Semper Fi, C-Suite

First Lieutenant Frederick Wallace Smith of the United States Marine Corps was awarded the Silver Star “for conspicuous gallantry and intrepidity” displayed during one of his roughly 200 combat missions in Vietnam. 

Unhesitatingly rushing through the intense hostile fire to the position of heaviest contact, Lieutenant Smith fearlessly removed several casualties from the hazardous area and, shouting words of encouragement to his men, directed their fire upon the advancing enemy soldiers, successfully repulsing the hostile attack…His aggressive tactics and calm presence of mind under fire inspired all who observed him.

Just three years later, Smith founded a company that guaranteed overnight delivery between several US cities. On its first night of operations, a fleet of 14 jets delivered 186 packages to 25 cities.

Today, FedEx delivers approximately 16 million packages a day to 220 countries. The company owns 700 airplanes and over 180,000 delivery trucks. It employs over 450,000 people. 

Fred Smith attributed this success to his time in the military.

“I cannot overemphasize how important the Marine Corps was in my business career,” he said later. “My Marine Corps experience was the bedrock on which FedEx was formed." 

The company’s logistical precision reflected the personal habits he picked up there. “I still make sure that the right-hand edge of my belt buckle lines up with my shirt front and trouser fly,” he explained. “I shine my own shoes, and I feel uncomfortable if they aren't polished.”

The military shaped his leadership style, too. “Although I'm chairman of the corporation, I can't get myself to cut into the line in the company cafeteria. Somewhere, a voice reminds me that a good officer lets his troops eat first.”

And it affected how his company served customers. "Our philosophy, 'People Service Profit,' goes right back to that core tenet that the Marine Corps teaches its young officers and NCOs, and that’s to take care of the troops," he explained. "If you take care of the troops, they’ll take care of, in our case, the customers or the mission, and you’ll achieve success.”

There’s academic support for Smith’s claim that his Marine training was a driver of FedEx’s success: studies have determined that companies led by CEOs with military experience tend to be more ethical, more resilient, and, ultimately, more successful. 

One found that military service is associated with a 70% reduction in the likelihood of corporate fraud — and that CEOs with a military background tend to perform better during periods of industry distress.

Another found that companies led by military veterans are significantly less likely to employ dubious accounting practices, shield income in tax havens, restate their financials, or face class-action lawsuits. 

That worked out well for shareholders. According to one estimate, in the decade from 1995 to 2005, shares of companies led by CEOs with military experience averaged returns of 12.2%, vs. 9.4% for the S&P index.

Pretty good!

Unfortunately, there are fewer and fewer such companies left to invest in.

In 1980, 59% of the CEOs of large, publicly held corporations had served in the military. Today, it’s just 6%.

Much of this is simply demographics. In 1980, veterans of both World War II and the Korean War were roughly of CEO age. Today, veterans of the last war to involve a draft — Vietnam — have aged out of the job market entirely.

But that’s probably not the whole story. The economy has changed, too.

Ex-military CEOs were long concentrated in the consumer non-cyclical and utilities sectors, where their conservative management styles were a natural fit. The same aforementioned study that found ex-military CEOs were less likely to commit fraud also found that they invested less, spent less on R&D, and borrowed less than their nonmilitary peers.

This might be the real reason the companies they led outperformed between 1995 and 2005: they may simply have avoided the dotcom bubble.

In the decade that followed, I’m guessing they probably underperformed, since military vets were not likely to be running SaaS and FAANG companies. 

But what about the coming decade?

Stock market returns have recently been driven by hyper-aggressive CEOs going all-in on AI. So far, it’s worked out pretty well. But the giant risks taken by AI companies — both financial and societal — are also making sound accounting, corporate ethics, and disciplined capital allocation more important than ever.

Just look at the Anthropic IPO, where investors have to weigh novel revenue metrics, a mission-driven company ethos, and unprecedented capex commitments.

I think investors would welcome a few good military men and women in that C-suite — especially if they're like Fred Smith, who also knew how to take a big risk when it was absolutely necessary.

In 1973, Smith was down to his last $5,000 with a $24,000 bill for jet fuel coming due. When he couldn’t immediately borrow the money, he took the company’s remaining funds to Las Vegas and won $27,000 playing blackjack.

The winnings kept his planes in the air just long enough for Smith to raise an additional $11 million from investors. 

Five years later, FedEx went public at a market capitalization of around $200 million.

Today, it’s worth $75 billion.

Shareholders would surely thank him for his service.

— Byron Gilliam

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