What Is a Chief Executive Officer (CEO)?
A chief executive officer (CEO) is the highest-ranking executive in a company. Broadly speaking, a chief executive officer’s primary responsibilities include making major corporate decisions, managing the overall operations and resources of a company, acting as the main point of communication between the board of directors and corporate operations. In many cases, the chief executive officer serves as the public face of the company.
The CEO is elected by the board and its shareholders. They report to the chair and the board, who are appointed by shareholders.
- The chief executive officer (CEO) is the highest-ranking person in a company.
- While every company differs, CEOs are often responsible for expanding the company, driving profitability, and in the case of public companies, improving share prices. CEOs manage the overall operations of a company.
- Across many companies, CEOs are elected by the board of directors.
- CEOs of the 350 largest companies in America earn on average $24 million, or 351 times more than an average employee.
- Studies suggest that 45% of company performance is influenced by the CEO, while others show that they affect 15% of the variance in profitability.
What CEOs Actually Do
Understanding Chief Executive Officers (CEOs)
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.
In smaller companies, CEOs often are more hands-on and involved with day-to-day functions.
One study from Harvard Business review analyzed how CEOs spend their time. They found that 72% of CEOs' time was spent in meetings versus 28% alone. Moreover, 25% was spent on relationships, 25% on business unit review and functional reviews, 21% on strategy, and 16% on culture and organization. Some food for thought: the study showed that just 1% of time was spent on crisis management and 3% was allocated to customer relations.
Not only that, CEOs can set the tone, vision, and sometimes the culture of their organizations.
CEO Pay and Notoriety
On average, CEOs of the 350 largest companies in the U.S. have earned $24 million in annual salaries. To look at it another way, that's 351 times the salary of a worker. Since the 1970s, CEO pay is estimated to have skyrocketed over 1,300%. By contrast, worker compensation has grown 18%.
Because of their frequent dealings with the public, sometimes the chief executive officers of large corporations achieve fame. As of Feb. 9, 2022, Elon Musk, founder of Tesla (TSLA) has over 73 million followers on Twitter. Similarly, Steve Jobs, founder and CEO of Apple (AAPL), became such a global icon that following his death in 2011, an explosion of both cinematic and documentary films about him emerged.
Related Chief Positions
Corporate America houses numerous titles of senior executives that begin with the letter C, for "chief." This group of top senior staffers has come to be called C-suite, or C-level in the corporate vernacular.
It's worth noting that for small organizations or those that are still in the startup or growth phases, for example, the CEO may also be serving as the CFO and the chief operating officer (COO), and so on. This can lead to a lack of clarity, not to mention an overworked executive. Assigning multiple titles to a single executive-level individual can wreak havoc on a business's continuity and ultimately may affect its long-term profitability negatively. In short, when it comes to executive-level positions within an organization, assigned titles and the functions associated with each can become muddled quickly.
The Difference Between CEO and COB
The CEO directs the operational aspects of a company. Comparatively, the board of directors—led by the chair of the board (COB)—oversees the company as a whole. While the chair of the board does not have the power to overrule the board, the board has the power to overrule the CEO's decisions. Effectively, the chair is considered a peer with the other board members. In some cases, the CEO and the chair of the board can be the same person, but many companies split these roles between two people.
The Difference Between CEO and CFO
The CFO is the chief financial officer of a company. While CEOs manage general operations, CFOs focus specifically on financial matters. A CFO analyzes a company's financial strengths and makes recommendations to improve financial weaknesses. The CFO also tracks cash flow and oversees a company's financial planning, such as investments and capital structures. Like CEOs, the CFO seeks to deliver returns to shareholders through focusing on financial discipline and driving 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 include:
- Founder: A founder of a company is an individual that started the company. They helped bring the company into existence, creating the bylaws and articles of incorporation, organization structure, and overall strategy from the first day. A founder can be a title of an individual currently with a company or a title of an individual that started the company but has since left. If the CEO helped start the company, they can also be considered a founder and may be referred to as both simultaneously (i.e. Founder/CEO).
- Chairperson: A chairperson (often called chair, chairman, or chairwoman) is a presiding officer that oversees a group or committee. A chairperson may also go by the title "president". The chairperson is in charge of managing the group of individuals often assigned a specific task or set of responsibilities. For example, a Board of Directors often has a chairperson to oversee the management of the entire board. A CEO may hold a chairperson position if they directly manage a committee.
- Owner: An owner is a financial stakeholder of a company, usually with an equity position in the business. An owner may be entitled to the profits of a company in the proportion of their ownership weight, as a company may have multiple owners. If there are more than one owners, an individual may be referred to as a part-owner. A CEO may be an owner if they have a financial stake in the company.
- Director: A director may refer to a few different positions. First, a director may be upper management or executive-level position depending on a company's organizational structure. Second, a director may be an individual serving on the board of an organization. A CEO may be a director-level employee, although most companies' CEOs are on a higher tier employment level than directors. Alternatively, a CEO is not a director, as a director oversees the activity of a CEO.
Roles and Responsibilities
A Chief Executive Officer's roles and responsibilities will vastly vary 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, and this includes 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 the success of a company 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, 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 overall direction of the company.
- Monitor company performance. A CEO is ultimately responsible for the financial performance of a company. A CEO 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 create and maintain the culture of the organization.
The Impact of a CEO Change
During CEO transitions, markets can respond either positively or negatively to the change in company leadership. That makes sense, as studies show that CEOs may have a large impact on a company's performance. For instance, one study found that 45% of company performance is influenced by the CEO. But on the flip side, another shows that CEOs affect just 15% of variance in profitability.
When a new CEO takes over a company, the price of its stock could change for any number of reasons. However, there is no positive correlation between a stock's performance and the announcement of a new CEO, per se.
However, a change in CEO generally carries more downside risk than upside, particularly when it has not been planned. A stock's price could swing up or down based on the market's perception of the new CEO's ability to lead the company, for example. Other factors to consider when investing in a stock that's undergoing a management change include the incoming CEO's agenda; whether there might be a shift in corporate strategy for the worse; and how well the company's C-suite is managing the transition phase.
Investors tend to be more comfortable with new CEOs who are already familiar with the dynamics of the company's industry, and the specific challenges that the company may be facing. Typically, investors will assess a new CEO’s track record for creating shareholder value. A CEO's reputation could be reflected in areas like an ability to grow market share, reduce costs, or expand into new markets.
What Does a CEO Do?
CEOs are responsible for managing a company's overall operations. This may include delegating and directing agendas, driving profitability, managing company organizational structure, strategy, and communicating with the board.
Does CEO Mean They Are the Owner of a Company?
It depends. In some cases, CEOs are the owners of a company. In others, CEOs are elected by the board of directors.
Is CEO or CFO Higher?
CEO is the highest position to occupy in a company. The CFO, who is responsible for the financial discipline of a company along with identifying the strengths and weaknesses of a company, ultimately reports to the CEO.
What Position Is Higher than CEO?
A CEO often reports to a board of directors. The board oversees the performance of the CEO and can elect to remove or replace the CEO if they feel the executive's performance isn't producing the results they want to see.