Chief Executive Officer | General Test Preparation for CUET - CUET Commerce PDF Download

What is a CEO?

The CEO, or Chief Executive Officer, holds the topmost executive position within a company. Generally, their key duties entail making significant corporate decisions, guiding the company's workforce and resources towards strategic objectives, and serving as the primary liaison between the board of directors and corporate operations. Often, the CEO also assumes the role of the company's public representative.
The CEO is elected by the board and its shareholders. They report to the chair and the board, who are appointed by shareholders.

CEO's Roles and Responsibilities

A CEO's role varies from one company to another depending on the company's size, culture, and corporate structure. In large corporations, CEOs typically deal only with very high-level strategic decisions and those that direct the company's overall growth. For example, CEOs may work on strategy, organization, and culture. Specifically, they may look at how capital is allocated across the firm or how to build teams to succeed. Not only that, CEOs can set the tone, vision, and sometimes the culture of their organizations.
A study conducted by Harvard Business Review delved into the time allocation of CEOs. It revealed that 72% of their working hours were dedicated to meetings. Among the remaining 28%, 25% was devoted to nurturing relationships, another 25% to business unit and functional reviews, 21% to strategizing, and 16% to managing culture and organization. Notably, the study highlighted that a mere 1% of their time was focused on handling crises, with just 3% allocated to customer relations.

Examples of a CEO's Tasks

A Chief Executive Officer's roles and responsibilities vary greatly between companies, industries, and organization sizes. In general, a CEO may be expected to take on the following tasks:

• Oversee the strategic direction of an organization: Lower-level managers are often more engaged in the day-to-day operating activities of a company. A CEO usually synthesizes these results and decides on the long-term plans of a company.
• Implement changes and proposed plans: After crafting the long-term vision, a CEO usually looks to themselves and other executive leadership to begin implementing those plans. Changes are often directly implemented by operational managers, but it is ultimately up to the CEO to ensure the long-term plans are being followed through.
• Engage in media obligations and public relations: A CEO is often the face of the company, including being involved in media relations. A CEO may speak at conferences, address the public on notable changes to the company, or participate in community events.
• Interact with other leadership executives: As companies grow more diverse, it is vital to a company's success to have a suite of executives that a CEO can rely on. Instead of directly overseeing every aspect of a company, a CEO often relies on other leaders to manage their own realm and then engages with them to get a high-level understanding of how things are going.
• Maintain accountability with the board: A Board of Directors oversees the entire company's performance and holds a CEO accountable. A CEO often reports to the board, delivers updates on strategic plans, and gets feedback from the board regarding the company's overall direction.
• Monitor company performance: A CEO is ultimately responsible for a company's financial performance. They may rely on financial or non-financial metrics to track how things are going. They usually make reporting requests from their direct employees to get a quick sense of how each area in the company is performing and what strategic maneuvers should be taken.
• Setting precedence for the working culture and environment: A CEO is responsible for setting the tone at the top and creating the work environment they believe is best to drive success. Employees working under a CEO often look to the executive to develop and maintain the organization's culture.

CEO Pay and Notoriety

On average, CEOs of S&P 500-listed companies earned $25.2 million in annual salaries in 2022. To put it differently, that's 344 times the salary of an average worker. According to certain studies, CEO compensation has surged by over 1,209.2% since the 1970s, while worker pay has seen a modest increase of 15.3% during the same period.
Due to their frequent interactions with the public, chief executive officers of major corporations sometimes attain fame or notoriety. Examples include Elon Musk, CEO of Tesla, and Steve Jobs, the late founder and CEO of Apple (AAPL), who achieved such global recognition that, following his passing in 2011, there was a proliferation of both fictional and documentary portrayals of his life.

Related Chief Positions

In the realm of Corporate America, a plethora of senior executive titles start with the letter "C," indicating "chief." This elite cadre of top-level executives is commonly referred to as the C-suite or C-level in corporate jargon. It's important to recognize that in smaller organizations or those still in their startup or growth stages, the CEO might also assume responsibilities typically held by the CFO, COO, and others. This situation can lead to ambiguity and overburdening of the executive.
Allocating multiple titles to one individual at the executive level can disrupt business operations and potentially harm long-term profitability. In essence, the clarity of assigned titles and their associated functions at the executive level can rapidly become blurred within an organization.

The Difference Between CEO and COB

The CEO is responsible for managing the operational aspects of a company, whereas the board of directors, under the leadership of the chair of the board (COB), supervises the company in its entirety. While the chair of the board lacks the authority to override the board's decisions, the board retains the power to overrule the CEO's choices. Essentially, the chair is regarded as an equal among the other board members. While some companies may have the CEO and the chair of the board as the same individual, many opt to separate these roles to enhance governance and oversight of the CEO's responsibilities.

The Difference Between CEO and CFO

The CFO, or chief financial officer, holds the position responsible for overseeing a company's financial aspects. While CEOs handle overall operations, CFOs concentrate specifically on financial affairs. Their role involves analyzing the company's financial standing, identifying areas for improvement, and providing recommendations to address any weaknesses. Additionally, CFOs manage cash flow, supervise financial planning encompassing investments and capital structures, and, akin to CEOs, strive to deliver returns to shareholders by emphasizing financial discipline and fostering margin and revenue growth.

The Difference Between CEO and COO

Often, the chief operating officer (COO) is ranked second highest after the CEO. As the head of human resources, their responsibilities fall on recruitment, legal, payroll, and training, along with administrative duties.

The Difference Between CEO and Other Leadership Titles

There are many other leadership titles, some of which may or may not overlap with a CEO. Other common titles are founder, chairperson, owner, or director.

• Founder: A founder of a company is someone who initiated its establishment, playing a pivotal role in shaping its inception by crafting bylaws, articles of incorporation, organizational structure, and overall strategy from its outset. The term "founder" may apply to an individual presently affiliated with the company or to someone who initiated its formation but has since departed. If the CEO was involved in the company's inception, they may also be recognized as a founder and may carry both titles concurrently, such as founder/CEO.
• Chairperson: A chairperson, commonly referred to as chair, chairman, or chairwoman, assumes the role of presiding officer, responsible for supervising a group or committee. Alternatively, they may hold the title of "president." The chairperson oversees the collective efforts of individuals assigned to specific tasks or responsibilities. For instance, a Board of Directors typically appoints a chairperson to oversee the management of the entire board. A CEO may hold the position of chairperson if they directly oversee a committee.
• Owner: An owner of a company is a financial stakeholder, typically holding an equity position in the business. Owners are entitled to a share of the company's profits commensurate with their ownership stake, and a company may have multiple owners. In cases where there are multiple owners, an individual may be referred to as a part-owner. A CEO may also be an owner if they possess a financial stake in the company.
• Director: The term "director" encompasses several roles within different contexts. Firstly, a director may occupy an executive-level position or hold upper management responsibilities, contingent upon the organizational structure of the company. Secondly, a director may serve as a member of the board of an organization. Although most CEOs typically hold positions at a higher employment tier than directors, they may also serve as director-level employees. Conversely, a CEO could be subject to the directives of a director.

The Impact of a CEO Change

During CEO transitions, market reactions can vary, responding positively or negatively to changes in company leadership. This variability is understandable, given that studies indicate CEOs can have a significant impact on a company's performance. 

• For example, one study suggests that 45% of company performance can be attributed to the CEO. Conversely, another study suggests that CEOs only influence around 15% of profitability variance.
• When a new CEO assumes leadership of a company, the stock price may fluctuate for various reasons. However, there isn't a direct correlation between a stock's performance and the announcement of a new CEO.
• Generally, a change in CEO presents more downside risk than upside, especially when it occurs unexpectedly. Market perception of the new CEO's leadership capabilities can cause stock prices to rise or fall. Other factors influencing investment decisions during a management change include the incoming CEO's agenda, potential negative shifts in corporate strategy, and the effectiveness of the company's C-suite in managing the transition.
• Investors often prefer new CEOs who are familiar with the company's industry dynamics and specific challenges. They typically assess the new CEO's track record in creating shareholder value, including achievements such as market share growth, cost reduction, or expansion into new markets, as these factors reflect the CEO's reputation.