Company Directors with military experience can damage a country’s economic performance, a new study finds.
The study looked at war and its effects on countries and firms and found that: wars increase the supply of military directors in corporate boards - military directors often have connections with each other and more often with the government, which can gives them an edge in business operations. Military directors reduce a firm’s performance because although they often have social advantages, they lack in any business expertise. This may damage firms’ business.
One of the lead authors, Dr Jiafu An from the University's Faculty of Business and Law said: “understanding the link between war and its consequences is vital because nearly half of the countries in the world have experienced a form of war in the past two decades. Having a greater understanding of the role of military directors could help create solutions which would lower the risks of economic instability in a region.”
Researchers merged several datasets on war, board directors, and firm performance during 1999–2016, from 119 countries, and then examined whether directors with military experience influence a firm’s performance.
Having a greater understanding of the role of military directors could help create solutions which would lower the risks of economic instability in a region.
Dr Jiafu An, Co-author
The study discovered a couple of insights: military directors negatively impact firm performance and that countries which have experienced war tend to have more military directors.
This is because firms suffering from poor performance are more likely to appoint military directors in order to improve performance. But unfortunately, directors hinder firms’ performance, because of a range of factors including lack of experience and education, often as a result of lack of education in a war affected country, which in turn damages their performance and to an extent, firm performance.
This ultimately costs the economy of the affected region.
The researchers found that the impact of military directors on firms’ performance is measured, among other complex economic factors, by the firm’s Tobin’s Q, an economic equation defined as the ratio between total market value of the firm and the book value of the total asset of the firm.