Yet the most fascinating part of Jensen’s story may be what happened near the end of his life. After helping build the dominant theory of corporate governance in the late twentieth century, he began to rethink many of the assumptions behind it. He did not reject capitalism. He did not abandon markets. But he started asking whether economics had ignored something essential about human beings.

This evolution is at the heart of the tribute written by researchers Bartley Madden of Florida Atlantic University and Professor Douglas Stevens of Georgia State University. Their work presents Michael Jensen’s career as a drama unfolding in three acts. Each act reveals a different understanding of corporations, leadership, and human behavior. Together, they tell the story of a thinker who never stopped questioning his own ideas.

Jensen first rose to prominence during a period when economists were transforming finance into a rigorous scientific discipline. In the 1960s and 1970s, economists increasingly believed that markets could be studied with the precision of physics. Mathematical models, statistical analysis, and elegant theories became the new language of business schools.

Michael Jensen thrived in this environment. Educated at the University of Chicago, he became part of a generation determined to reshape economics around measurable evidence and formal theory. Early in his career, he worked on financial market research that helped establish modern methods for studying how stock prices respond to new information.

But his most famous contribution came in 1976, when he coauthored a landmark paper with William Meckling called “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” The paper became one of the most cited works in corporate finance history and transformed how people understood corporations.

Before Jensen’s work, economists often treated companies almost like machines. Firms combined labor, capital, and equipment to produce goods and services. Managers existed in the background, but their motives and behavior were not the main focus.

Jensen changed that. He argued that corporations should be understood as collections of contracts between different groups, including shareholders, managers, employees, and lenders. At the center of this system was a problem he called the “agency problem.”

The logic was both simple and powerful. Shareholders own companies, but managers run them. Managers may pursue their own interests instead of acting in the best interests of owners. They might seek prestige, larger empires, excessive perks, or personal security rather than maximizing the company’s long-term value.

According to Jensen, the central challenge of corporate governance was finding ways to align managers’ incentives with shareholder interests. This idea became known as agency theory, and it spread rapidly through business schools, boardrooms, and financial markets. Suddenly, corporations were being viewed through a new lens. Executives were not necessarily trusted stewards of institutions. They were agents whose behavior needed monitoring, incentives, and discipline.

The impact was enormous. Agency theory influenced executive compensation, accounting systems, corporate governance, and even management education itself. Jensen became not only a leading academic but also a major intellectual force behind the rise of shareholder capitalism.

At Harvard Business School, he helped create a highly influential MBA course that taught students how incentives, information systems, and governance structures shaped organizational behavior. Many future executives absorbed a worldview that treated corporations as systems designed primarily to maximize long-term enterprise value.

Critics later argued that this approach narrowed the moral purpose of business. Instead of viewing corporations as institutions serving society broadly, many companies increasingly focused on stock prices and shareholder returns.

Yet Jensen believed he was confronting a real problem. During the economic turmoil of the 1970s, many large corporations appeared bloated, inefficient, and insulated from accountability. Inflation was high. Growth had slowed. Conglomerates expanded recklessly. Managers often seemed more interested in building their own wealth and power than improving firm performance.

Jensen concluded that corporations needed stronger discipline. This led to the second act of his intellectual journey. In the 1980s, America experienced a wave of corporate takeovers, leveraged buyouts, and restructurings. Financial markets became increasingly aggressive in challenging underperforming management teams. Corporate raiders acquired struggling firms, replaced executives, and broke apart inefficient companies.

To many observers, this period looked ruthless and destructive. But Jensen saw it differently. He believed the market for corporate control served an essential purpose. If executives failed to create value, outside investors could step in and replace them. In his view, this competitive pressure forced corporations to operate more efficiently and prevented managers from becoming complacent.

At the same time, Jensen strongly supported performance-based executive pay. Together with Kevin Murphy, he argued that CEOs were not rewarded strongly enough for increasing shareholder value. Corporate boards responded by dramatically expanding stock options and equity compensation.

The consequences reshaped American business. Executive pay exploded during the 1990s. CEO compensation rose far faster than average worker wages. Companies became increasingly focused on quarterly earnings, stock prices, and shareholder returns. Wall Street gained extraordinary influence over corporate decision making.

To supporters, these changes made corporations leaner, more disciplined, and more efficient. To critics, they encouraged short-term thinking, inequality, and a culture obsessed with financial engineering.

Michael Jensen became one of the defining intellectual figures behind this transformation. But then something unexpected happened. The corporate scandals of the early 2000s, including Enron and WorldCom, exposed widespread fraud and ethical collapse inside major corporations. Then came the global financial crisis of 2008, which shook confidence in financial markets and corporate leadership around the world.

For Jensen, these events triggered deep reflection. He began to ask whether economics had focused too narrowly on incentives and self-interest while neglecting integrity, trust, and values. The corporations of modern capitalism, he realized, could not function effectively through contracts and incentives alone.

This marked the beginning of the third act described by Bartley Madden and Douglas Stevens. Rather than abandoning his earlier work, Jensen tried to expand it. He still believed in capitalism and markets. He still believed companies should pursue long-term value creation. But he increasingly recognized that human behavior could not be fully understood through financial incentives alone.

One of the most surprising developments in this period was Jensen’s collaboration with Werner Erhard, a controversial figure best known for developing personal transformation seminars. Together, they explored how integrity, language, and human perception shape organizational leadership.

Many academics were startled by this turn in Jensen’s career. Some ignored it entirely. Others dismissed it as strange or inconsistent with his earlier work. But Jensen believed he was addressing a weakness in traditional economic theory.

He argued that integrity should not be treated merely as a moral virtue or personal value. Instead, he viewed integrity as a practical requirement for effective performance. Organizations function poorly when people break promises, distort information, or fail to honor commitments. Trust deteriorates. Coordination breaks down. Productivity suffers.

In this sense, integrity became what Jensen called a “factor of production,” as important as labor, capital, or technology. This shift also changed how he thought about leadership. Earlier in his career, Jensen focused heavily on systems, incentives, and governance structures. Later, he became increasingly interested in the internal lives of leaders themselves. He and Erhard explored how language shapes perception, how organizations create shared realities, and how leaders influence performance by changing how people see the future.

This work emphasized authenticity, commitment, and the ability to create a compelling sense of shared purpose. At first glance, these ideas may seem worlds apart from the hard-edged financial economics that made Jensen famous. Yet Madden and Stevens argue that there was continuity beneath the surface.

Throughout his career, Jensen remained obsessed with performance and organizational effectiveness. In each phase, he searched for mechanisms that could help people and institutions function better. What changed was his understanding of human behavior itself.

In his early work, people were primarily self-interested agents responding to incentives. In his later work, they became more complex beings shaped by trust, language, relationships, and values.

Importantly, Jensen never fully embraced traditional stakeholder theory, which argues that corporations should serve employees, communities, customers, and society alongside shareholders. He remained skeptical of approaches that gave managers vague or conflicting objectives.

Yet he also recognized that companies could not succeed by ignoring stakeholders altogether. He eventually proposed what he called “enlightened value maximization,” an approach that acknowledged the importance of employees, customers, suppliers, and other groups while still emphasizing long-term enterprise value.

This evolution reflected a broader tension inside capitalism itself. Modern economies depend on competition, incentives, and financial markets. But they also depend on integrity, shared values, and social norms. Markets alone cannot create functioning institutions if the people inside those institutions lose their moral bearings.

Jensen’s late-career work represented an attempt to grapple with this tension without abandoning the analytical rigor that defined his earlier scholarship. That effort remains deeply relevant today.

Across the business world, debates continue over executive pay, shareholder primacy, stakeholder capitalism, and corporate purpose. Companies face growing pressure to balance profitability with social responsibility. Business schools increasingly teach ethics, sustainability, and leadership alongside accounting, finance, and economics.

Many of these debates trace back, directly or indirectly, to Michael Jensen’s ideas. What makes Jensen’s story particularly compelling is that he never stopped evolving. Some intellectuals spend their lives defending old positions. Jensen repeatedly challenged his own assumptions. Even after achieving enormous influence, he continued searching for better explanations of how organizations and markets actually work.

Bartley Madden and Douglas Stevens emphasize this restless curiosity throughout their tribute. They portray Jensen not as a rigid ideologue, but as a thinker constantly trying to improve the theory of the firm by confronting its weaknesses.

That willingness to rethink foundational ideas may ultimately become one of his greatest legacies. Today, the corporation remains one of humanity’s most powerful institutions. Companies shape economies, technologies, cultures, and daily life. Understanding how they function is not merely an academic exercise. It affects millions of workers, investors, consumers, and communities.

Michael Jensen devoted his life to understanding how corporations work and create value for capitalist society. In the process, he helped transform finance into a modern scientific discipline. He influenced generations of executives and scholars. He reshaped corporate governance and executive compensation. And late in life, he attempted something even more difficult: reconnecting economics with questions of integrity, leadership, and human purpose.

Whether one agrees with all of his conclusions or not, Jensen’s intellectual journey offers an important lesson. Economic systems are ultimately built on human behavior. Incentives matter. Markets matter. But integrity, shared values, and social norms matter too.