September 24, 2006
We got into quite a discussion of Harvard Business School’s Michael Jensen, and how he provided the intellectual underpinnings used to justify mega stock option grants and myopic focus on shareholder value. Both of these badly abused management practices are behind many companies getting bigger without the economic benefits they hoped would accompany size.
Jensen is a key character in the first part of Bigger Isn't Always Better where I lay out the downsides of bigness. But the real hero of that chapter is a lesser-known Vanderbilt economist, Margaret Blair. She had the courage, at a time when maximizing shareholder value seemed to be everybody’s mantra, to write about why a bigger stock price does not necessarily make for a better company. Next interview, she gets top billing.