current high price to benefit current shareholders knowing this would not benefit new shareholders. He exemplified how this was a vivid example of a company out of integrity.

He has applied this theory to his own company, Social Science Research Network (SSRN), and stated it has made a huge and positive difference in the work environment.

His biggest concern though, seemed to be that he believes being out of integrity is being taught in the classroom and that is where the change needs to take place. “We have a system that’s sick in finance and we need to change it and we need to change how it’s taught in business schools,” Jensen proclaimed.

He  wrapped up his inspiring keynote address with these words, “You don’t have to do anything and you can’t force anybody to be in integrity, but you can educate them,” Jensen stated. “It is a mountain with no top, so you better like climbing, and when you get to the top, you’re life will be better.”

Jensen, Jesse Isidor Straus Professor of Business Administration, Emeritus, joined the faculty of the Harvard Business School in 1985 founding what is now the Negotiations, Organizations and Markets Unit in the School.

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. He was LaClare Professor of Finance and Business Administration at the William E. Simon Graduate School of Business Administration, University of Rochester from 1984-1988, Professor from 1979-1984, Associate Professor from 1971-1979, and Assistant Professor from 1967-1971.

He founded the Managerial Economics Research Center at the University of Rochester in 1977 and served at its Director until 1988, according to the Harvard Business School website.