What Is 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
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 professional development.
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. Elon Musk, founder of Tesla (TSLA) has over 60 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 documentary films (and one narrative film) 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.
What are the key differences between roles in the C-suite?
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 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 the 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.