Key Points
The main reason was that the university was very well-endowed during the heyday of companies such as Eastman Kodak Company, Bausch & Lomb and Xerox Corp, which were all headquartered in Rochesterand thrivingwhen I studied there in the late 1980s..
When the decline of these firms began in the mid-1990s, the university lost an important source of funding for several years, before finding a new source in the fact that it owned patents that are vital for both human papillomavirus (HPV) vaccines available in the market..
They gave the world a seminal paper called Theory of the firm, managerial behaviour, agency costs, and ownership structure (bit.ly/4901fWX), which clearly showed that there were agency costs involved in the running of a firm (or any large enterprise), and that managers, being agents, were unlikely to run enterprises in the best interest of its principals (i.e. share-holders), since they had agendas of their own..
The solution that these two worthies gave the world was the use of stock options in managerial compensation as a way to align the interests of managers with stockholders..
Agency theory suggests that while agents have a legal and fiduciary duty to act in the best interests of the principal (whether a stockholder or a voter), the separation of stockholders or the electorate from managers or policymakers creates conditions that can lead these agents to act in their own interest and not always in that of their principals..
