Chief Executive Officer (CEO) Essay

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A chief executive  officer (CEO),  also known  as a managing  director,  general  manager,  chief executive, or president, is generally the most senior executive or administrator in charge  of managing an organization. In the past, the term was normally restricted  to profit-making corporations, but now, it   is  increasingly   applied   to   the   most   senior manager   in  not-for-profit  organizations, such  as charities,   and  even  in  government  departments and  agencies. The  responsibilities of the  CEO,  as the  highest-ranking executive,  include  developing and implementing organizational strategies, making  major  organizational decisions, managing the overall operations and resources of the organization, and acting as the main point  of communication between  the  board   of  directors, representing   shareholders  as  the  firm’s  owners, and the organization’s day-to-day operations. In a government department or  agency, this  reporting may   be  to   an   elected   body,   an   official,  or   a statutory board. The  CEO  in a corporation will often  have a position  on the board, and  in some cases, he or  she may  even be the  chairperson. In smaller  companies,   the  CEO  will  have  a  much more hands-on role in the company,  making many business  decisions.  However,  in larger  companies, the  CEO  will usually  deal  with  only  the  higher-level  strategy   of  the  company   and   focuses  on directing  its overall growth,  with most other  tasks delegated to other  managers.

A CEO’s responsibilities can vary considerably from  organization to organization. They typically include the following:  first, creating,  communicating,  and  implementing the  organization’s  vision, mission, and overall direction and leading the development and implementation of the organizations overall strategy; second, leading, guiding, directing, and evaluating  the work  of other  executives in the organization, including  presidents, vice presidents, and directors,  depending  on the organization’s reporting structure; third, soliciting advice and guidance from the corporation’s board  of directors,  or the governing or supervising body for not-for-profit or government organizations, and reporting on  the  organization’s performance and strategy; fourth, formulating and implementing the strategic  plan  that  guides the activity of the organization;  fifth,  overseeing  the  complete  operation of an  organization in accordance with  the  direction established  in the strategic  plans; sixth, maintaining  awareness   of  both  the  external   and  the internal  competitive   landscape,  opportunities for expansion, customers, markets, new industry developments and  standards, and  so on;  seventh, representing  the organization in civic activities  in the  community and  professional   associations  in the industry  and acting as the face of the organization  when  dealing  with  the  organization’s stakeholders, including governments, customers, suppliers, creditors, workers, and others; and finally, demonstrating the  leadership  necessary  to  make the organization a success in whatever  objectives it has set. This leadership  includes  providing  vision, attracting followers,  and  all other  aspects  of successful leadership.

Given the responsibilities of CEOs, those acting in  the  role  generally  require  high-level,  relevant, and  developed   skills;  a  high  level  of  education (often a master’s degree, typically in business administration); and substantial experience. The remuneration of  CEOs  is  generally  in  line  with these expectations. PayScale Inc., a salary, benefits, and compensation information provider, provides a useful overview of this information by country  for survey-reporting individuals.  For  example,  in  the United States, the median salary for a president and CEO  in  June  2014  was  $150,016 per  year,  not including   bonuses,   profit   sharing,   and   commissions, yielding a total  pay of up to $352,824, but not including equity (stock) compensation, the cash value of retirement benefits, and the value of other, noncash  benefits (e.g., health  care). In general, the survey  indicated  that  experience  has  a  moderate effect  on  income  for  CEOs,  with  27  percent  of CEOs   having   10  to  19  years  of  experience   in related  positions, usually  as senior  managers  and executive directors, and 56 percent with 20 or more years of experience. Some 85 percent of the reporting individuals  in the most recent survey describing themselves  as CEOs  were  males,  with  the  typical high-demand  skills  for  CEO   positions   declared being business strategy, financial management, strategic planning,  team leadership, and leadership.

Another survey, this time by Pricewaterhouse Coopers, the world’s second-largest professional services network, throws  a different perspective  on the major decisions undertaken by global CEOs. In the most recent survey for January  2014, the results indicate  that  some 76 percent of respondent CEOs had  undertaken a cost  reduction initiative  in the past 12 months, 34 percent had entered a new strategic alliance or joint venture, 25 percent had outsourced a particular business  process  or  function, and  38 percent  had  completed  a merger and acquisition. This  survey  also  highlighted  some  of the challenges CEOs need to be aware of when managing  an organization. For example, more than 30 percent of CEOs responded that they were leading major transformations in organizational design and   structure  or  technological  investment,   customer growth and retention strategies, or corporate governance.  Likewise, 52 percent  of global  CEOs responded that  they  had  improved  relations  with customers, 43 percent with the providers  of capital, and 42 percent  with their supply chain in the past 5  years,  but  another 31  percent  responded that relations  had worsened  with governments and regulators and 23 percent  with the media over the same period.

As the public face of an organization to its stakeholders, CEOs, especially those in large, publicly listed corporations, are almost  as well known as the  company  itself. This  is especially  the  case with companies  where the CEO is also the chair of the  board   and/or   the  founder. Particularly well-known  current  CEOs include Michael  Dell, chairman  of  the  board, CEO,  and  founder   of  Dell; Mark  Zuckerberg, CEO and founder  of Facebook; Rupert   Murdoch,  founder   and   CEO   of  News Corp;  Larry  Page, founder  and  CEO  of Google; Robert  Iger, chair and CEO of Disney; and Warren Buffett, founder  and CEO of Berkshire Hathaway.

In the recent past, this list would also have included Michael  Bloomberg  of Bloomberg,  Steve Jobs  of Apple,  Jack  Welch  of  General  Electric,  and  Bill Gates of Microsoft. Similarly, many leading CEOs have written  best-selling books  about  their experiences as CEOs,  providing  useful guidance  for the hopeful   want-to-be.  These  include   Winning  by Jack Welch, Direct From Dell: Strategies That Revolutionized an Industry by Michael Dell, Work in Progress by Michael  Eisner, Sam Walton:  Made in America by Sam Walton, Iacocca: An Autobiography  by  Lee Iacocca,  and  Grinding  It Out: The Making  of McDonald’s by Ray Kroc.

This leads to several areas relating to CEOs particularly contested  in recent years, especially in the  United   States,  concerning   the  fundamental nature  of ownership and management in the firm and the separation of the roles of CEO  and chair of the  board. To  start  with,  agency  relationships characterize modern  corporate governance  in that the owners of firms (shareholders or equivalent)  as principals  hire CEOs as agents to manage the firm on   their   behalf   professionally.  Assuming   that CEOs  are rationally interested  in furthering their own ends, the central  problem  for shareholders is how to motivate  the managers  to act in shareholders’  interest,  not  that  of  their  own,  typically  in terms of shareholder wealth maximization. Evidence  of  CEOs  pursuing  rational self-interest rather  than  shareholders’ interests  includes  shirking (not working  hard),  excessive consumption of perquisites,  manipulation of earnings, excessive diversification, bias toward investments  with near-term  payoffs,  and  underemployment of  debt.  A variety of mechanisms  provide incentives for managers  in this  regard.  First,  markets  for  corporate control   discipline   CEOs   to   better   shareholder interests  or risk their position  because of the hostile takeover  of an underperforming firm. Second, the market  for managerial talent  entails  incentive compensation in  the  form  of  stock  options  and performance-related pay, effectively turning  CEOs into shareholders. Last, management decisions are actively monitored in compliance  with shareholder wealth   maximization.  Primarily,   this   is  done through the  firm’s  board   of  directors,   and  also through institutional and block shareholders, and indirectly  through banks  and  other  debt  holders. However,   any  or  all  of  these  mechanisms   may break  down  or be compromised.

The second  area  is the combination (or separation)  of the chair  and  CEO  roles. After the recent financial  crisis, corporations came under  fire from activist  shareholders, institutional investors,  proxy advisory  firms, and regulators to separate  the chair and  CEO  roles with  a view to achieving  independent leadership  on the board. In the most common agency theory argument, the separation of the chair and  CEO  roles increases  the board’s  independence from management and thus leads to better monitoring and  oversight.  Because the  CEO  manages  the company and the chair leads the board in overseeing (hiring,  compensating, and  replacing  as necessary) the CEO  on behalf  of the shareholders, holders  of this view see a conflict of interest  if a single person occupies both the CEO and chair roles. In contrast, stewardship or administrative theory  suggests that the benefits  of this separation are not  so clear-cut. Drawing  on the principle  of “unity  of command,” stewardship theory  argues  that  having  clear  and unambiguous authority concentrated in one person is essential to effective management. Unity of command creates clear lines of authority to which management (and the board)  can respond  more effectively. Clearly, both  of these conceptualizations of the role of the CEO have important implications for the role and behavior  of CEOs in the real world.

Bibliography:

  1. Fox, Jeffrey J. How to Become  London:  Random House,  2010.
  2. Michaelson, Gerald A. and Steven Michaelson. Sun Tzu— The Art of War for Managers: 50 Strategic Rules Updated for Today’s  Avon, MA: Adams Media,  2010.
  3. Miles, Robert The Warren  Buffett CEO:  Secrets From the Berkshire  Hathaway Managers. New York: John Wiley & Sons, 2003.

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