Understanding the Roles and Responsibilities of a CEO
What is a CEO (Chief Executive Officer)?
The highest-ranking individual in a corporation or organisation is the CEO, which stands for Chief Executive Officer. The CEO is in charge of a company’s or organization’s overall success as well as making top-level management choices. They may seek advice on major matters, but they have the last say when it comes to making decisions. CEOs can also be referred to as chief executive, president, or managing director.
The Chief Executive Officer is directly responsible to and accountable to the Board of Directors for the company’s performance. The Board of Directors (BoD) is a group of people who have been elected to represent the company’s shareholders. The CEO is frequently a member of the board of directors, and in some cases, the chairwoman.
The Roles and Responsibilities of the CEO
The CEO is responsible for managing the formulation and execution of long-term strategy with the goal of generating shareholder value, in addition to the general performance of an organisation or firm.
The functions and responsibilities of a CEO differ from one company to the next, and are typically determined by the company’s organisational structure and/or size. In smaller businesses, the CEO takes on a more “hands-on” role, making lower-level business decisions, for example (e.g., hiring of staff). He or she usually solely handles with high-level business strategy and important company decisions in larger companies. Managers or departments are in charge of other responsibilities.
The typical duties, responsibilities, and job description of a CEO include:
1. Communicating, on behalf of the company, with shareholders, government entities, and the public
2. Leading the development of the company’s short- and long-term strategy
3. Creating and implementing the company or organization’s vision and mission
4. Evaluating the work of other executive leaders within the company, including directors, vice presidents, and presidents
5. Maintaining awareness of the competitive market landscape, expansion opportunities, industry developments, etc.
6. Ensuring that the company maintains high social responsibility wherever it does business
7. Assessing risks to the company and ensuring they are monitored and minimized
8. Setting strategic goals and making sure they are measurable and describable
The Basic Corporate Structure of a Company
Many companies use a two-tier corporate hierarchy to protect shareholders’ interests: the first tier is the Board of Directors, and the second tier is the company’s higher management (COO, CEO, CFO).
The Board of Directors – the company’s ultimate governing authority – is elected by shareholders. The Chairperson and CEO are chosen by the Board of Directors. The Board of Directors elects the COO – Chief Operating Officer – and CFO – Chief Financial Officer – on the CEO’s advice.
The Difference Between a CEO and Chairperson of the Board
There should be no mistake between the roles of CEO and Chairperson of the Board of Directors. The CEO is the company’s main operational decision-maker, while the Chairperson of the Board is in charge of safeguarding investors’ interests and managing the organisation as a whole. The Board of Directors meets multiple times a year to set long-term goals for the company, assess financial results, evaluate executive and managerial performance, and vote on strategic decisions suggested by the CEO.
Because he or she cannot make key decisions without the board’s consent, the Chairperson of the Board is theoretically superior to the Chief Executive Officer. The chairperson may effectively become the company’s or organization’s ultimate boss. This is uncommon, though, because most board chairpersons aren’t as active in day-to-day business operations as the CEO, leaving the CEO with more latitude in operating the company.
Reasons to Separate the CEO and Chairperson Positions
In some circumstances, the Chief Executive Officer and the Chairman of the Board of Directors are the same person. Most organisations and businesses allow the CEO to also serve as the chairperson, which can lead to conflicts of interest.
The two examples below show how a conflict of interest problem can arise if both positions are held by the same person:
– The Board of Directors votes on increasing executive pay. If the Chief Executive Officer is also the chairperson, a conflict of interest arises because he would be voting on her/his own compensation.
– The Board of Directors is responsible for evaluating the performance of executives such as the CEO. If the Chief Executive Officer also holds the position of Chairperson, she or he exercises the power to decide if her/his performance is satisfactory.
As a result, sound corporate governance normally dictates that the Chief Executive Officer and the Chairperson of the Board of Directors have separate responsibilities. The CEO and Chairman of the Board cannot be the same person in the United Kingdom and other countries.