Domestic SMEs play a key role in production and employment, accounting for 98.9% of total enterprises, 74.4% of employment, 50.8% of production, and 49.0% of value added (as of 2016). However, they are faced with difficulties of survival because of continuous decrease in profitability, shortage of funds and manpower, insufficient accumulation of technology, minimum wage increase, and 52-hour workweek. In order for SMEs to continue to develop in such a difficult environment, we must constantly innovate our organization by making full use of our knowledge, information, experience and ability. To do this, CEO (management) leadership is very important to ensure that the best people are focused on the organizational innovation and management performance without moving the company. In this study, we wanted to establish empirically how the newly emerging compassionate rationalism leadership of SMEs business managers affected the innovation activities and management performance of companies. Research has shown that management’s compassionate rationalism leadership has a positive and significant causal relationship with the innovation activities and management performance of the enterprise. Therefore, SMEs managers need to learn the bottom eight strategic factors of compassionate rationalism leadership and use them strategically to make efforts to create positive emotions for the organization so that members can be immersed in innovative activities and management performance creation.