In business, the role of a Chief Executive Officer, or CEO, can determine much of a company's success or failure. The CEO is the highest-ranking executive in a company. Primary responsibilities include making major corporate decisions, managing operations and resources and acting as the main point of communication between the board of directors and corporate operations.
What Does A CEO Do?
A CEO leads a company, making sure all parts of the business work well together and follow a clear plan. CEOs are responsible for shaping the company's goals and making sure these goals are met. CEOs also help define the company's values and how the firm interacts with customers, partners, and the public. Additionally, they communicate regularly with the company's board of directors to report on progress and get guidance.
CEO Vs. Owner: What’s The Difference?
A CEO's role differs from that of an owner; while an owner holds equity in the company and has a vested interest in the value of the business, a CEO does not necessarily have an ownership stake. Owners invest capital and assume risk associated with the company. In contrast, CEOs are often appointed by the owner or the board to lead and deliver on the strategic direction set for the company.
Although the owner and chief executive role differ, many, if not most, CEOs end up with an equity stake in the company. Shares can be part of their compensation plan or signing bonus. In startups backed by venture capital, 6-8% is a typical share for outside CEOs.
CEO Vs. President
In many organizations, the CEO and the president have distinct roles. The CEO, as the highest-ranking officer, focuses on the overall vision and strategy of the company and often represents the company in public. In contrast, the president's role often involves more of the day-to-day management, overseeing operations and implementing the strategy and policies set by the CEO. The president typically reports to the CEO and may handle more internal aspects, such as managing senior staff, business units, and functions.
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CEO Vs. COO Vs. CFO
In the corporate hierarchy, the roles of CEO, COO (Chief Operating Officer), and CFO (Chief Financial Officer) are distinct. Each contributes to different facets of a company’s operations and strategy. They are not used interchangeably.
As mentioned earlier, the CEO is the highest-ranking executive. Their focus? The company's overall vision, strategy and external business relationships. The COO, often seen as the second-in-command, is primarily responsible for the day-to-day administrative and operational functions of the business. This role is crucial for implementing the CEO's vision on a practical level. The COO oversees operations and often directly manages business units or functions.
The CFO handles all financial aspects of a company. These responsibilities include budget management, financial reporting, risk management and financial forecasting. The CFO also provides financial insights that help shape the company’s strategic decisions, and plays a key role in investor relations.
In terms of seniority or authority, the CEO holds the top spot. The COO and CFO are usually viewed as peers, reporting directly to the CEO. Together, they form a core executive team that collaborates to ensure that strategic initiatives are financially sound and efficiently executed. The COO and CFO align operational and financial strategies with the goals set by the CEO.
What Are The Skills and Qualifications Of A CEO?
One key CEO skill is strategic thinking, including setting long-term goals and positioning the company to take advantage of future opportunities. Strong leadership and communication skills are also crucial. CEOs must inspire and direct diverse teams while also being a primary point of contact for stakeholders like the board, investors and public entities.
The best CEOs are resilient, adaptable, and proactive. They must function well in high-pressure situations and make difficult decisions, often in uncertain environments. Integrity and accountability are traits that help build trust both within and outside the organization.
CEO Qualifications
While there is no specific set of qualifications required to become a CEO, many hold advanced degrees such as an MBA or other specialized graduate degrees relevant to their industry. Practical experience, often in various roles and functions, is important. Broad exposure offers the depth of knowledge and personal network necessary to lead a company. The path to becoming a CEO varies widely but usually involves a combination of extensive experience, proven performance and a track record of leadership roles.
Social Skills Prioritized
One surprising change in the most important CEO skillset comes from a study published in the Harvard Business Review. Social skills proved to be more important than administrative, financial or operational expertise. Between 2000 and 2017, there was a 28% rise in CEO job descriptions mentioning strength in social skills. During the same period, job descriptions mentioning strength in managing financial and material resources declined nearly 40%.
Why Is It Important To Have A CEO?
Having a CEO is crucial to almost every organization. A CEO provides unified leadership, aligning all parts of a business with its strategic goals. A single leader also ensures consistent communication with stakeholders, including investors, customers, and the board.
Without a CEO, an organization may lack clear direction, leading to strategic conflicts and inefficiencies. Different departments or business units could pursue conflicting goals without a central figure to guide decision-making, compromising the company’s overall effectiveness. In short, a CEO is vital for maintaining operational efficiency and external confidence in the company’s leadership.
What About Co-CEOs?
The co-CEO model, where leadership responsibilities are shared between two executives, can be an effective strategy for managing extensive and diverse operations. For instance, Salesforce utilized this approach from 2018 to 2020, enabling Marc Benioff, previously the sole CEO, to focus on strategic initiatives like acquiring Slack and developing new businesses. Similarly, Netflix's appointment of Ted Sarandos as co-CEO alongside Reed Hastings was strategic in managing its global expansion and setting up a succession framework. The co-CEO model can leverage diverse expertise and leadership styles but requires clear role definitions and strong collaboration to mitigate the risks associated with divided leadership.
What Is The Average Salary of a CEO?
CEO salaries are highly dependent on the size of the organization and the industry. Job site Indeed.com reports that the average CEO salary in the U.S. is a relatively modest $146,000 plus a bonus of $25,000. Another job site, Payscale, estimates a similar average CEO pay package: $165,000.
In contrast, CEOs of S&P 500 companies averaged $16.7 million in annual compensation in 2022. The highest-paid S&P 500 CEO that year was Google’s Sundar Pichai whose pay totaled $226 million. Job site estimates don’t include numbers like these because CEO positions in large companies are filled through an executive search process, not via public postings.
The pay CEOs receive is influenced by the size, complexity and financial performance of their companies. The stark difference between job site CEO pay averages and what S&P 500 CEOs make is due to the scale of responsibility, the impact of their decisions on the company’s global performance and the need to attract top talent in highly competitive industries. CEOs of large firms are paid comparatively huge sums because of the significant value boards expect them to bring to the company. These large pay packages are usually tied to the company’s stock performance and profitability, which boards believe depend on the CEO's strategic initiatives and leadership.
Particularly at large companies, CEO pay can create controversy. CEO compensation has grown far more quickly than pay for rank-and-file employees, creating an enormous disparity. One analysis found that CEO pay was nearly 400 times that of an average worker.
How Do You Become a CEO?
To become a CEO, there is no one-size-fits-all educational path. Many CEOs hold advanced degrees, such as an MBA, which can provide useful knowledge in business, leadership, and strategic thinking. But, an MBA isn’t essential. One survey reports just a third of CEOs have an MBA. Despite common wisdom that an elite MBA is the best path to a CEO job, only one in ten Fortune 500 CEOs holds an Ivy League MBA.
Experience often trumps education, especially in large firms. Here, career advancement usually involves climbing the corporate ladder across various senior roles and gaining experience in multiple business areas.
A CEO career path might include stints in operations, marketing or finance, providing a well-rounded skill set. In companies with diverse products and services, experience in several different business units is also helpful.
Demonstrated leadership is vital. A history of effective leadership roles in high-performing units is viewed as a key indicator of a candidate’s suitability for the CEO position. CEO job searches often look for a candidate’s ability to navigate complex challenges, drive growth and work well with people.
What Is The Future of Chief Executive Officer Roles?
The role of the Chief Executive Officer has evolved significantly over time. It has transitioned from primarily operational overseers to visionaries who balance a broad array of stakeholder interests. These include not just maximizing shareholder value but also balancing environmental concerns, dealing with regulators, interfacing with the communities the firm is part of and building corporate culture.
Today, CEOs are more publicly visible and accountable, not just within their corporations but to society at large. Emerging trends include the increasing integration of technology in strategic decision-making. Data analytics and artificial intelligence are becoming tools central to competitive strategy, and CEOs must ensure their team has the skills and vision to drive change.
ESG (environmental, social and governance) concerns are increasingly important to the CEO role. While ESG risks are a major concern, there is also opportunity. According to a study by EY, 82% of U.S. chief executives see ESG as a value driver to their business over the next few years.
Looking ahead, future CEOs will likely need to navigate more complex regulatory environments and technology landscapes, manage more dispersed global teams, and lead their companies through rapid economic and technological changes.
Bottom Line
The CEO role is crucial in any organization, steering strategic decisions, overseeing operations and bridging communication between the board and company functions. CEOs are key in shaping the company's future and aligning diverse stakeholder interests. As the role of CEOs evolves, they will be responsible for navigating the complexities of emerging technologies, regulatory shifts and growing ESG demands.
