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CEO

The Chief Executive Officer

What is a CEO (Chief Executive Officer)?

A CEO, which stands for Chief Executive Officer, is the highest-ranking individual in a company or organization. The CEO is responsible for the overall success of an organization and for making top-level managerial decisions. They can ask for input on major decisions but is the ultimate authority in making the final decisions in a company. There are other titles for CEOs such as chief executive, president, and managing director.

 

Meg Whitman CEO of HP
Meg Whitman, CEO of HP (2011-2018)

 

The Chief Executive Officer reports directly to and is accountable to the board of directors for the performance of the company. The board of directors (BoD) is a group of individuals who are elected to represent shareholders of the company or organization. The CEO often sits on the board and in some cases, she or he is the chairperson.

 

Roles and Responsibilities of the CEO

In addition to the overall success of an organization or company, the CEO is responsible for leading the development and execution of long-term strategies with the goal of increasing shareholder value.

The roles and responsibilities of a CEO vary from one company to another depending on the organizational structure and the size of the company. In smaller companies, the CEO takes on a more “hands-on role” such as making lower-level business decisions (i.e. the hiring of staff). In larger companies, she usually only deals with high-level corporate strategy and decisions as other tasks are given to other departments or managers.

There is no standardized list of the roles and responsibilities of a chief executive officer. The typical duties, responsibilities and job description of a CEO include:

  1. Communicating, on behalf of the company, with shareholders, government entities, other shareholders, and the public;
  2. Leading the development of the company’s short- and long-term strategy;
  3. Creating and implementing the company or organization’s vision and mission;
  4. Evaluating the work of other executive leaders including directors, vice presidents, and presidents;
  5. Maintaining awareness of the competitive landscape, expansion opportunities, markets, industry developments, etc.;
  6. Ensuring that the company maintains high social responsibility wherever it does business;
  7. Assessing risks to the company and ensuring they are monitored and minimized; and
  8. Setting strategic goals and making sure it is measurable or describable.

 

Basic Corporate Structure of a Company

To look after the interests of shareholders, many firms adopt a two-tier corporate hierarchy. The first being the Board of Directors and the second tier being the Upper Management (COO, CEO, CFO).

Elected by shareholders are the Board of Directors – the ultimate governing authority of the company. The Board of Directors selects the Chairperson and CEO. With the recommendation of the CEO, the Board of Directors also elects the COO and CFO.

 

Org Chart for the CEO, Board, and Shareholders

 

The Difference Between a CEO and Chairperson of the Board

There should not be any confusion between the role of a CEO with that of a Chairperson of the Board. The CEO is the top decision-maker at a company while the Chairperson of the Board is responsible for protecting the investors’ interests such as profitability and stability, and overseeing the company as a whole. The Board of Directors usually meets several times a year to set the company’s long-term goals, review financial results, evaluate the performance of executives and managers, and vote on strategic decisions proposed by the chief executive.

The Chairperson of the Board is technically superior to the Chief Executive Officer, as he or she cannot make major moves without the approval of the board. The chairperson could essentially become the ultimate boss of the company or organization. However, this is rare as most chairpeople are not so involved, leaving the CEO with flexibility in running the company.

 

Jamie Diamon CEO of JP Morgan
Jamie Dimon, CEO of JP Morgan Chase

 

Reasons to Separate the CEO and Chairperson Positions

In some cases, the position of Chief Executive Officer and Chairperson of the Board is held by the same person. Most organizations and companies permit the Chief Executive Officer to become the chairperson, which can cause a conflict of interest problems.

The two examples below show how a conflict of interest problem can arise if both positions are held by the same person:

  • The board of directors votes on increasing executive pay. If the chief executive is also the chairperson, a conflict of interest arises because he would be voting on her/his compensation.
  • The board of directors is responsible for evaluating the performance of executives such as the CEO. If the Chief Executive Officer also holds the position of Chairperson, she or he exercises the power to decide if her/his performance is satisfactory.

Therefore, good corporate governance usually prescribes a separation of duties between the Chief Executive Officer and the Chairperson of the Board.

 

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