What Is a Chief Executive Officer (CEO)?
A chief executive officer (CEO) is the highest-ranking executive in a company. A CEO's primary responsibilities include making major corporate decisions, driving the workforce and resources of a company toward strategic goals, and acting as the main point of communication between the board of directors and corporate operations. The chief executive officer serves as the public face of the company in many cases.
CEOs are elected by the board and its shareholders. They report to the chair and the board who are appointed by shareholders.
Key Takeaways
- The chief executive officer (CEO) is the highest-ranking individual in a company.
- Every company differs but CEOs are often responsible for expanding the company, driving profitability, and improving share prices in the case of public companies.
- CEOs manage the overall operations of a company.
- CEOs are often elected by the board of directors.
- Studies suggest that 45% of company performance is influenced by the CEO. Others show that they affect 15% of the variance in profitability.
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CEO’s Roles and Responsibilities
A CEO’s role varies by company depending on its size, culture, and corporate structure. CEOs in large corporations typically deal only with very high-level strategic decisions and those that direct the company’s overall growth.
CEOs may work on strategy, organization, and culture. They may look at how capital is allocated across the firm or how to build teams to succeed. They can also set the tone, vision, and sometimes the culture of their organizations.
CEOs in smaller companies often are more hands-on and involved with day-to-day functions.
A study from Harvard Business Review analyzed how CEOs spend their time. They found that 72% of CEOs’ working time was spent in meetings. Of the remaining working time, 25% was spent on relationships, 25% on business unit and functional reviews, 21% on strategy, and 16% on culture and organization. The study showed that just 1% of their working time was spent on crisis management, and 3% was allocated to customer relations.
Examples of a CEO’s Tasks
A chief executive officer’s roles and responsibilities also vary greatly between industries and organization sizes. A CEO may generally be expected to take on some or all of these 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: A CEO usually looks to themselves and other executive leadership to begin implementing those plans after crafting the long-term vision. Changes are often directly implemented by operational managers but it's ultimately up to the CEO to ensure that 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: It's vital to a company’s success to have a suite of executives that a CEO can rely on. A CEO often relies on other leaders to manage their own realms rather than directly overseeing every aspect of a company. They then engage 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 board members 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 nonfinancial 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
CEOs also receive many other benefits based on their positions but the total compensation for the highest paid in 2023 was reportedly $161,826,161. The honor went to Hock E. Tan, CEO of Broadcom Inc. This was an increase of 167% from the previous year.
The chief executive officers of large corporations often achieve fame or infamy because of their frequent dealings with the public. Examples include Elon Musk, CEO of Tesla (TSLA), and Steve Jobs, founder and CEO of Apple (AAPL). Jobs became such a global icon that an explosion of both cinematic and documentary films about him emerged after his death in 2011.
The leader of an organization may not be titled CEO although they might assume all the typical responsibilities of a CEO.
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.
The CEO may also be serving as the chief financial officer (CFO) or the chief operating officer (COO) for small organizations or those that are still in the startup or growth phases. This can lead to a lack of clarity and can overwork an executive. Assigning multiple titles to a single executive-level individual can wreak havoc on a business’s continuity and ultimately affect its long-term profitability.
Assigned titles and the functions associated with each can become muddled quickly when it comes to executive-level positions within an organization.
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 and is led by the chair of the board (COB). The chair of the board doesn't have the power to overrule the board but the board has the power to overrule the CEO’s decisions.
The chair is effectively considered to be a peer of the other board members. The CEO and the chair of the board can be the same person in some cases but many companies split these roles between two people. This gives better governance and oversight of the work of the CEO.
The Difference Between CEO and CFO
The CFO is the chief financial officer of a company. 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 CFO seeks to deliver returns to shareholders by focusing on financial discipline and driving margin and revenue growth.
The Difference Between CEO and COO
The chief operating officer (COO) is often ranked second after the CEO. Their responsibilities fall on recruitment, legal, payroll, and training, along with administrative duties as the head of human resources.
The Difference Between CEO and Other Leadership Titles
Several other leadership titles may or may not overlap with a CEO.
Founder
The founder of a company is the individual who started it. 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 the title of an individual who's currently with a company or of an individual who started the company but has since left. They can also be considered a founder and may be referred to as both simultaneously, founder/CEO, if they helped to start the company.
Chairperson
A chairperson is a presiding officer who oversees a group or committee. They may also be given the title of “president.” They're in charge of managing the group of individuals often assigned a specific task or a set of responsibilities. 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 proportion to their percentage of ownership because companies can have multiple owners. Each individual might be referred to as a part-owner if there's more than one. A CEO can be an owner if they have a financial stake in the company.
Director
The term “director” can refer to a few positions. A director may be upper management or hold an executive-level position depending on a company’s organizational structure. A director may be an individual serving on the board of an organization or a CEO might be a director-level employee. Most companies’ CEOs are on a higher-tier employment level than directors, however. A CEO could also be under the direction of a director.
A CEO often reports to a board of directors who collectively make sure that the company is functioning well.
The Impact of a CEO Change
Markets can respond either positively or negatively to the change in company leadership during CEO transitions. Studies show that CEOs can have a large impact on a company’s performance. One study found that 45% of company performance is influenced by the CEO. But another showed that CEOs affect just 15% of variance in profitability.
The price of a company's stock could change for any number of reasons when a new CEO takes over. A change in CEO generally carries more downside risk than upside, particularly when it hasn't 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.
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, 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 the company might be facing. Investors will typically 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. This can include delegating and directing agendas, driving profitability, managing company organizational structure and strategy, and communicating with the board.
Is the CEO the Owner of the Company?
It depends. CEOs are the owners of a company in some cases or are elected by the board of directors in others.
Is CEO or CFO a Higher Position?
CEO is the highest position to occupy in a company. The CFO is responsible for the financial discipline of a company, identifying its strengths and weaknesses and ultimately reporting 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 them if they feel that the executive’s performance isn’t producing the results they want to see.
The Bottom Line
The CEO is responsible for making major corporate decisions, driving the direction of the company, supervising other executives, and overseeing growth plans. They're accountable to the board of directors or stakeholders of the company and are often the public face of the organization. CEOs typically have extensive experience in their industry and are tasked with guiding their company toward success and profitability.
