View Original / Fortune / 23 Jan 14
The military’s leadership style has come under scrutiny as reports surface of rising numbers of in-service sexual assaults and soldier suicides.
FORTUNE — For decades, former generals or officers frequently found high-flying new careers in corporate executive suites, and their leadership was almost universally lauded.
Ex-servicemen like Fred Smith at FedEx (FDX) and Ross Perot at EDS helped remake the corporate landscape in the years after World War II and the Vietnam and Korean wars.
Now, decades later, as the country’s latest wars wind down and more soldiers exit the military, many are questioning whether the hierarchical military leadership that traditionally worked so well is still as valuable in the corporate world.
The top-down military leadership style is coming under scrutiny more intensely than in recent decades as reports surface of rising numbers of in-service sexual assaults and soldier suicides as well as cheating and drinking by members of the nation’s nuclear command.
While the number of high-ranking soldiers migrating to the executive suite has dwindled compared to two or three decades ago — although companies like General Motors (GM), Verizon (VZ), and Johnson & Johnson (JNJ) are currently led by ex-servicemen — veterans are being sought by companies anxious to stock their middle management ranks with tested leaders.
The shift from the fighting fields to the executive ranks has triggered examination of whether military leadership, which tends to squelch questioning and dissent, winds up costing companies or, by contrast, benefiting them.
The latter view is widely embraced by the public, which consistently rates military leadership atop other occupational fields. The most recent National Leadership Index, prepared annually by the Harvard Kennedy School’s Center for Public Leadership, found Americans surveyed nationwide had “above-average confidence” only in the military and medical sectors. The 2012 index was the eighth year in a row in which the military won the top spot over 13 other fields. Nonprofits and charities, local government, and religious institutions followed behind the military and medical categories.
“The military consistently receives top ratings and is the only segment where there is a great deal of confidence,” says George E. Reed, a retired military colonel who is a professor of public leadership at the University of San Diego.
But Reed also advocates a balanced look at military leadership. While teaching at the Army War College, he broke new ground a decade ago when he wrote a report based on interviews with soldiers warning of abusive, self-aggrandizing “toxic leaders” promoted up the chain of command.
But with wars raging in Iraq and Afghanistan, the military was not prepared for an in-depth examination of leadership issues at the time, says Reed. “I was a voice in the wind,” he notes. But he thinks that the military is entering a period where it can undertake a broader review of its leadership policies.
“It isn’t just looking at success stories,” he cautions. “We have a hesitancy to chronicle experiences where military leadership doesn’t work,” says Reed. “It’s part of our romance with leadership.”
Soldier-CEOs tend to make more conservative investment decisions and are less likely to sanction corporate fraud, according to a report prepared under the auspices of the National Bureau of Economic Research, an independent Cambridge, Mass.-based organization.
CEOs with military experience have learned “how to make decisions in extreme conditions in combat and cope in periods of stress,” says Efraim Benmelech, a finance professor at Northwestern University’s Kellogg School of Business, who conducted research for the report with colleague Carola Frydman of Boston University.
The researchers, who plan to publish the study in the Journal of Financial Economics, say they “wanted to understand what kind of characteristics shape the way CEOs act.” They compiled a list of CEOs at the helm of major U.S. companies between 1980 and 2006 to find those with military backgrounds. About 60% of those companies had military veteran CEOs in the 1980s, but that portion has shrunk to less than 10% now.
The researchers then tracked 132 recorded cases of corporate fraud between 1994 and 2004, and found that, based on those cases, companies with military-trained CEOs were about two-thirds less likely than their counterparts with civilian backgrounds to be engaged in fraud.
Also, such soldier-CEOs performed well in periods of industry distress, the researchers found, noting that such soldier-CEOs “perform better in tougher times.”
Even during tranquil periods, walking the straight-and-narrow management path can help shape business outcomes. Benmelech and Frydman found that military-trained CEOs tend to spend less on investments, like research and development, compared to their civilian-trained counterparts, although company valuations among such companies were about the same.
Most available research praises veterans for their civilian leadership, but it also concludes that there is no guaranteed link between military service and corporate outcomes. In fact, Benmelech and Frydman noted in their report that “literature in psychology finds that military service leads to aggressiveness, overconfidence, and increased risk taking,” but that “evidence from other disciplines does not provide clear-cut predictions on how service in the military affects individual decision-making later in life.”
A 2005 study of veterans and corporate leadership by global executive recruitment firm Korn/Ferry International reached a similar conclusion. That study, one of the few to delve into the link between military backgrounds and corporate performance, found that “it is clear that even if military service contributes to a former military executive’s ability to reach the C-suite, it is no guarantee of his performance once he arrives.”
Even so, understanding military leadership is important, notes Aileen Alexander, a former Army captain who works for Korn/Ferry, because “in years to come, those being recruited for middle management will become the top leadership.”
Right now, former generals have an impact on corporations as they are actively sought to fill company board seats, says Clarke Havener of Korn/Ferry, which is working to help veterans translate their military experience into civilian jobs.
“Companies value military experience because it’s seen as demonstrating maturity,” Havener says. “All things being equal, it’s that extra plus that companies want.”