There’s a new measure of how well prospective CEOs might lead a company: whether they served in the military.
According to a new working paper from the National Bureau of Economic Research, military service has
significance for management styles and firm performances
. Overall, the authors identify three traits of CEOs who’ve served in the military: They’re more conservative financially, less likely to be involved with corporate fraud, and better equipped to steer firms through tough times.
We’ve broken those down in greater detail below:
1. They are more conservative with their financial and investment policies. NBER researchers Efraim Benmelech and Carola Frydman consider this finding slightly surprising, as prior psychological research holds that military service can lead to “aggressiveness, overconfidence, and increased risk-taking.” Their data suggests just the opposite: that CEOs with military experience are more cautious in financial and investment decisions.
2. They are less likely to be involved in corporate fraud. Apparently military experience makes a huge difference when it comes to honesty. The researchers find that military CEOs are 70% less likely than the average CEO to be involved in corporate fraud. That’s nothing to sneeze at.
3. They outperform their peers in stressful times. Research shows that CEOs with military experience are better able to offset the negative effects of tough times than the average chief executive. While Benmelech and Frydman aren’t entirely sure why this is the case, they suggest it’s because veterans “learn how to make decisions in extreme conditions during combat.” They caution that while military CEOs seem to have some advantages, they are not associated with higher company valuations.
The researchers point out that the number of CEOs in corporate America with military backgrounds has dwindled steadily over the past 25 years, and they see this as cause for concern.
“The reduction in the supply of executives who have conservative investment policies, are less prone to fraud, and are plausibly better equipped to navigate through times of crisis may be detrimental for firms if these skills cannot be easily provided to individuals through alternative sources, such as MBA programs,” they write.
Some of the best-known military CEOs today are Daniel Akerson of General Motors, Lowell McAdam of Verizon, Alex Gorsky of Johnson & Johnson, and Frederick Smith of FedEx.
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