Childhood experiences of war loom large over CEOs’ decision-making

Likening business to war has become a cliché. This shopworn comparison glosses over the grim fact that war informs the backdrop, and backstory, of a great many companies, and their leaders.

The trauma of war has long-lasting reverberations, influencing business decisions taken decades later, argue Eun Hye Jo and Jenny Jung-Wha Lee, accounting professors at Costello College of Business based in George Mason University Korea.

Their recent paper in Journal of Business Research (co-authored by Laurelle (Ellie) Chapple of Queensland University of Technology) examines how early-life experience of the Korean War (1950-1953) affected CEOs' responses to business challenges.

"The project had a personal motivation that emerged from a conversation about the Korean War. We realized that war and military service had meaningful connections to both of our family histories: Eun Hye's grandfather was a Korean War veteran, while Jenny's father was a retired South Korean Army lieutenant colonel. Growing up with these family histories exposed us to stories about war and military service and made this research question especially meaningful to us," comment the pair of Costello researchers.

The three-year conflict between North and South Korea claimed more than two million casualties, over half of whom were civilians. All in all, approximately ten percent of the population of the peninsula lost their lives in the conflagration. The traumatic aftereffects of the Korean War on both sides may be intensified by the lack of formal resolution, with no peace treaty signed and tensions between the combatants continuing into the present day.

"The project had a personal motivation that emerged from a conversation about the Korean War. We realized that war and military service had meaningful connections to both of our family histories: Eun Hye's grandfather was a Korean War veteran, while Jenny's father was a retired South Korean Army lieutenant colonel. Growing up with these family histories exposed us to stories about war and military service and made this research question especially meaningful to us."

- Eun Hye (Grace) Jo and Jenny Jung-Wha Lee, accounting professors at Costello College of Business

The research team collected financial performance data on Korean-listed companies during the period 2002 to 2023 (excluding the smallest companies and those in the finance industry); their data-set comprised 24,703 firm-year observations. They segmented the data by CEO age, allowing them to analyze firm activity in light of whether the focal CEO was born prior to the Armistice Agreement that ended Korean War hostilities.

They were particularly interested in sales downturns, which could act as trigger events for war-exposed CEOs. Their theory was that these CEOs would have a stronger emotional response to a decline in sales, resulting in larger workforce reductions.

And indeed, the researchers found that when Korean firms were led by war-exposed CEOs, they exhibited lower employment stickiness-hiring about 22 percent less aggressively during sales upswings and cutting employment about 106 percent more sharply during downturns.

On closer investigation, the researchers saw that the entirety of the effect was concentrated among CEOs who experienced the Korean War between the ages of 4 and 15, as opposed to earlier childhood years, which do not usually produce lasting memories, due to the phenomenon known as "infantile amnesia."

"Our interpretation is that early-life war exposure may heighten sensitivity to downside risk. War is an extreme environment marked by uncertainty, loss, and resource scarcity, and exposure to that kind of instability during formative years may shape how individuals perceive threats and make decisions under pressure later in life," the Costello co-authors explain.

As additional verification that their findings were due to war exposure in formative years and not a generational mindset or the effects of aging, the researchers performed birth-region comparisons between war-exposed CEOs. They identified a direct relationship between CEOs' downside risk sensitivity (as measured by employment stickiness) and the number of civilian Korean War casualties in their home environment as they were growing up.

"For us, the broader takeaway is that experiences during formative years can leave lasting imprints that may surface decades later in managerial decisions," Jo and Lee say. Because their study dealt with a historically specific example of wartime trauma, they are hesitant to broaden their findings to other potentially scarring events, such as economic depressions or pandemics. However, they say, "We do not view war as necessarily unique in the broader theoretical sense. It is plausible that other severe formative experiences could also leave lasting imprints on how leaders perceive risk and make trade-offs later in life."

For Jo and Lee, these findings highlight the need for power balance as a counterweight to the effects of wartime trauma and other early-life experiences that may inordinately impact an individual leader's decisions.

"Boards can provide greater oversight of major workforce decisions, particularly during downturns," they suggest. "Senior leadership teams and HR functions can introduce more structured decision processes that require managers to consider not only immediate cost savings, but also operational continuity, talent retention, and longer-term organizational costs. Bringing multiple perspectives into the process may help balance the influence of any one executive's personal experiences."