A CEO (Chief Executive Officer) is the top-ranking individual employee within an organization. They are an employee in the sense that they work for the firm (as opposed to being elected by shareholders), but he or she is not a run-of-the-mill staff member; they have considerable responsibility and influence within the firm.
Having said that, in organizations with a healthy corporate governance function, the Chief Executive Officer is also not an all-powerful leader with unchecked power and decision-making authority. The CEO reports directly to, and is ultimately accountable to, the firm’s Board of Directors (the members of which are elected by shareholders).
Specific responsibilities of a CEO may vary slightly from one company to another, but, in general, this individual is responsible for the ultimate success or failure of the organization.
The CEO is the highest-ranking employee within any organization; they report to the Board of Directors.
Core responsibilities include setting and executing the organization’s strategy, allocating capital, and building and overseeing the executive team.
CEOs must possess strong communication skills, great leadership acumen, and unrivaled passion for the organization and its people.
CEOs also sometimes serve as the Chair of the Board of Directors, but this can pose a potential conflict of interest.
Responsibilities of the CEO
A CEO can (theoretically) take on any tasks or responsibilities they wish; indeed, some CEOs, particularly within smaller organizations, tend to be pretty hands-on with some corporate functions.
CEOs may gravitate towards certain functions like marketing or finance, depending on their professional background and expertise. The stage of the company lifecycle matters, too; for example, CEOs at earlier stage ventures may spend a larger proportion of their time fundraising than counterparts at more mature firms.
In practice, however, a CEO’s time and expertise are best spent focusing on a handful of really high-impact, core responsibilities. These include:
1. Setting and Executing Organizational Strategy
Decisions about new product lines, generating (and/or maintaining) competitive advantages, potential new markets, and mitigating risks or seizing on opportunities (among others) all fall under the purview of the CEO.
As with anything in an organization, they will rely on considerable data and input from senior leaders as well as direction and insight from the Board of Directors, but the CEO is the individual that has operational control over strategy and execution.
2. Building the Senior Leadership Team
Effective CEOs are able to attract top talent to their organizations. While they aren’t responsible for hiring or terminating every individual employee, they are responsible for building and overseeing the executive leadership team who, in turn, hire and oversee upper and middle management within their divisions.
The executive leadership team includes the CFO (Chief Financial Officer), the COO (Chief Operating Officer), and, depending on the nature of the organization, all the other C-suite roles that may exist (Chief Risk Officer, Chief Technology Officer, Chief Strategy Officer, Chief Investment Officer, etc.)
In many organizations, the Board will have final (formal) authority on hiring decisions at the C-level, but, in most instances, the board actually defers to the recommendation(s) of the CEO.
3. Making Capital Allocation Decisions
While division and departmental managers may be responsible for managing their respective budgets, the responsibility for setting and managing the organization’s overall budget in order to effectively execute strategic initiatives ultimately falls upon the CEO.
Furthermore, the CEO will also weigh in on when (and how) to raise funds, as well as how to make the best use of surplus capital. Strategies include repaying debt, distributing capital by way of dividends or share repurchases, or reinvesting in the business.
4. Setting Vision, Values, and Corporate Culture
Corporate culture has many elements that are organic in nature, but the mission, vision, and values designed and implemented by the CEO will ultimately steer that culture in any number of different directions.
The CEO must be very aware of their tenor, their behavior, and every single action they take (or don’t take) – the entire organization is watching. Even decisions around what they wear or how they choose to present themselves and engage with other members of the firm will set the tone for the rest of the organization.
5. Communicating Effectively with All Stakeholders
The CEO is the face of the organization. They may be representing the firm in front of the general public, the press, lawmakers or other regulators, employees, customers, suppliers, or any number of other parties interested in company operations.
Relaying core elements of vision, values, and mission is important, but actually living these values is even more critical. The CEO is never really “off duty” – there is always someone watching or listening.
Characteristics of a Successful CEO
As with anything, there is no one-size-fits-all formula. But successful CEOs generally have (or exhibit) many of the following characteristics:
Extraordinary passion. It takes a special kind of leader to be able to handle the pressure and the scrutiny that comes with such a high-profile position.
Clear vision. Developing a business strategy requires that a CEO be many steps ahead of the general public in seeing and understanding how trends may evolve.
Strong leadership. Even with unmatched passion and foresight, the business can’t get there without the right people in place to make things happen. CEOs must be able to attract talented human capital that will support the company’s mission and vision.
Effective communication skills. A CEO is always under scrutiny and must constantly deliver and reinforce the organization’s message. It’s rare to see a CEO that isn’t comfortable in front of an audience or a television camera.
A typical organizational structure looks like this:
The CEO is the top operational decision-maker within an organization, but they report to the Board of Directors (BOD).
All appointments to (or removals from) the BOD are voted on by shareholders of the company. Conceptually, this is what creates a Corporate Governance function within an organization.
The BOD is a safeguard that provides a layer of protection for (and to generally look out for) the rights and interests of stakeholders. This ensures that the CEO – while a highly-coveted title – does not have complete dictatorial control over the entire firm.
Driven in large part by the emergence of ESG (Environmental, Social & Governance), the nature of board oversight has evolved. While historically, their sole responsibility was looking out for shareholders (often called shareholder primacy), increasingly, boards are being expected to look out for all stakeholders more broadly, including consumers, employees, suppliers, and the general public.
CEO vs. Chair of the Board
The CEO is the top operator in the organization; in other words, they’re in charge of the company. The Chair of the Board, on the other hand, is in charge of the Board.
The CEO is, technically, subordinate to the Chair of the Board.
In some instances, the CEO also serves as the Chair. However, as scrutiny around corporate governance practices continues to grow, many firms are moving away from that model.
Since the Board is responsible for evaluating the performance of the CEO, including voting on his or her compensation (and even their dismissal, if warranted), it’s obvious that a potential conflict of interest exists when the CEO is the Chair.
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