Skip to main content

A soldier salutes Veterans at the conclusion of a remembrance day ceremony at the cenotaph in the All Sappers' Memorial Park in Chilliwack November 11, 2013.John Lehmann/The Globe and Mail

Move over MBAs, here come the marines. A fascinating new working paper from the National Bureau of Economic Research looks at the performance of chief executives with military experience – and they come away looking very good.

After executives exchange their combat uniforms for suits and foxholes for corner offices, they tend to run companies remarkably different from executives with other backgrounds, including MBAs: They tend to be more conservative, perform better under pressure and are less likely to pursue fraudulent activity – a good combination for investors who prefer solid investments over flashy, high-risk ones.

"When we run a horse race between the effect of an MBA education and military experience on fraud, we find again that military experience – but not business education – is associated with fewer incidents of alleged financial fraud," said the authors, Efraim Benmelech of Kellogg School of Management at Northwestern University (and a major with the Israeli Defense Forces in the 1990s) and Carola Frydman of the Department of Economics at Boston University.

The numbers aren't trivial, either. According to their findings, military service is associated with a 70 per cent reduction in the likelihood of fraud compared to the average – which is associated with the military culture of duty, dedication and sacrifice.

As for risk-taking, some of the previous academic literature on the subject suggested that military service was associated with heroism and aggressive over-confidence.

However, the authors of the study come to a far different conclusion: Military service leads to more conservative corporate leadership, with lower levels of debt and, to the downside, lower levels of investment in research and development.

And when times get tough, and industry profitability declines, a military background helps limit the extent to which a company declines with its industry group – an important distinction that relates to how military service personnel "make decisions in extreme conditions during combat."

Unfortunately, this is a good news, bad news research paper: Though military service appears to be a good thing for executives – and investors – the percentage of executives with military service is declining.

In 1980, 59 per cent of chief executives of large, publicly held companies had served in the military, according to the authors. Today, the number is just above 6 per cent.

"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," Mr. Benmelech and Ms. Frydman conclude.

Some companies are keen to reverse the trend. Wal-Mart Stores Inc. and General Electric Co. have programs to recruit military personnel who served in Iraq and Afghanistan. Military experience in corporate boardrooms could soon rebound – and investors will be better for it.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe