Chief Executive Officer (CEO) (Encyclopedia of Business)
The chief executive officer (CEO) is the leading executive officer of a corporation charged with principal responsibility of the organization and accountable only to the owners, directors, and/or stockholders. As the principal corporate officer, the CEO's basic function is to provide overall leadership to a corporation by establishing direction and tone, overseeing internal management, and functioning as the company's primary representative with outside groups and organizations. The emergence of the CEO is closely related to the growth of businesses during the Industrial Age. As businesses became too large to be managed by individual owners, professional managers slowly assumed responsibility for the company's operations. In addition, the development of public companies with thousands of stockholders has made the likelihood of a primary owner nearly impossible. Although the stockholders are represented by a board of directors, the board cannot oversee the daily operations of the organization, thus requiring a CEO. In fact, the cumulative responsibilities of the CEO have become so immense that many corporations have established chief executive offices, in which responsibilities are divided among a chairperson of the board, a CEO, and a president.
In providing direction for the company, the CEO will set important goals and objectives, formulate corporate strategy, and establish standards and guidelines by which the company will conduct its business. Although a CEO may require approval from the board of directors to do so, the CEO is primarily responsible for the formulation of the company's overall direction. In order to communicate the direction of the company to employees, the CEO will set goals and objectives. While employees might well understand these goals, they are typically unable to achieve them of their own accord. To provide a means toward reaching these goals, the CEO must formulate strategies providing short- and long-term plans. Furthermore, in implementing these plans and strategies, the CEO must function as a salesperson and cheerleader. Plans and strategies must not only be understood, but accepted. A successful CEO will instill enthusiasm for his or her plans among employees. In addition, a CEO will define the character of the company by establishing and employing acceptable standards of behavior in conducting business. Finally, based on the direction and priorities of the company, a CEO must allocate the resources of the company in a manner that will maximize its ability to reach its goals.
As primary manager of the corporation, the CEO is charged with the creation of an organizational structure, the management of business units and divisions, the development of executive personnel, overseeing mergers and acquisitions, and the responsibility for any decisions that will have a major impact on the company's welfare. By creating an organizational structure, the CEO establishes an internal management structure in which major functions and responsibilities are defined in order to establish a clear mission for each unit, as well as provide accountability among these units. In reaching long-term corporate strategies and goals, a CEO will direct individual business units toward these goals by establishing short-term objectives and strategies for each unit. Finally, the CEO will continually review the status of each unit to ensure that goals are being met and that the company's financial outlook is favorable.
As the principal executive, the CEO is responsible to the corporation's board of directors and acts as the primary interface between the board and the corporation. The CEO continually reports to the board on the company's activities and situation; gains approval for any major goals, policies, or strategies; and executes any mandates of the board. In addition, the CEO participates in the board's activities by being involved in the selection of new directors.
Finally, the CEO is the primary external interface for the corporation, acting as its primary representative with outside individuals, groups, and organizations by monitoring outside conditions, improving public relations, and acting as a personal liaison. In order to understand and anticipate the effects of outside factors, the CEO must monitor social, political, and economic conditions as they relate to the corporation. As the company's primary agent, the CEO must work to maintain and improve public relations by effectively communicating the company's desires and strategies to the outside public. Finally, the CEO must maintain individual relationships with important business and civic leaders on behalf of the company. As corporations struggle to maintain their position in an increasingly competitive and global market, the ability of a corporation to change will be fundamental to its success, and such change must begin with its leaders. If that is the case, the role of the CEO will continue to grow and change, taking on new responsibilities and initiatives as the marketplace evolves.
SEE ALSO: Chief Financial Officer (CFO)
[Bradley T. Bematek]