CEOs who served in the military

Wednesday, June 27th, 2012

CEOs who served in the military are more honest and do better in bad times:

Back in the 1980s, when many war veterans were about the right age to be running companies, nearly 60 percent of CEOs had military experience. Nowadays, with veterans of these wars entering their golden years, only 8 percent of CEOs have served. So whatever characterizes military leadership, it’s increasingly rare in the corner office.

This may be cause for concern. Business leaders with military experience seem to have in common a far greater level of honesty than CEOs who never wore the uniform. The researchers matched their CEO database to records of 132 cases of corporate fraud that took place during 1994-2004 to see who was in charge when accounting deceptions occurred. Military CEOs were about 60 percent less likely than nonmilitary leaders to preside over Enron-style cooking of the books—the rate of “fraud years” was under 1 percent for military CEOs, as compared to more than 2 percent on average for their civilian counterparts. Furthermore, military CEOs were less likely to doctor earnings numbers when the pressure is greatest, during periods of low industry profitability. In these low profit years, the average rate of fraud rises to just over 1 percent for military CEOs, as compared to nearly 5 percent for civilian ones.

Indeed, companies run by military CEOs seem to cope differently with hard times in general. Looking at a wider set of companies, and across the entire span of 1980-2006, Benmelech and Frydman find that firms run by ex-military CEOs perform much better under harsh economic conditions relative to the companies’ performance in good times. One interpretation is that once you’ve spent time managing a platoon (possibly under enemy fire), the stress of managing a company in a downturn is modest by comparison.

The data, though, suggest that while military CEOs do relatively well during bad times, their companies underperform during industry booms—well below the levels of their civilian-led counterparts. Once you account for both effects, shareholder value is a bit lower overall under military leadership.


  1. Sconzey says:

    This interesting effect plays to my prejudices, so it’s tempting not to ask what n and p were for this study.

Leave a Reply