Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Chief Executive Officer (CEO)

What it is:

The chief executive officer (CEO) oversees the entire operation of a company or organization. A CEO is responsible for coordinating effective operating, marketing, financial, cultural and legal strategies that maximize shareholder value.

How it works (Example):

In some organizations, the CEO is called the president, the executive director or even the chief administrative officer, though many organizations have a CEO and people with these titles, too. In small companies, especially start-ups, the CEO does everything. As organizations get bigger, CEOs delegate duties to subordinates.

In most cases, the company's board of directors hires and evaluates the CEO. The board of directors is elected by the shareholders and has a duty to protect and preserve the interests of the shareholders. The CEO informs the board of the company's activities and plans on a regular basis. The CEO often has a seat on the board of directors, but the board can also fire the CEO -- that is, the CEO "serves at the pleasure of the board."

Good CEOs have skills in a variety of areas, but the CEO's job is not to be an expert in every area of a business. The CEO must focus on the broader picture and lead an entire organization towards a strategic goal. There are a variety of ways to measure CEO performance, but most boards look at changes in share price and company strategy.

CEOs have four general responsibilities:

1. Optimize Financial Performance. The CEO determines the company's financial direction, goals and results. The CEO works especially closely with the chief financial officer (CFO) to make strategic capital allocation decisions and set up financial measurement systems. The CEO also leads a capital-raising team that finds money for expansion or other necessary activities.

2. Optimize Overall Strategy. The CEO sets and maintains a mission and vision for the company. This ultimately dictates the products, markets and strategies the company adopts. The CEO also has a variety of direct reports (the senior management team) that he or she must hire, develop, listen to and even fire if necessary.

3. Develop Corporate Culture. The CEO sets the cultural tone of the company. Explicit and subtle messages expressed by the CEO have a large effect on whether a company is a good or bad place to work, which in turn drives the company's ability to attract and retain good employees.

4. Be the Face of the Company. As such, the CEO is a key figure in the company's marketing, PR and community efforts.

Why it Matters:

The CEO is largely responsible for the success or failure of an organization. Because of the inherent pressure involved with the position, it takes a very strong person to do the job well. In many cases, however, the bulk of a CEO's daily interaction occurs with only a handful of people. This sometimes makes it difficult for the CEO to obtain a completely objective evaluation of a company, especially when direct reports are usually reluctant to give honest and open feedback.

Overall, it is the managerial skills and experience of a CEO that can make or break a company. An effective CEO can bring a floundering company back from near bankruptcy, or vice versa, can fail to lead a promising company into prosperity.

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