Chief Executive Officer (CEO)

Chief Executive Officer (CEO) is the role and title of the "top executive responsible for a firm's overall operations and performance. He or she is the firm's leader, serves as the main link between the board of directors (the board) and the firm's various parts or levels, and is held solely responsible for the firm's success or failure."[1]

A CEO's team of direct reports is often referred to as the "C-Suite and comprises the Chief Operating Officer (COO), Chief Financial Officer (CFO), Chief Marketing Officer (CMO), Chief Procurement Officer (CPO), Chief Information Officer (CIO) and others. With the CEO as its head, the C-Suite is responsible for creating an enterprise business strategy that defines the overall approach and plan for the enterprise to achieve its goals. This business strategy then drives the company's information technology strategy (IT Strategy).

According to a study by Carola Frydman of MIT, from 1936 to the early 2000s, there has been a rapid increase in the share of CEOs holding an MBA, from approximately 10% of CEOs in 1960 to more than 50% by the end of the century. Earlier in the century, top executives were likelier to have technical degrees in science and engineering or law. As of 2016, there were 20 female CEOs of S&P 500 companies, approximately 4%[2]

The Overall Framework for the CEO's Role[3]

  • The CEO is responsible for creating, planning, implementing, and integrating the strategic direction of an organization. This includes responsibility for all components and departments of a business.
  • The CEO makes certain that the organization's leadership maintains a constant awareness of both the external and internal competitive landscape, opportunities for expansion, customers, markets, new industry developments and standards, and so forth.
  • The CEO reports to the Board of Directors, or in some nonprofit settings, such as state government, the CEO may be the head of an agency or department and report to the office of the governor.
  • The CEO serves at the discretion of the Board of Directors.
  • The CEO may also own the business and may have founded the business, so his or her commitment to the business is significant. He may also own a significant portion of the company or its stock. In these cases, a Board of Directors may exist, but its authority is nominal and advisory.

Whether the top person is president and CEO, or just CEO, he or she is the top person in command in an organization. He or she has specific responsibilities depending on the needs of his or her organization. Thus, the CEO's job responsibilities can vary from organization to organization. As with any level of management in an organization, the CEO's role starts with the fundamental job responsibilities of a manager. Because the role of the CEO bears significant responsibility, accountability, and authority within an organization, the CEO has these additional responsibilities as he or she leads the business.

Responsibilities of the CEO[4]

CEOs have five key responsibilities, regardless of company size, industry, or geography. Only the chief executive, who has a holistic view of the firm, can take on these duties:

  1. Own the vision. A CEO should determine and communicate the organization’s strategic direction. Until that's settled, making decisions about anything else at the business is difficult. And without this, the company is merely a collection of people pursuing individual goals guided by their own values. While other people may help shape the strategic vision, the CEO must be able to describe it in a clear, engaging, and exciting way for all stakeholders. All the players in the organization should understand how this directly affects their job and daily responsibilities. Everything the CEO does should support this vision. Too many CEOs have allowed the strategic vision to be nothing more than slogans on a piece of paper rather than guidance informing all key decisions.
  2. Provide the proper resources. Only the CEO can perform the task of balancing resources - the two most important ones being capital and people. The CEO must make both available in the proper quantities and at the right time for the company to succeed. All executives have experience dealing with budgets and allocating resources. But the CEO's job involves keeping a proper balance of resources for all the disparate groups and initiatives, according to the company’s goals. Skill in making such decisions requires a deep understanding of all aspects of the business and a clear vision. Putting the right people in the right positions with the right training is probably the single most important thing a CEO can do. With the right team, all things are possible. With the wrong team, nothing else matters.
  3. Build the culture. Culture is the set of shared attitudes, goals, behaviors, and values that characterize a group. It adds up to how things get done at a company and influences the entirety of the employee experience and, thus, the customer experience. Every organized group of individuals develops a culture, whether it's explicitly recognized or not, and the CEO must constantly observe and be involved in achieving the desired culture. The most critical part of culture values: The CEO ensures that those values are applied consistently from top to bottom across all departments. A good culture makes people feel safe and respected, enabling them to perform at their best.
  4. Make good decisions. A new CEO is often surprised by the breadth of issues confronting him (or her). One minute the CEO is discussing a new product; the next, a human resources issue -- and then along comes a legal issue. It's impossible for anyone to be an expert in all aspects of the business, yet the CEO is the person tasked with making the decisions. Many problems require a solution affecting multiple departments, and only the CEO can take such an action. Everyone else can pass the buck occasionally, but the CEO will make the final call when no one else will or can.
  5. Oversee and deliver the company's performance. Everyone agrees that the CEO is ultimately responsible for a company’s performance. To be successful, he or she must take an active role in driving that performance. This requires maintaining a keen awareness of the firm's industry and market and being in touch with the core business functions to ensure the proper execution of tasks. The CEO also serves as the interface between internal operations and external stakeholders. He or she needs to ascertain how different stakeholders expect the company to perform, interpret this for internal teams, and then be sure the proper metrics accurately gauge performance. “You get what you measure” is an apt adage. The CEO sets the bar for the level of performance to be reached, regardless of the company's size, type, circumstances, or stakeholders.

Measuring Success as a CEO[5]

Knowing the job description is a good first step for a CEO, but to know how s/he’s doing, she needs to design her own measurement system. Unlike inconvenient lower-level jobs, no one tells the Chief Executive how s/he’s doing. Do managers let him/her know s/he’s undermining their authority, making poor decisions, or communicating poorly? Not likely. Even when a CEO asks for honest feedback, the fear is there: non-flattering feedback may stall a promising career. Even when a company uses 360-degree feedback, no one penalizes the CEO if s/he doesn’t act on the feedback. The Board of Directors supposedly oversees the CEO, but they are far removed from day-to-day actions. Over time, they can evaluate performance, but they look mainly at the share price and company strategy. They are rarely interested in — (or qualified to comment on!) — the CEO’s daily behavior. But the CEO’s daily behavior can make or break the company! The CEO’s duties don’t change because they are unmeasured. Indeed, lax measurement makes it easy for the CEO to feel confident, even when she shouldn’t. Good feedback is the only way to know what’s working, but share price simply doesn’t do it. External measures measure the company, not the link between the CEO’s actions. A low share price tells him/her something’s wrong, but it doesn’t help her figure out what. By measuring performance based on duties, a CEO can learn to do his/her job better.

How does a Change in CEO Impact Stock Price?'[6]

A change in stock price when a new CEO takes over a company can occur due to numerous factors. Many of these factors are based on the market perception of how capable the new CEO is of taking the company forward. Regardless of whether the change is planned or the result of unexpected circumstances, the way the stock performs partly reflects how the company manages the transition. A change in CEO carries more downside than upside, and there is even more risk when the transition is unplanned. This is due to the possibility that the new CEO may shift corporate strategy for the worse. The management of the transition and the agenda set by the new CEO are important factors for investors to consider when investing in a stock undergoing a management change. Investors tend to be more comfortable with new CEOs who are already familiar with the dynamics of the industry in which the company operates and the specific challenges the company may be facing. Reputation is also an important factor, particularly as investors assess the CEO’s track record for creating shareholder value. This pedigree could be reflected in a number of areas, including an ability to grow market share, reduce costs or expand into new growth markets. Despite initial investor concerns, there is no positive correlation between how the stock performs on the day the new CEO is announced and how it performs from that point forward.

See Also


Further Reading