Chief executive officer

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Group of Fortune 500 CEOs in 2015 Group of Fortune 500 CEOs in 2015 (cropped to remove non-CEO).jpg
Group of Fortune 500 CEOs in 2015

A chief executive officer (CEO), [1] also known as a chief executive or managing director, is the top-ranking corporate executive charged with the management of an organization, usually a company or a nonprofit organization.

Contents

CEOs find roles in various organizations, including public and private corporations, nonprofit organizations, and even some government organizations (notably state-owned enterprises). The governor and CEO of a corporation or company typically reports to the board of directors and is charged with maximizing the value of the business, [1] which may include maximizing the profitability, market share, revenue, or another financial metric. In the nonprofit and government sector, CEOs typically aim at achieving outcomes related to the organization's mission, usually provided by legislation. CEOs are also frequently assigned the role of the main manager of the organization and the highest-ranking officer in the C-suite. [2]

Origins

The term "chief executive officer" is attested as early as 1782, when an ordinance of the Congress of the Confederation of the United States of America used the term to refer to governors and other leaders of the executive branches of each of the Thirteen Colonies. [3] In draft additions to the Oxford English Dictionary published online in 2011, the Dictionary says that the use of "CEO" as an acronym for a chief executive officer originated in Australia, with the first attestation being in 1914. The first American usage cited is from 1972. [4]

Responsibilities

The responsibilities of an organization's CEO are set by the organization's board of directors or other authority, depending on the organization's structure. They can be far-reaching or quite limited, and are typically enshrined in a formal delegation of authority regarding business administration. Typically, responsibilities include being an active decision-maker on business strategy and other key policy issues, as well as leader, manager, and executor roles. The communicator role can involve speaking to the press and to the public, as well as to the organization's management and employees; the decision-making role involves high-level decisions about policy and strategy. The CEO is tasked with implementing the goals, targets and strategic objectives as determined by the board of directors.

As an executive officer of the company, the CEO reports the status of the business to the board of directors, motivates employees, and drives change within the organization. As a manager, the CEO presides over the organization's day-to-day operations. [5] [6] [7] The CEO is the person who is ultimately accountable for a company's business decisions, including those in operations, marketing, business development, finance, human resources, etc.

The use of the CEO title is not necessarily limited to describing the head of a company. For example, the CEO of a political party is often entrusted with fundraising, particularly for election campaigns.

International use

In some countries, there is a dual board system with two separate boards, one executive board for the day-to-day business and one supervisory board for control purposes (selected by the shareholders). In these countries, the CEO presides over the executive board and the chairperson presides over the supervisory board, and these two roles will always be held by different people. This ensures a distinction between management by the executive board and governance by the supervisory board. This allows for clear lines of authority. The aim is to prevent a conflict of interest and too much power being concentrated in the hands of one person.

In the United States, the board of directors (elected by the shareholders) is often equivalent to the supervisory board, while the executive board may often be known as the executive committee (the division/subsidiary heads and C-level officers that report directly to the CEO).

In the United States, and in business, the executive officers are usually the top officers of a corporation, the chief executive officer (CEO) being the best-known type. The definition varies; for instance, the California Corporate Disclosure Act defines "executive officers" as the five most highly compensated officers not also sitting on the board of directors. In the case of a sole proprietorship, an executive officer is the sole proprietor. In the case of a partnership, an executive officer is a managing partner, senior partner, or administrative partner. In the case of a limited liability company, an executive officer is any member, manager, or officer.

Depending on the organization, a CEO may have several subordinate executives to help run the day-to-day administration of the company, each of whom has specific functional responsibilities referred to as senior executives, [8] executive officers or corporate officers. Subordinate executives are given different titles in different organizations, but one common category of subordinate executive, if the CEO is also the president, is the vice president (VP). An organization may have more than one vice president, each tasked with a different area of responsibility (e.g., VP of finance, VP of human resources). Examples of subordinate executive officers who typically report to the CEO include the chief operating officer (COO), chief financial officer (CFO), chief strategy officer (CSO), chief marketing officer (CMO) and chief business officer (CBO). The public relations-focused position of chief reputation officer is sometimes included as one such subordinate executive officer, but, as suggested by Anthony Johndrow, CEO of Reputation Economy Advisors, it can also be seen as "simply another way to add emphasis to the role of a modern-day CEO – where they are both the external face of, and the driving force behind, an organization culture". [9]

United States

In the US, the term "chief executive officer" is used primarily in business, whereas the term "executive director" is used primarily in the not-for-profit sector. [10] These terms are generally mutually exclusive and refer to distinct legal duties and responsibilities. [11] The CEO is the highest-ranking executive in a company, making corporate decisions, managing operations, allocating resources, and serving as the main point of communication between the board of directors and the company. [12] [13]

United Kingdom

In the UK, chief executive and chief executive officer are used in local government, where their position in law is described as the "head of paid service", [14] and in business and in the charitable sector. [15] As of 2013, the use of the term director for senior charity staff is deprecated to avoid confusion with the legal duties and responsibilities associated with being a charity director or trustee, which are normally non-executive (unpaid) roles. The term managing director is often used in lieu of chief executive officer.

Celebrity CEOs

Business publicists since the days of Edward Bernays (1891–1995) and his client John D. Rockefeller (1839–1937) and even more successfully the corporate publicists for Henry Ford, promoted the concept of the "celebrity CEO". Business journalists have often adopted this approach, which assumes that the corporate achievements, especially in the arena of manufacturing, are produced by uniquely talented individuals, especially the "heroic CEO". In effect, journalists celebrate a CEO who takes distinctive strategic actions. The model is the celebrity in entertainment, sports, and politics – compare the "great man theory". Guthey et al. argues that "...these individuals are not self-made, but rather are created by a process of widespread media exposure to the point that their actions, personalities, and even private lives function symbolically to represent significant dynamics and tensions prevalent in the contemporary business atmosphere". [16] Journalism thereby exaggerates the importance of the CEO and tends to neglect harder-to-describe broader corporate factors. There is little attention to the intricately organized technical bureaucracy that actually does the work. Hubris sets in when the CEO internalizes the celebrity and becomes excessively self-confident in making complex decisions. There may be an emphasis on the sort of decisions that attract the celebrity journalists. [17]

Research published in 2009 by Ulrike Malmendier and Geoffrey Tate indicates that "firms with award-winning CEOs subsequently underperform, in terms both of stock and of operating performance". [18]

Criticism

Executive compensation

Executive compensation has been a source of criticism following a dramatic rise in pay relative to the average worker's wage. For example, the relative pay was 20-to-1 in 1965 in the US, but had risen to 376-to-1 by 2000. [19] The relative pay differs around the world, and, in some smaller countries, is still around 20-to-1. [20] Observers differ as to whether the rise is due to competition for talent or due to lack of control by compensation committees. [21] In recent years, investors have demanded more say over executive pay. [22]

Diversity

Lack of diversity amongst chief executives has also been a source of criticism. [23] In 2018, 5% of Fortune 500 CEOs were women. [24] In 2023 the number rose to 10.4% of for Women CEO's of Fortune 500 companies. [25] The reasons for this are explained or justified in various ways, and may include biological sex differences, male and female differences in Big Five personality traits and temperament, sex differences in psychology and interests, maternity and career breaks, hypergamy, phallogocentrism, the existence of old boy networks, tradition, and the lack of female role models in that regard. [26] [27] [28] Some countries have passed laws mandating boardroom gender quotas. [29] In 2023 Rockefeller Foundation awarded a grant to Korn Ferry to research strategies and then action a plan to help more women to become CEO's. [30]

Toxic executives

There are contentious claims that a significant number of CEO's have psychopathic tendencies, often characterized by power-seeking behavior and dominance. These individuals can often conceal their ruthlessness and antisocial behavior behind a facade of charm and eloquence. Traits such as courage and risk-taking, generally considered desirable, are often found alongside these psychopathic tendencies.

Tara Swart, a neuroscientist at MIT Sloan School of Management, has suggested that individuals with psychopathic traits thrive in chaotic environments and are aware that others do not. As a result, they may intentionally create chaos in the workplace. [31] [32] This perspective is explored in the book Snakes in Suits , co-authored by Robert D. Hare.

However, Scott Lilienfeld has argued that the attention given to psychopathy in the workplace by both the media and scholars has far exceeded the available scientific evidence. Emilia Bunea, writing in Psychology Today , has linked psychopathic traits in managers to workplace bullying, employee dissatisfaction, and turnover intentions. Despite this, Bunea cautions that excessive worry about supposed psychopathic managers could discourage individuals from pursuing careers in corporations and deter employees from addressing issues with difficult bosses. [33]

In a related development, British politician Andy McDonald received praise for educating a CEO on the role of trade unions. This occurred as the restaurant chain McDonald's faced scrutiny in the UK Parliament over allegations of a toxic workplace culture. [34]

See also

Related Research Articles

<span class="mw-page-title-main">Board of directors</span> Type of governing body for an organisation

A board of directors is an executive committee that supervises the activities of a business, a nonprofit organization, or a government agency.

Corporate titles or business titles are given to corporate officers to show what duties and responsibilities they have in the organization. Such titles are used by publicly and privately held for-profit corporations, cooperatives, non-profit organizations, educational institutions, partnerships, and sole proprietorships that also confer corporate titles.

A vice president or vice-president, also director in British English, is an officer in government or business who is below the president in rank. It can also refer to executive vice presidents, signifying that the vice president is on the executive branch of the government, university or company. The name comes from the Latin term vice meaning "in place of" and typically serves as pro tempore to the president. In some countries, the vice president is called the deputy president. In everyday speech, the abbreviation VP is used.

A chief financial officer (CFO), also known as a treasurer, is an officer of a company or organization who is assigned the primary responsibility for making decisions for the company for projects and its finances . The CFO thus has ultimate authority over the finance unit and is the chief financial spokesperson for the organization.

Corporate governance are mechanisms, processes and relations by which corporations are controlled and operated ("governed").

Senior management, executive management, or upper management is an occupation at the highest level of management of an organization, performed by individuals who have the day-to-day tasks of managing the organization, sometimes a company or a corporation.

A chief operating officer (COO), also called chief operations officer, is an executive in charge of the daily operations of an organization. COOs are usually second-in-command immediately after the CEO, and report directly to them, acting on their behalf in their absence.

A general manager (GM) is an executive who has overall responsibility for managing both the revenue and cost elements of a company's income statement, known as profit & loss (P&L) responsibility. A general manager usually oversees most or all of the firm's marketing and sales functions as well as the day-to-day operations of the business. Frequently, the general manager is responsible for effective planning, delegating, coordinating, staffing, organizing, and decision making to attain desirable profit making results for an organization.

<span class="mw-page-title-main">Andrea Jung</span> Canadian businesswoman (born 1958)

Andrea Jung is a Canadian-American executive, non-profit leader, and prominent women's-issues supporter based in New York City. In April 2014, she became president and CEO of Grameen America, a nonprofit microfinance organization founded by Nobel Peace Prize winner, Muhammad Yunus. From 1999 until 2012, she served as the first female CEO and chairman of Avon Products, Inc., a multi-level marketing company. Jung was also the first woman to serve as Chairman of the Cosmetic, Toiletry & Fragrance Association, and Chairman of the World Federation of Direct Selling Associations.

A chief marketing officer (CMO), also called a chief brand officer (CBO), is a C-suite corporate executive responsible for managing marketing activities in an organization. The CMO leads brand management, marketing communications (including advertising, promotions and public relations), market research, product marketing, distribution channel management, pricing, customer success, and customer service.

An audit committee is a committee of an organisation's board of directors which is responsible for oversight of the financial reporting process, selection of the independent auditor, and receipt of audit results both internal and external.

The chief risk officer (CRO), chief risk management officer (CRMO), or chief risk and compliance officer (CRCO) of a firm or corporation is the executive accountable for enabling the efficient and effective governance of significant risks, and related opportunities, to a business and its various segments. Risks are commonly categorized as strategic, reputational, operational, financial, or compliance-related. CROs are accountable to the Executive Committee and The Board for enabling the business to balance risk and reward. In more complex organizations, they are generally responsible for coordinating the organization's Enterprise Risk Management (ERM) approach. The CRO is responsible for assessing and mitigating significant competitive, regulatory, and technological threats to a firm's capital and earnings. The CRO roles and responsibilities vary depending on the size of the organization and industry. The CRO works to ensure that the firm is compliant with government regulations, such as Sarbanes–Oxley, and reviews factors that could negatively affect investments. Typically, the CRO is responsible for the firm's risk management operations, including managing, identifying, evaluating, reporting and overseeing the firm's risks externally and internally to the organization and works diligently with senior management such as chief executive officer and chief financial officer.

In German corporate governance, a Vorstand is the executive board of a corporation. It is hierarchically subordinate to the supervisory board (Aufsichtsrat), as German company law imposes a two-tier board of directors.

<span class="mw-page-title-main">Joe Kaeser</span> German businessman

Joe Kaeser is a German manager who served as CEO of Siemens AG from 2013 to 2021.

A chief information security officer (CISO) is a senior-level executive within an organization responsible for establishing and maintaining the enterprise vision, strategy, and program to ensure information assets and technologies are adequately protected. The CISO directs staff in identifying, developing, implementing, and maintaining processes across the enterprise to reduce information and information technology (IT) risks. They respond to incidents, establish appropriate standards and controls, manage security technologies, and direct the establishment and implementation of policies and procedures. The CISO is also usually responsible for information-related compliance. The CISO is also responsible for protecting proprietary information and assets of the company, including the data of clients and consumers. CISO works with other executives to make sure the company is growing in a responsible and ethical manner.

The chief sustainability officer, sometimes known by other titles, is the corporate title of an executive position within a corporation that is in charge of the corporation's "environmental" programs. Several companies have created such environmental manager positions in the 21st century to formalize their commitment to the environment. The rise of the investor ESG movement and stakeholder capitalism, has increased the need for corporations to address sustainability and social issues across their value chain, and address growing needs of external stakeholders. Normally these responsibilities rest with the facility manager, who has provided cost effective resource and environmental control as part of the basic services necessary for the company to function. However, as sustainability initiatives have expanded beyond the facility — so has the importance of the position to what is now a C-level executive role. The position of CSO has not been standardized across industries and individual companies which leads it to take on differing roles depending on the organization. The position has also been challenged as symbolic, in that it does not actually have the effect of increasing sustainable practices.

A chief strategy officer (CSO) is an executive that usually reports to the CEO and has primary responsibility for strategy formulation and management, including developing the corporate vision and strategy, overseeing strategic planning, and leading strategic initiatives, including M&A, transformation, partnerships, and cost reduction. Some companies give the title of chief strategist or chief business officer to its senior executives who are holding the top strategy role.

Chief business officer (CBO) is the position of the top operating executive of growing commercial companies or an academic/research institution. In the commercial space, CBO shows leadership in deal-making experience with a clear record of results and ultimate transactional responsibility. In higher education, the titles of vice president, associate dean, assistant dean, and director are also used for the role of the chief business officer.

<span class="mw-page-title-main">Director (business)</span> Title given to the senior management staff of a large organization

The term director is a title given to the senior management staff of businesses and other large organizations.

While psychopaths typically represent a very small percentage of workplace staff, the presence of psychopathy in the workplace, especially within senior management, can do enormous damage. Indeed, psychopaths are usually most present at higher levels of corporate structure, and their actions often cause a ripple effect throughout an organization, setting the tone for an entire corporate culture. Examples of detrimental effects include increased bullying, conflict, stress, staff turnover, absenteeism, and reduction in both productivity and social responsibility. Ethical standards of entire organisations can be badly damaged if a corporate psychopath is in charge. A 2017 UK study found that companies with leaders who show "psychopathic characteristics" destroy shareholder value, tending to have poor future returns on equity.

References

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  14. ↑ UK Legislation, Local Government and Housing Act 1989, section 4, accessed 9 December 2023
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  18. ↑ Malmendier, Ulrike; Tate, Geoffrey (14 June 2020). "Superstar CEOs" (PDF). p. 1. Archived (PDF) from the original on 11 September 2015. Retrieved 11 September 2021. We find that firms with award-winning CEOs subsequently underperform, in terms both of stock and of operating performance.
  19. ↑ "Executive Compensation Is Out Of Control. What Now?". Forbes . 14 February 2018. Retrieved 16 November 2018.
  20. ↑ "CEOs in U.S., India Earn the Most Compared With Average Workers". 28 December 2017. Retrieved 16 November 2018.
  21. ↑ "Great Men, great pay? Why CEO compensation is sky high". The Washington Post . 12 June 2014. Retrieved 16 November 2018.
  22. ↑ Mooney, Attracta (11 November 2018). "European investors beef up stance over high executive pay" . Financial Times. Archived from the original on 2022-12-10.
  23. ↑ "'The government must act on ftse gender stats' says cmi's ceo". CMI. 14 November 2018. Retrieved 16 November 2018.
  24. ↑ "Fortune 500". Archived from the original on Jan 22, 2019. Retrieved 16 November 2018.
  25. ↑ Hinchliffe, Emma (June 5, 2023). "Women CEOs run 10.4% of Fortune 500 companies. A quarter of the 52 leaders became CEO in the last year". Fortune. Retrieved 2023-09-18.
  26. ↑ Cain, Áine (Jun 19, 2018). "A new list of the top CEOs 'for women' is mostly men — and it reflects a wider problem in business". Business Insider. Retrieved 2019-10-13.
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  29. ↑ Clark, Nicola (27 January 2010). "Getting Women Into Boardrooms, by Law". The New York Times. Retrieved 16 November 2018.
  30. ↑ Stevenson, Jane Edison; Orr, Evelyn (2017-11-08). "We Interviewed 57 Female CEOs to Find Out How More Women Can Get to the Top". Harvard Business Review. ISSN   0017-8012 . Retrieved 2023-09-18.
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  33. ↑ Bunea, Emilia (May 12, 2023). "The Truth About Corporate Psychopaths". Psychology Today. Archived from the original on 14 Dec 2023.
  34. ↑ Davenport, Hannah (2023-11-15). "McDonald's CEO gets schooled by MP on the role of trade unions". Left Foot Forward. Archived from the original on Dec 5, 2023.

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