Definition #44 - Chief Executive Officer

Each week, we will release two illustrated definitions of corporate governance jargon in order of increasing complexity. In this instalment we have the definition of "Chief Executive Officer". Check the episode thumbnail for an illustration by Nate Schmold.

Originally published February 1, 2023

What is Sound-Up Governance?

The real impact of corporate governance isn't about compliance or structure or policies, it's about the conditions that impact decision-making. Sound-Up Governance features fresh perspectives to help boards and executives to be a bit better tomorrow than they were yesterday.

Just about every corporation has a person to whom the board delegates the responsibility for running things on a day-to-day basis. One common title for that person is “Chief Executive Officer” or CEO. A lot of other corporations – especially not-for-profit ones – will use the title “Executive Director” or ED, which is the same as CEO in almost every case. When you first incorporated Reallie Steilish, it was probably your job to do literally EVERYTHING and you might not have bothered to worry about your title. Eventually, when a corporation has more employees, it can be pretty handy to give some people titles that indicate their level of authority in the organization, and that people outside the company will recognize. Imagine if you had a restaurant and gave all of the servers the title “CEO” it would be a pretty funny joke but wouldn’t help anyone actually understand their jobs or how the restaurant works. In a big and complex organization, a CEO can basically decide how much or little work they want to do and how much they would rather delegate to other managers and employees who report to them. CEOs usually make a lot more money than every other employee because in the end they are responsible for the performance of the corporation, and for all the employees in it.

One neat wrinkle is that even though the CEO is busting their butt all day every day worrying about every single part of the corporation and its businesses, they still have a boss! Who’s the CEO’s boss? It’s the board of directors!!!! OK maybe that didn’t warrant so many exclamation points but it’s still a super important and interesting part of corporate governance. One of the most important things that a board can do is be really careful about whom they hire as CEO, and also really careful to fire a CEO who’s consistently doing a bad job. Most directors only really learn about whether a CEO is doing a good job by reading about the corporation’s performance and hanging out with the CEO at board meetings. That makes it pretty hard for the CEO to keep the board in the loop, and also pretty hard for the board to do an excellent job at monitoring the CEO’s effectiveness.