Chief executive officer

Last updated

A chief executive officer (CEO), [1] also known as a central executive officer (CEO), chief administrator officer (CAO), or just chief executive (CE), is one of a number of corporate executives charged with the management of an organization   especially an independent legal entity such as a company or nonprofit institution. CEOs find roles in a range of organizations, including public and private corporations, non-profit organizations and even some government organizations (notably state-owned enterprises). The CEO of a corporation or company typically reports to the board of directors and is charged with maximizing the value of the business, [2] which may include maximizing the share price, market share, revenues or another element. In the non-profit 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 main manager of the organization and the highest-ranking officer in the C-suite. [3]

Contents

Origins

In draft additions to the Oxford English Dictionary published online in 2011, the Dictionary says that the term 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, leader, manager, and executor. The communicator role can involve speaking to the press and the rest of the outside world, 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 owner or 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), 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 organisation 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. These terms are generally mutually exclusive and refer to distinct legal duties and responsibilities. Implicit in the use of these titles, is that the public not be misled and the general standard regarding their use be consistently applied.[ citation needed ]

United Kingdom

In the UK, chief executive and chief executive officer are used in local government, business, and the charitable sector. [10] 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". [11] 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. [12]

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". [13]

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. [14] The relative pay differs around the world, and, in some smaller countries, is still around 20-to-1. [15] Observers differ as to whether the rise is due to competition for talent or due to lack of control by compensation committees. [16] In recent years, investors have demanded more say over executive pay. [17]

Diversity

Lack of diversity amongst chief executives has also been a source of criticism. [18] In 2018, 5% of Fortune 500 CEOs were women. [19] 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. [20] [21] [22] Some countries have passed laws mandating boardroom gender quotas. [23]

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 jointly supervises the activities of an organization, which can be either a for-profit or a nonprofit organization such as a business, 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 also confer corporate titles.

A 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.

The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financial reporting. In some sectors, the CFO is also responsible for analysis of data. Some CFOs have the title CFOO for chief financial and operating officer. In the majority of countries, finance directors (FD) typically report into the CFO and FD is the level before reaching CFO. The CFO typically reports to the chief executive officer (CEO) and the board of directors and may additionally have a seat on the board. The CFO supervises the finance unit and is the chief financial spokesperson for the organization. The CFO directly assists the chief operating officer (COO) on all business matters relating to budget management, cost–benefit analysis, forecasting needs, and securing of new funding.

Corporate governance is defined, described or delineated in diverse ways, depending on the writer's purpose. Writers focused on a disciplinary interest or context often adopt narrow definitions that appear purpose-specific. Writers concerned with regulatory policy in relation to corporate governance practices often use broader structural descriptions. A broad (meta) definition that encompasses many adopted definitions is "Corporate governance” describes the processes, structures, and mechanisms that influence the control and direction of corporations."

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

A chief operating officer or chief operations officer, also called a COO, is one of the highest-ranking executive positions in an organization, composing part of the "C-suite". The COO is usually the second-in-command at the firm, especially if the highest-ranking executive is the chairperson and CEO. The COO is responsible for the daily operation of the company and its office building and routinely reports to the highest-ranking executive—usually the chief executive officer (CEO).

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.

An agency cost is an economic concept that refers to the costs associated with the relationship between a "principal", and an "agent". The agent is given powers to make decisions on behalf of the principal. However, the two parties may have different incentives and the agent generally has more information. The principal cannot directly ensure that its agent is always acting in its best interests. This potential divergence in interests is what gives rise to agency costs.

The chief risk officer (CRO) or 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.

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.

<span class="mw-page-title-main">Léo Apotheker</span> German business executive

Léo Apotheker is a German business executive. He served briefly as the chief executive officer of Hewlett-Packard from November 2010 until his dismissal in September 2011. He also served as co-chief executive officer of SAP from April 2008 until he resigned in February 2010 following a decision by that company not to renew his contract.

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

Executive compensation is composed of both the financial compensation and other non-financial benefits received by an executive from their employing firm in return for their service. It is typically a mixture of fixed salary, variable performance-based bonuses and benefits and other perquisites all ideally configured to take into account government regulations, tax law, the desires of the organization and the executive.

<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.

<span class="mw-page-title-main">Executive compensation in the United States</span>

In the United States, the compensation of company executives is distinguished by the forms it takes and its dramatic rise over the past three decades. Within the last 30 years, executive compensation or pay has risen dramatically beyond what can be explained by changes in firm size, performance, and industry classification. This has received a wide range of criticism leveled against it.

Thomas C. Naratil is an American business executive in the financial industry. After serving as president of both UBS Wealth Management Americas and UBS Americas since early 2016, Naratil was appointed CEO of UBS Americas Holding LLC and became co-president of Global Wealth Management of UBS Group AG and UBS AG in early 2018. Naratil started his career in finance in 1983 when he joined the brokerage firm Paine Webber Jackson & Curtis. The Swiss bank UBS acquired PaineWebber in 2000 and Naratil would hold various senior management positions at UBS Group, including chief financial officer (CFO) and chief operating officer (COO) from 2014 to 2015. Naratil succeeded Robert McCann as president of both UBS Wealth Management Americas and UBS Americas. In 2016, Naratil led a reorganization that involved cutting recruitment of US advisors and thinning management ranks, while also increasing compensation for UBS advisors. He is on the boards of organizations such as the American Swiss Foundation and College of Nursing at Villanova University, and has served on its Clearing House Supervisory Board.

References

  1. Lin, Tom C. W. (May 23, 2004). "CEOs and Presidents". UC Davis Law Review. SSRN   2428371.
  2. Lin, Tom C. W. (April 23, 2014). "CEOs and Presidents". SSRN   2428371.{{cite journal}}: Cite journal requires |journal= (help)
  3. Westphal, James D.; Zajac, Edward J. (1995). "Who Shall Govern? CEO/Board Power, Demographic Similarity, and New Director Selection". Administrative Science Quarterly. Administrative Science Quarterly Vol. 40, No. 1 (Mar., 1995). 40 (1): 60–83. doi:10.2307/2393700. JSTOR   2393700 . Retrieved 20 May 2022.
  4. "C, n.", Oxford English Dictionary Online (Oxford: Oxford University Press, 2011), under CEO n.. Accessed 12 November 2022.
  5. "Chief Executive Officer - CEO". Investopedia. Investopedia US, a Division of IAC. Retrieved 2014-10-23.
  6. "Chief Executive Officer (CEO)". BusinessDictionary.com. WebFinance Inc. Archived from the original on October 16, 2020. Retrieved October 23, 2014.
  7. Capstone Publishing (2003). The Capstone Encyclopaedia of Business. Oxford, U.K: Capstone Publishing. pp. 79–80. ISBN   1-84112-053-7.
  8. Markus Menz (2011-10-04). "Menz, M. 2012. Functional Top Management Team Members: A Review, Synthesis, and Research Agenda. Journal of Management, 38(1): 45-80". Journal of Management. Jom.sagepub.com. 38 (1): 45–80. doi:10.1177/0149206311421830. S2CID   143159987. Archived from the original on 2016-04-08. Retrieved 2012-11-28.
  9. "Rise of the Chief Reputation Officer". Financier Worldwide. Retrieved 2018-12-30.
  10. "Association of Chief Executives of Voluntary Organisations". Acevo.org.uk. 2012-11-16. Retrieved 2012-11-28.
  11. Eric Guthey and Timothy Clark, Demystifying Business Celebrity (2009).
  12. Mathew L.A. Hayward, Violina P. Rindova, and Timothy G. Pollock. "Believing one's own press: The causes and consequences of CEO celebrity". Strategic Management Journal 25#7 (2004): 637-653.
  13. Malmendier, Ulrike; Tate, Geoffrey (14 June 2020). "Superstar CEOs" (PDF). p. 1. Retrieved 11 September 2021. We find that firms with award-winning CEOs subsequently underperform, in terms both of stock and of operating performance.
  14. "Executive Compensation Is Out Of Control. What Now?". Forbes . 14 February 2018. Retrieved 16 November 2018.
  15. "CEOs in U.S., India Earn the Most Compared With Average Workers". 28 December 2017. Retrieved 16 November 2018.
  16. "Great Men, great pay? Why CEO compensation is sky high". The Washington Post . 12 June 2014. Retrieved 16 November 2018.
  17. Mooney, Attracta (11 November 2018). "European investors beef up stance over high executive pay". Financial Times.
  18. "'THE GOVERNMENT MUST ACT ON FTSE GENDER STATS' SAYS CMI'S CEO". 14 November 2018. Retrieved 16 November 2018.
  19. "Fortune 500" . Retrieved 16 November 2018.
  20. Cain, Áine. "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.
  21. Conversation, Michael Holmes-The (2019-09-06). "These are the reasons why we (still) don't have many women CEOs". Fast Company. Retrieved 2019-10-13.
  22. "It's 2017 – So Why Aren't there More Women CEOs?". 28 March 2017. Retrieved 16 November 2018.
  23. Clark, Nicola (27 January 2010). "Getting Women Into Boardrooms, by Law". The New York Times. Retrieved 16 November 2018.

Further reading