Leadership & Governance Insights
The Wartime CEO: How Economic Shocks Reshape Corporate Leadership
By Dongil Daniel Keum and Nandil Bhatia
In the corporate world, the term “wartime CEO” is often used to describe a leader who can make the cold, calculated decisions necessary to save a company during a crisis. While we often think of these shifts as a matter of skill, groundbreaking research suggests the transformation is actually psychological.
The Practitioner “So What”
Leadership “fit” is dynamic, not static. Boards must recognize that a “prosocial” leader who drives high morale during growth may become psychologically ill-suited for periods of contraction. Strategic survival often requires matching the CEO’s psychological profile to the current economic “climate.”
The Research: Psychology of the CEO-Firm Match
Keum and Bhatia (2025) explored “prosociality”—a trait characterized by deep concern for employee welfare. While prosocial CEOs boost morale in stable times, this trait becomes a strategic burden during downturns. The researchers used the “China shock”—increased import competition—to see how firms requiring aggressive downsizing handled leadership transitions.
Key Findings
The Cost of Compassion
Prosocial CEOs incur much higher psychological costs when forced to implement layoffs. This internal conflict creates a “match quality” problem; as the need for downsizing grows, the fit between a “nice” CEO and their struggling firm erodes.
The Turnover Trigger
Industry shocks lead to significantly higher turnover for prosocial CEOs. Some choose to depart voluntarily to avoid presiding over mass layoffs, while Boards are more likely to force others out in favor of leaders who can execute painful decisions without hesitation.
The “Wartime” Successor
Successors in these crises are typically less prosocial, often externally recruited, and use less employee-friendly language. This indicates that Boards are actively searching for a different psychological profile to navigate the “war.”
Practical Implications
Guidance for Boards & Executives
- Personality as Strategy: Retention should depend on the fit between a leader’s personality and the firm’s immediate needs as much as professional skills.
- Re-evaluate Alignment: Boards should periodically re-evaluate the psychological alignment of their leadership with the current macroeconomic environment.
- Survival Priority: As global competition intensifies, firms may see a systemic shift toward prioritizing “wartime” survival over “peacetime” motivation.
Article Summary
This research highlights how external economic pressures reshape the psychological landscape of corporate leadership. Prosocial CEOs are often replaced during industry downturns by “wartime” successors whose personalities are better aligned with the harsh requirements of organizational downsizing and aggressive competitive survival.
Audience Practice
Strategic leaders and Boards should incorporate psychological profiling into succession planning. Recognizing that “match quality” is dynamic allows a Board to transition leadership styles proactively as the firm moves between periods of stability (peacetime) and crisis (wartime).
Classifications
SMS Big Six: Question 6 (Role of CEO and Executive Board)
Tags: Governance & Leadership, Evolution & Change, International & Multi-national, Human Resources, Audience Practice, Competitive Strategy
Original Article: Keum, D. D., & Bhatia, N. (2025). When do nice guys finish last? Prosociality and the psychological model of CEO‐firm matching. Strategic Management Journal.
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