What Is Chief Executive Officer (CEO)?
A chief executive officer (CEO) is the highest-ranking executive in a company, whose 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 (the board) and corporate operations and being the public face of the company. A CEO is elected by the board and its shareholders.
What CEOs Actually Do
Understanding Chief Executive Officers
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. In smaller companies, CEOs often are more hands-on and involved with day-to-day functions. CEOs can set the tone, vision, and sometimes the culture of their organizations.
Because of their frequent dealings with the public, sometimes the chief executive officers of large corporations become famous. Mark Zuckerberg, the CEO of Facebook (FB), for example, is a household name today. Similarly, Steve Jobs, founder and CEO of Apple (AAPL), became such a global icon that following his death in 2011, an explosion of 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 vernacular.
When it comes to executive-level positions within an organization, assigned titles and the functions associated with each can become muddled quickly. 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.
The Difference Between CEO and COB
The CEO directs the operational aspects of a company; the board of directors oversees the company as a whole, while the leader of the board is called the chairman of the board (COB). The board has the power to overrule the CEO's decisions, but the chairman of the board does not have the power to overrule the board. Instead, the chairman is considered a peer with the other board members. In some cases, the CEO and the chairman 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.
The Impact of a CEO Change
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. (For related reading, see "A Guide to CEO Compensation")