That short circuit in governance mechanisms

The historical Jensen-Meckling model of agency theory applied to an unprecedented event in corporate governance in Italia. In 1976, Michael Jensen and William Meckling published a paper in the Journal of Financial Economics that was destined to become one of the founding texts of modern finance and corporate governance theory. The central thesis was as simple as it was disruptive: in companies with separation of ownership and control, there is a structural conflict between those who delegate (the principal) and those who act on his behalf (the 'agent). This conflict generates real costs - the so-called agency costs - that inevitably fall on the principal, because the market anticipates them and discounts them in the share price.

Forty-nine years later, Monte dei Paschi di Siena offers a case study: not the classic manager who silently appropriates non-pecuniary benefits at the expense of the shareholders, but a chief executive officer (agent who, while formally remaining in office, actively promotes an alternative list of candidates to that of the outgoing board of directors (principal), of which he is still a member and which, for reasons made transparent by publication on the bank's website, has decided not to reappoint him. A short circuit in governance mechanisms that deserves to be read above all with the tools of economic theory.

The model and the conflict. Jensen and Meckling define the agency relationship as a contract in which one or more parties - the principals - delegate to an agent the exercise of decision-making functions on their behalf. The problem arises because both parties are utility 'maximisers': there is no guarantee that the agent will act in the interests of the principal rather than in their own. Mechanisms to limit this divergence - monitoring by the principal, 'bonding by the agent, incentive systems - all have a cost. And when these mechanisms fail, there emerges what Jensen and Meckling callresidual loss: the loss of value that the principal suffers because the agent has acted sub-optimally with respect to the interests of the principal.

In the case of a listed bank like MPS, in fact, the principal-agent chain is articulated but clear: the shareholders Delfin, Caltagirone and the Ministry of Economy and Finance (MEF), as relative majority shareholders, express guidelines through the board of directors, which in turn delegates operational management to the CEO. The CEO is the agent par excellence.

In Jensen and Meckling's lexicon, entrenchment is an extreme form of opportunistic behaviour: the agent does not merely extract private benefits from management but builds structural barriers against the removal power that the principals should be able to exercise.