Military veterans serve their companies, as well as their countries. Let's ensure they're getting the opportunities they deserve.
When we think about where esteemed leaders earned their undergraduate educations, our minds naturally turn to the hallowed halls of Harvard and Yale. But there’s another training ground that may be equally valuable.
“The number of veterans in managerial positions has fallen steadily relative to the overall number of veterans.”
It’s where Sam Walton, the founder of Walmart, learned to lead — as did Johnson & Johnson CEO Alex Gorsky and other prominent chief executives.
They’re all veterans of the U.S. military.
In a landmark study, economists Efraim Benmelech and Carola Frydman analyzed the role of military experience in corporate leadership. They found that between 1980 and 2006, roughly 30 percent of all CEOs of large public U.S. firms had military experience.
But over time, military backgrounds began to vanish from the CEO ranks. In 1980, 59 percent of CEOs had military experience, but this number plummeted to 8 percent by 2006. Starting with veterans born in the mid-1920s, the number of veterans in managerial positions has fallen steadily relative to the overall number of veterans.
A disservice to veterans
It goes without saying that this is a disservice to veterans, who make immense sacrifices to serve our country, only to face stigma and employment discrimination when they return home. What is often overlooked, though, is that the decline of veterans in leadership roles is also a tremendous loss to companies and the economy.
Benmelech and Frydman found that between 1994 and 2004, firms led by CEOs with military experience had significantly lower rates of fraud.
“Military CEOs were about 60 percent less likely than nonmilitary leaders to preside over Enron-style cooking of the books,” writes Ray Fisman in his thoughtful coverage of the study, and “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.”
Why might leaders with military experience be more honest? It’s probably a combination of selection and socialization.
On the selection side, it’s possible that individuals with high integrity are more likely to be attracted to, chosen by and retained in the military. On the socialization side, these principles are likely to be reinforced by the military’s strong emphasis on duty and honor.
“Making decisions under siege could be excellent preparation for rallying the troops during a corporate crisis.”
In addition to preventing fraud, Benmelech and Frydman demonstrated that military experience predicted better leadership in tough times. During industry downturns, companies led by CEOs with military experience were valued more highly, perhaps because these CEOs had dealt with far more stressful situations in the past.
Making decisions and strategizing under siege may well be excellent preparation for rallying the troops during a corporate crisis.
There was a caveat, though: Companies led by CEOs with military experience did worse when their industries were thriving. This appears to be driven by the tendency for ex-military CEOs to be more conservative, investing less in R&D and capital.
You can’t teach honesty
Personally, I’d be willing to surrender a bit of innovation to prevent fraud. After all, it’s easier to teach innovation — or hire creative people — than it is to teach honesty.
Armed with this knowledge, ex-military CEOs can increase their R&D expenditures when their industries are booming, while promoting stability when crisis hits.
Speaking of stability, in a Korn/Ferry study, CEOs with military experience were more likely to stick it out for the long haul, averaging 7.2 years in the top seat — versus an average of 4.6 years for CEOs who had no military experience. And the CEOs who served in the military consistently outperformed the S&P 500 Index. Between 1995 and 2005, ex-military CEOs led their companies to average returns of 12.2 percent, compared with 9.4 percent for the S&P index.
“It’s high time that companies placed a premium on hiring military veterans.”
It’s high time that companies placed a premium on hiring military veterans. Along with the leadership and integrity advantages, I’ve been floored by other qualities that are selected and developed through military experience, particularly discipline and commitment to service.
I like to ask my Wharton MBA students to name the single most impressive of their 800+ classmates. Although less than 10 percent of the class has military experience, in each year, the overwhelming winner has been a military veteran — a Navy SEAL, an Army helicopter pilot, an Air Force sergeant and a Navy nuclear submarine engineer.
There’s reason to be cautiously optimistic about the future for military veterans. In 2010, Brian O’Keefe, a senior editor at Fortune, referenced a “large and growing group of companies that have begun to discover — or rediscover — the benefits of recruiting military talent.”
Let’s make sure that list keeps growing. Military veterans serve their companies, as well as their countries.
This article appeared on World Economic Forum and was republished with permission.
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