Chief Executive Officer (CEO) - Explained
What is a Chief Executive Officer?
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Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP
What is a Chief Executive Officer?
A chief executive officer is also known as a CEO refers to a position in a company or an organization that is most senior. A person who holds this title in a company is regarded to be the most senior employee of that particular company. In other words, it is the most top-ranking position in any company structure.
What Does a CEO Do?
Note that there are also other titles for CEOs. Some companies instead of using the CEO title, they prefer using titles such as managing director, executive or president. How these titles are used vary from one organization to the other and they all represent the most senior position in a company.
Most importantly, the CEO is the leader of any given firm. Therefore, in the case of a company's success or failure, this is the person who is held responsible for it. In other words, he or she is regarded to be the face of the company who represents it in the outside world.
In some companies, the CEO is also a board member, who mostly holds the chairpersons position. However, some companies may prefer to have a different person who is not a CEO to be the boards chairperson. Also, it is worth noting that the CEO is usually a point of contact between the board of directors and the company's various departments.
The election of the CEO is usually done by the board members and the shareholders of the company. Generally, the CEOs roles in various companies vary depending on the overall structure of the company as well as the size of the company.
In a relatively small-sized company, the CEO usually has more responsibilities on his shoulders. For instance, all business decisions including lower ones are made by him or her. This includes even a task such as the hiring of staff, a responsibility that rests with the human resource department in large companies. However, in large companies, the CEOs are only tasked to deal with company's higher-level strategies, where they have an obligation of ensuring that they direct its general growth. Other tasks in the company are handled by managers in various departments.
Roles and Responsibilities of Chief Executive Officer
Since the roles and responsibilities of a CEO vary from one company to the other, there are set standards in place that define their job description. However, the list below describes the typical duties and responsibilities of a CEO in any given organization:
- Acts as a communication link between the company and different entities such as shareholders, Board of Directors, government agencies, and the larger public.
- Leads and directs the implementation of the company's strategies (both short-term and long-term).
- The setting of strategic, measurable as well as describable goals
- Assess any possible risks directed to the company's business and ensure that they are well monitored and appropriate measures put in place, to minimize, prevent or eliminate the risks.
- Ensures that the company's vision and mission are created and implemented.
- Supervises other company's executive leaders working under him to ensure that their work is geared towards the company's overall success.
- Ensure that there is social responsibility as far as the company is concerned, at any given time the company engages in business.
- Ensure that the company is always aware of things such as:
- Expansion opportunities
- Competitive market landscape
- Current Industry developments, among others.
What are the Characteristics of a Typical CEO?
People do have different personality traits and these traits play a big role in their leadership roles. However, having a degree in the relevant field together with vast knowledge about the company's industry adds value to your credentials. The following characteristics are essential for any typical CEO:
- Should be an expert in making deals, communicating as well as managing company activities.
- Should be naturally outgoing (extroverted) and always eager to sell to the world the name of the company he or she works for.
- Should have a clear vision with good strategies to the employees he is leading.
- Should be a good decision-maker, adapt quickly to changes and also forward-looking.
What are the 6 Dimensions of CEO Influence?
The 6 Dimensions of Influence a CEO (Porter and Nohria 2018) states that the CEO exerts influence through 6 key dimensions:
DIRECT vs INDIRECT
The CEO is personally involved in numerous meetings and makes many decisions.
The CEO also exerts a lot of indirect influence over others various using integrative mechanisms (e.g., strategy, business unit reviews, developing people and relationships, organizational structure, organizational culture).
INTERNAL vs EXTERNAL
The CEO works with the top management team and with employees at all other levels inside the organization.
The CEO also meets with many external constituencies (board, shareholders, customers, media, government, etc.), serving as the face of the company, and brings these external perspectives to the organization.
PROACTIVE vs REACTIVE
The CEO articulates a sense of purpose, has a forward-looking vision, and leads the company to greater success.
The CEO also responds to unfolding events, from daily issues to full-blown crises that may have a major impact on the company's success.
LEVERAGE vs CONSTRAINTS
The CEO has a lot of clout due to his/her position and control of resources.
The CEO is constrained by the need to build buy-in, bring others along, and send the right message.
TANGIBLE vs SYMBOLIC
The CEO makes many decisions about concrete things like strategic direction, structure, resource allocation, and the selection of key people.
The CEO also exterts strong intangible and symbolic influence because his/her actions (intentionally or not) set the tone, communicate norms, shape values, and provide meaning.
POWER vs LEGITIMACY
The CEO holds formal power and authority in the company that is reinforced by his/her competence and track record.
The CEO also has influence as a result of the legitimacy that comes from his/her character and the trust he/she earns from employees through his/her demonstrated values, fairness, and commitment to the organization.
Corporate Governance System and the CEO
- Compulsory one-tier system: In countries with a one-tier board structure (USA, UK, Ireland, Canada, Spain, Japan) the CEO normally also holds the position of Chairman of the Board. S/he then heads the (combined) Board of Directors. This situation is called: CEO Duality.
- Compulsory two-tier system: In case of a two-tier board structure (Germany, Austria) there are two boards: the Board of Directors and the Supervisory Board. In this corporate governance system, the CEO is only the chairman of the Board of Directors, but not of the Supervisory Board. There is a formal division of power. Italy and Portugal require a Board of Auditors separate from the board.
- Choice: In many other countries (France, Belgium, The Netherlands, Luxembourg, Greece, Italy, Denmark, Finland, Slovenia, Bulgaria, Hungary) there is a choice for a one- or two tier board structure.
Besides 1 or 2-tier, there are many more ways in which the type of corporate governance influences the role and position of the CEO.
Power of the CEO
Besides the mentioned skills and one- or two-tier board structure, the power and authority of the CEO depends on a number of additional factors including:
- The composition of the Board of Directors and the roles, responsibilities and voting rights of the CEO and other members.
- The presence of a Supervisory Board? If so, is the CEO also a member or even the chairman of it?
- The personality and clout of the chairman versus the CEO.
- The culture or climate of board meetings.
- The boards' level of participation in the selection of the CEO and of the other top managers.
- The board's ability to shape, monitor and/or control the implementation of the strategy.
- Corporate Governance Law (Intro)
- What is Business Governance?
- Berle-Means Thesis
- Corporate Governance Rating Definition
- Who are the members of a corporation?
- Corporate Charter
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- What is a closely-held corporation?
- Close Corporation Plan Definition
- What is a Private Company vs a Public Company?
- What is the role and purpose of the corporation?
- What is the Agency theory of corporate governance?
- Shareholder-Centric Perspective
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What is the Stakeholder theory of corporate governance?
What is the role & rights of Shareholders in the corporation?
- Shareholder Democracy Definition
- Quorum Definition
- Information Circular
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- Changing the Voting Rules
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- What are the variations on attributes of Ownership structure?
- Stock Split
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- When is a shareholder personally liable for corporate obligations?
- Appraisal Rights
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- Proxy Statement
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- Activist Investor
- Overview of Board of Directors
- Board Decision Making
- Advisory Board (Observer Directors)
- What is the role of the Board of Directors?
- Board of Trustees
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- What is the composition of the board of directors?
- Chairman of the Board
- CEO as Chairman of the Board
- Outside Director
- Outside Director or Non-Executive Director Definition
- Independent Outside Director
- Budget Committee
- Audit Committee
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- Nomination Committee (Corporate Board)
- What standards govern the actions of the board of directors?
- Duty of Candor Definition
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- Board Evaluation Definition
- What is the Business Judgment Rule?
- What is D&O insurance?
- Codetermination (Foreign)
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- What standards govern manager actions?
- Chief Executive Officer (CEO)
- Chief Financial Officer
- Chief Information Officer (CIO)
- Chief Investment Officer (CIO)
- Chief Legal Officer
- Chief Operating Officer
- Chief Risk Officer
- Chief Security Officer
- Chief Technology Officer (CTO)
- What are the primary state and federal corporate governance laws?
- What is the role of the state in corporate governance?
- What is the role of Securities Laws in corporate governance?
- What is the role of the Foreign Corrupt Practices Act in corporate governance?
- What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
- Sarbanes-Oxley Act (SOX)
- What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
- Corporate Monitors
- What industry organization standards affect corporate governance?
- How do proxy advisory firms affect corporate governance?
- What is the role of ethics in corporate governance?
- What are the major causes of corporate governance issues?
- What are the access to information issues?
- What are decision-making structure issues?
- What are the power struggle or competition issues?
- Holding Company
- What are hostile takeovers and defenses to hostile takeovers?
- Williams Act
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- Shark Repellent Defenses?
- Poison Pill Defenses?
- Flip Over Poison Pill Definition
Flip In Poison Pill Definition
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- Legal Lockup Defenses?
- White Knight and Pac Man Defenses?
- Jonestown Defense
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- Back-end Plan Definition
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- Dead Hand Provision Definition
- Kamikaze Defense
- Operating Company Property Company Model
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- What are benefit-alignment issues?
- Cadbury Rules Definition