Roles of Chief Executive Officer in the Functioning of the Organization
Roles of Chief Executive Officer in the Functioning of the Organization
Chief executive officer (CEO) refers to the head of the organization and is the person who presides over or is in-charge of the organization. CEO is the highest ranking executive officer of the organization who has full responsibility for the activities of the organization, which include long-term strategy and day-to-day operations. CEO has specific responsibilities depending on the needs of the organization. The job description of the CEO depends on the nature of the organization.
Broadly speaking, the primary responsibilities of the CEO include developing and implementing short term and long term strategies, making major corporate decisions, managing the overall operations and resources of the organization, acting as the main point of communication between the board of directors and the organizational operations. In several organization, the CEO also serves as the public face of the organization.
CEO is normally a member of the board of directors. When in an organization there are, in addition to the CEO, some more senior executives are members of the board of directors, then the CEO is normally designated as ‘Managing Director’ (MD). When a CEO is also leading the board of directors then CEO is designated as ‘chair-person’. The chair-person is required to call the meeting of the board of directors to order, lead in various discussions, move the meeting as per the agenda items proposed and ensure that there is discipline in the meeting. The CEO / MD / chair-person acts as a key representative of the organization to the outside world.
CEO directs the operational aspects of the organization. Comparatively, the board of directors oversees the organization as a whole. While the chair-person of the board of directors does not have the power to overrule the board of directors, the board of directors has the power to overrule the decisions of the CEO. Effectively, the chair-person is considered a peer with the other members of the board of directors. CEO is normally authorized and responsible for the management of the organization and its operations by way of delegated authority from the board of directors, or as expressed in the constitution of the organization.
Primary authority for the governance, direction, control, and management of the organization is normally constitutionally and legally vested with the board of directors. Hence, it is necessary for the board of directors to resolve to delegate such parts of that primary authority to the CEO, so that the CEO is empowered to take responsibility for the day to day operations and management of the organization. The CEO can then sub-delegate certain of those delegated powers to other executive officers and managers of the organization. This is normally given by a delegated authority matrix proposed by the CEO and approved by the board of directors.
CEOs as the head of the executive team and manage the day to day operations of the organization, its people and resources. They implement the strategy approved by the board of directors and ensure that the structure and processes of the organization meet the strategic and cultural needs of the organization. They are accountable to the board of directors for the performance of their responsibilities with expectations that the CEOs are to keep the board of directors informed of all events and circumstances which have, or can likely to have, a material impact on the organization.
The delegation of authority given to CEOs normally include responsibility for (i) developing business plans, budgets, and strategies for consideration by the board of directors and, to the extent approved by the board, implementing these plans, budgets, and strategies, (ii) ensuring the operations and the business of the organization are within the parameters set by the board of directors from time to time and that the board of directors is kept informed of material developments in the affairs, operations, and business of the organization, (iii) where proposed transactions, commitments, or arrangements exceed threshold parameters set by the board of directors, referring the matter to the board of directors for its consideration and approval, (iv) identifying and managing operational and corporate risks for the organization and, where those risks can have a material impact on the organization, formulating strategies for managing and mitigating those risks, including for consideration and endorsement (as applicable) by the board of directors, (v) managing the financial and other reporting mechanisms, and control and monitoring systems of the organization, to ensure that these mechanisms and systems capture all relevant material information on a timely basis, are functioning effectively, and are founded on a sound basis of prudential risk management, (vi) ensuring that the board of directors is provided with sufficient accurate information on a timely basis with regards to the organization, its operations, business, and affairs, and in particular with respect to the organizational corporate performance, financial condition, operations, and prospects, so as to reasonably position the board of directors to fulfill its governance responsibilities, and (vii) implementing the policies, processes, and codes of conduct approved by the board of directors and facilitating the monitoring and reviewing of, and reporting against, those policies, processes and codes of conduct.
CEOs are expected to (i) provide management oversight and responsibility across the organization to ensure the effective and efficient functioning of the organization, and (ii) provide strong and clear leadership internally to the organization and its people and externally to the stakeholders of the organization. CEOs are also expected at all times to act and behave with integrity and in accordance with the code of conduct and values of the organization. In addition to the normal responsibilities of CEOs, there are some additional expectations which normally apply to the CEOs. These expectations are described below.
With respect to the accountability to the board of directors, the CEOs are to (i) report to the board of directors on the status of policies, strategies, directions, and plans (operational and otherwise) set or approved by the board of directors, (ii) inform the board of directors of all the events within, or which reasonably be within their knowledge or awareness, which can or do have a material impact on the activities or well-being of the organization, (iii) observe limitations of authority as set from time to time by the board of directors, and (iv) regularly meet and consult with the chair-person (as the lead representative of the board of directors) on all such matters.
With respect to the leadership, CEOs are to (i) provide a strong, clear leadership to the organization, (ii) ensure the code of conduct / values of the organization is a living document, regularly updated, monitored, and communicated with ongoing training provided, (iii) provide internal leadership direction, goals, and energy to the personnel of the organization, (iv) create and sustain a culture of innovation and enablement, underpinned by and expressing the values and philosophy of the organization, (v) monitor and interpret the external environment in order to continually position the organization in its markets to the best advantage, (vi) maintain awareness of political, governmental, business, and industry components of the external environment, on a local, national, and international level, (vii) participate in appropriate industry and professional associations, networks, and activities relevant to the interests of the organization, and (viii) ensure relationship building with external stake holders.
With respect to overall management oversight and responsibility of the organization, CEOs are required to take responsibility in (i) the appointment and management of key executives and management personnel, (ii) setting up, maintaining, and reviewing organizational structure, systems, policies, processes and procedures, in order to guide, support, inform, service, and monitor the prime functions of the organization, (iii) ensuring legal, ethical, and professional practices, and boundaries consistent with the code of conduct / values of the organization are adhered to, (iv) ensuring financial activities are managed within agreed budgets and informing the board of directors in a timely manner incase CEOs become aware of any material adverse movements to the budget, and (v) ensuring effective and efficient functioning of the organization and all its operating divisions.
With respect to overall integrity, CEOs at all times are to personally behaving and conducting themselves in a manner (i) which is consistent with the code of conduct / values of the organization, and (ii) which does not bring the organization into disrepute or disrespect. The actions of the CEOs are to be neutral without any biases.
One of the important roles of the board of directors is to appoint and work effectively with the CEO. In practice, the two are mutually dependent on one another. Board of directors rely on CEOs to provide input into strategic development, implement strategy, communicate management’s perspective and alert the board of directors to material issues which are relevant and material to the organization. The CEO relies on the board of directors for delegation of authority, clear direction, mentoring, and support. This relationship is crucial for the success of the organization. The success of the organization can be hampered by a lack of clearly defined responsibilities / delegations or by either party stepping outside of those agreed terms.
The role of CEO varies from one organization to another organization depending on the size, culture, and corporate structure of the organization. In very large organizations, CEOs typically deal only with very high-level strategic decisions and those which direct the overall growth of the organization. For example, CEOs can work on strategy, organization and culture. Specifically, they can look at how capital is allocated across the organization, or how to build teams to succeed.
CEOs inject much of their personality into their decisions and leadership behaviour. They have one of the most important and influential roles in the organizations they lead. Not only the CEOs influence the course of their organizations, employees, and markets but they also, in some cases, influence the course of entire industry to which the organizations belong.
Organizations and the CEOs who lead them have numerous stake holders. These stake holders can be affected considerably by the decisions made by CEOs. The list of stake holders includes, but is not limited to, consumers, suppliers, investors, employees, board of directors, and the local communities. When the CEOs have clear understanding of their own role then it serve them well in meeting the needs of the stake holders.
CEOs play an important role in the organization since they are expected to provide leadership to the organization for operating efficiently to produce quality products and services required by the organizational customers, and return on investment to the share holders. In fact, the leadership role is believed to be one of the most important roles of the CEO with a reach which spans all other roles. CEOs are hence expected to be efficient and effective leaders with significant impact on the performance of the organizations they lead.
CEOs perform in the upper echelon of the organizations they lead. Upper echelon theory helps to explain the influence of top leaders on organizational development, suggesting CEOs and other top executives are able to reflect their thoughts and values into the organization. This ability is based on how much discretion these leaders have to act independently, that is, CEOs who act independently are more able to influence the organization.
CEOs are required to have adaptive capacity (the ability to change), and absorptive capacity, (the ability to learn). Absorptive capacity requires that the individual constantly experiment, tolerate small failures, and engage in double-loop learning. Handling the rapid change and complexity of the present day environment suggests that the CEOs need to become ambidextrous or to develop ‘the capacity to simultaneously implement diverse courses of action such as (i) incremental and discontinuous innovation, (ii) exploration and exploitation, (iii) flexibility and control, and (iii) feed forward and feedback learning. Ambidexterity eliminates the need for the CEOs to choose between opposites or to focus on ‘trade-offs’.
CEOs are required to have the qualities of the transformational leadership. The transformational leader stands in stark contrast to the transactional leader who focuses on internal processes and managing others to get the job done. Instead, the transformational leader asks followers to transcend their own self-interests for the good of the group, organization, or society, to consider their longer-term needs to develop themselves, rather than their needs of the moment, and to become more aware of what is really important.
Transformational leaders are identified as being charismatic, inspirational, intellectually stimulating, and individually considerate. Described as selfless or servant leadership, transformational leadership focuses on the development of all members of an organization into leaders. Transformational leadership has a focus on integrity. However, integrity alone does not ensure strong organizational performance. Leaders frequently struggle with the desire to do the right thing while at the same time making sure the organization performs financially. CEOs since they are responsible for the organizational performance are to address this tension.
CEOs are to demonstrate responsible leadership for the performance. They are to provide firm without any selfish interest. They are to meet the demand for corporate performance both from share holders and the boards of directors. They are to sustain real organizational performance results in a changing environment which is full of complexity. In the present day environment, organizations need leadership which is able to think and act fundamentally differently, and able to integrate critical thinking with critical practice. Organizations need CEOs to shift away from the pursuit of control, discrete boundaries, and recognizable problems towards greater complexity, global competition, continuous quantum change and collaborative team orientations. These shifts herald an increasing gap between current leadership practices and future leadership needs. The competencies needed of and for leadership from CEOs are to be different. They need to integrate the apparent paradox of performance demands and the realities of humanity – in other words, of people and performance.
There is a requirement of a leadership system in the organization so as to solve the issue of succession planning in the organization. It is not uncommon for organizations to see that when a CEO is imported from in the organization, the organization undergoes substantial changes due to the change of one individual at the top. This is disruptive and frequently very unproductive for the organization. Further, it is not unusual that imported CEOs are there in the organization for a short term (say around 5 years or less). By the time CEOs brought from outside in the organization understand the functioning of the organization in a complex internal and external environment, substantial portion of their tenure in the organization gets over, and during this disruptive period the damage to the functioning of the organization takes place, the restoration of which require additional efforts, resources, energy, and time.
Mintzberg’s management roles – CEOs being highest level of manager in the organization play several different roles every day. For example, while leading their team, they find themselves resolving a conflict, negotiating new contracts, attending the meeting of the board of directors, or approving a request for new equipment. Put simply, CEOs are constantly switching roles as tasks, situations, and expectations are changing. Management expert Henry Mintzberg recognized this, and he argued that there are ten primary roles or behaviours which can be used to categorize the different functions of a manager.
The ten managerial roles of Mintzberg (Fig 1) are (i) figure-head, (ii) leader, (iii) liaison, (iv) monitor, (v) disseminator, (vi) spokes-person, (vii) entrepreneur, (viii) disturbance handler, (ix) resource allocator, and (x) negotiator. These ten roles are then divided up into three categories namely (i) interpersonal consisting of figurehead, leader, and liaison, (ii) informational consisting of monitor, disseminator, and spokes-person, and (iii) decisional consisting of entrepreneur, disturbance handler, resource allocator, and negotiator.
Fig 1 Ten managerial roles of Mintzberg
In present day environment, the leadership role of CEOs is an evolving role. CEOs are leaders not only within their organizations but they are to function successfully in the external environment under which the organization is functioning. For this, CEOs need to have leadership qualities which fit into the dynamics related to the internal functioning of the organization as well as to the dynamics related to the external environment and the external stake holders. Also, since the external environment of the organization is constantly changing, the leadership qualities of the CEOs are to satisfy this requirement so that the organization can function efficiently in the ever changing environment.
In a study, which analyzed the roles of CEOs by carrying out the process of constant comparative analysis, six major role categories comprising the role of CEO have been identified. These six role categories provide a systematic way of explaining the roles of CEOs. The six role categories consist of (i) informational, (ii) interpersonal, (iii) decisional, (iv) operational, (v) strategic, and (vi) diplomacy roles. They are presented in detail below and have been developed in the study using constant comparative analysis. Constant comparative analysis consists of an inductive (from specific to broad) data analysis procedure of generating and connecting categories by comparing incidents in the data to other incidents, incidents to categories, and categories to other categories.
Fig 2 Role categories and roles of CEO
Informational roles – A significant amount of a CEO’s time is spent communicating with others, either receiving or providing information from individuals inside and external to the organization. It is estimated that CEOs spend between 22 % and 91 % of their time either receiving or providing information. This wide range in values can be attributed to several factors which are related to individual personality, or the organizational characteristics which affect the role.
The informational role category includes the four roles namely (i) monitor by which the CEO receives and collects information enabling the development of a thorough understanding of the organization, (ii) disseminator by which the CEO transmits special information into the organization, (iii) spokes-person by which the CEO disseminates the organization’s information into the external environment, and (iv) commander through which the CEO gives orders to the employees for their functioning in the organization.
As regards the monitor role of the CEO, upto 39 % of the CEO’s time is spent in some cases. In the monitor role, five different kinds of information are normally processed. These five kinds of information pertains to internal operations, external events, analyses, ideas and trends, or pressures. Internal operations and external events are self-explanatory terms. Analyses include information from financial reports and trade organizations which requires further explanation. Ideas and trends result from attendance at conferences and contact with other executives in similar industries. Pressures come from within the organization as well as from external sources and can include a request from a subordinate for additional power or requests from outside individuals or organizations for time and / or financial support.
In the disseminator role, the CEO provides information from external sources into the organization or coordinates the communication of information within the organization.
Various studies on the spokes-person role have resulted in conflicting results. In some cases, it has been considered the least important role while in other cases it has been found to be the primary focus of the CEO. As spokes-person for the organization, the CEO is communicating information to individuals outside the organization. This can include the board of directors or ‘the organization’s public’ which is described today as the stake-holders of the organization. A stake-holder is defined as ‘a person or group having a vested interest in the functioning and the objectives of the organization’. A stake-holder can be a supplier, a customer, an employee, an investor, or any other person or group directly or indirectly affected by the operation of the organization. Three classes of stake-holders can be identified by one or more of those characteristics such as (i) the power of the stake-holder to influence the organization, (ii) the legitimacy of the relationship of the stake-holder with the organization, and (iii) the urgency of the claim of the stake-holder on the organization.
The fourth role in the informational category is the commander role which is the role by which the CEO gives orders to the employees. Under this role CEO acts not only as commander in the organization but also as a controller, a planner, and an organizer.
Interpersonal roles – The interpersonal roles are closely linked with the informational roles since a large amount of the contact a CEO has with others is during the process of either receiving or providing information. A study has shown that CEOs spend between 65 % and 90 % of their time in contact with others and in some cases, upto 55 % of a CEO’s time is spent in the role of the leader role.
The interpersonal role category includes three roles namely (i) role of a leader under which the CEO leads and motivates the subordinates, (ii) the role of a motivator under which the CEO creates and sets a sense of excitement and vitality in the organization, challenging people to gain new competencies and achieve higher levels of performance, and (iii) role of a director under which the CEO makes sure the right people are in the right place at the right time doing the right things.
The role of a leader needs little explanation and can be the most important role of the CEO. The role of a motivator has an internal and flexible focus and is described as the role in which the CEO is ‘managing’. The role of the motivator is strongly associated with the organizational effectiveness and had a positive association with operational and financial performance of the organization, yet it is one of the roles where CEOs spend normally the least amount of time. The role of a director can be described as a resource allocator role where human, rather than financial, resources are being directed. Managing both financial and human resources is also part of the decisional roles.
Decisional roles – Given the complexity of the present day competitive environment and the speed at which technology changes, one of the most important characteristics which a CEO is required to have is the ability to be ambidextrous. That is, CEOs need to be able to consider multiple conflicting ideas at the same time, make quick decisions, and be entrepreneurial and innovative at all times. The decisional and the entrepreneurial roles have been the most important roles of a CEO. An entrepreneurial approach suggests innovation as a major component of the CEO role with an emphasis on maximizing profit. This emphasis is consistent with the un-programmed nature of managerial work where the most significant impacts on the organization are those made in the decision theory framework. The complexity of the decision-making process implies individual characteristics of the person in the role of CEO can be more important than the roles expected of the individual.
Decision making is influenced by existing mental models of individuals in the decision making roles. Mental models are defined as the biases, beliefs, experiences, and values of the individual. Also, mental models embody how individuals see the world, how individuals know and think about the world, and how individuals act in the world. Hence, the decisional roles can be informed more by studying the unique aspects of the individual and not necessarily the role itself. This suggests the importance of cognitive and personality aspects of the individual who serves as CEO.
The decisional role category includes eight roles consisting of (i) entrepreneur by which the CEO initiates change within the organization, (ii) disturbance handler by which the CEO takes charge of the organization when it is threatened, (iii) conflict handler by which the CEO handles conflicts which arise between individuals, group, and with outside world of the organization, (iv) resource allocator by which the CEO decides where the organization is to spend efforts and resources, (v) taskmaster by which the CEO has to provide a strong focus on results or getting the job done, (vi) employer by which the CEO makes sure that the right people are recruited for the right positions, (vii) negotiator by which the CEO is compelled to enter negotiations on behalf of the organization, and (viii) problem solver by which the CEO serves to solve the organizational problems.
Decision making can comprise between 18 % and 85 % of the time of a CEO and between 9 % and 89 % of the reasons for the interpersonal exchanges. It has been estimated in a study that around 21 % of the time is being spent in decision-making roles. Further, the build-up of stress has been studied as a factor affecting the different roles based on the assertion about the fast pace and fragmentation of the work of the CEOs. In the study it has been concluded that the stress do not contribute negatively to the work of the CEO due to the fact that CEOs enjoy a great deal of autonomy in their positions. This autonomy provides flexibility which offsets the negative impact of stress, and is consistent with the findings of different other studies where empowerment has been found to offset the negative impacts of role conflict, and job autonomy contributed to a higher level of job performance.
One of the studies has identified the taskmaster role, with an external, predictable focus, is the ‘concern about the organizational performance and results’. The findings of the study has indicated that the taskmaster is the role most frequently engaged in by the CEOs but has the least impact on the three performance indicators namely business, organizational, and financial which have been studied. In another study it has been seen that the problem solver, conflict handler, and disturbance handler roles seem to conflict when there is emphasis on altering mental models to make better decisions. This suggests that an orientation toward problem solver can be very limiting to a CEO’s ability to make effective decisions.
CEOs with the problem solver role are fundamentally reactive. They wait until a problem is defined, then seek a solution. A problem-solving orientation tends to limit creativity in certain ways. When the CEOs are trying to solve a problem, they focus their efforts on defining the problem, on understanding its extent. By thinking about solving problems, rather than dissolving them, CEOs frequently reinforce the existence of a problem.
Operational roles – The effectiveness of the CEOs is highly dependent on their operational role. They are to have the technical knowledge and are suppose to be technical expert. They are to react quickly to a situation. Their analyzer role is a strong predictor of business performance but is found to be only weakly related to the organizational performance and not related to the financial performance. In a study, an important finding is that the roles, for which the CEOs do not have time for, include ‘reflective, systematic planning’ and self-development and learning.
The operational roles category consists of six roles namely (i) organizer by which the CEO makes sure deadlines are met, (ii) analyzer by which the CEO focuses on efficient management of the internal operating system in the interest of serving existing products / markets, (iii) controller by which the CEO makes sure organizational projects are completed on time, (iv) operator by which the CEO makes sure day-to-day operations are being carried out in a satisfactory manner, (v) technical expert by which the CEO is the expert on the technological processes, products, and the market of the orgaanization, and (vi) consultant by which the CEO provides advice on issues which arise within the organization.
Strategic roles – Whereas the operating role category focuses on the present organizational operations, the strategic roles focus more on the future. Two of the strategic roles which have been identified are coordinator and planner but further definition of the strategic roles began to emerge beginning in the late 1970s and early 1980s.
The strategic roles developed as the operational environment became more complex in the late 1970s and early 1980s. The complexity and pressure exerted on CEOs by the external environment along with the size and complexity of large and / or multi-national organizations seems to have changed the role of the CEO.
In the past, it had been considered that CEOs did not have time for long-term strategic planning. The lack of time for long-range planning was a result of frequent interruptions during the CEO’s day, leading to a lack of undisturbed time in which to plan. This conflicts with the suggestion that strategy is the role of the CEO. Strategy as the role of CEOs had been documented in several studies on the role of CEOs, but with little supporting data. The vision setter role with an external, flexible focus on ‘creating a sense of identity and mission – the definition and articulation organizational basic purpose and future direction’- as included in various studies have focused on CEO’s performance, effectiveness, and financial performance. However, the findings have been mixed. The vision setter role has been associated with business performance and organizational effectiveness, but not with financial performance, and is discovered to be one of the roles on which CEOs work the least. However, the suggestion that strategic planning has no impact on financial performance is counter-intuitive which needs further study to verify or deny this earlier finding.
A focus on strategy as the role of the CEO has been suggested in a study in which description of six components of effective strategic leadership has been suggested. These components include (i) crafting a purpose or vision for the organization, (ii) exploiting and maintaining core competencies, (iii) developing human capital, (iv) sustaining an effective organizational culture, (v) emphasizing ethical practices, and (vi) establishing balanced organizational controls.
The strategic role category is composed of the seven roles namely (i) coordinator by which the CEO makes sure all efforts are coordinated toward the goals and strategic plan of the organization, (ii) innovator by which the CEO guides the organization into new cycles of innovation in its product markets, (iii) planner by which the CEO does both short-term and long-term planning for the organization, (iv) vision setter by which the CEO creates the sense of identity and mission for the organization, (v) strategist by which the CEO crafts the strategy for the organization, (vi) transformer by which the CEO transforms the organization when there is a change in the markets and the external environment, and (vii) creator and maintainer of culture by which the CEO establishes the organizational culture and ensures that it is consistent with its strategic focus and plan.
Diplomacy roles – The diplomacy roles are a result of the responsibility to multiple stake-holders, further delineated as a global citizenship role. Although two of the diplomacy roles were conceived by Mintzberg in 1973 as informational roles, the descriptions of these roles align more closely with the link or statesman role.
The diplomacy roles emerged from studying the impacts of the external environment and the shift in the role of CEO to one of global citizenship. External complexities have led to changes in the way CEOs are required to interact with the matters which have global implications. Globalization of the operations, increased complexity, expansion of the corporate stakeholder group, and the economies of the organization exceeding those of small countries have resulted in the need for the CEO to be a diplomat or statesperson, linking the outside world to the world inside the organization.
The diplomacy role category includes three roles, two of which have been originally identified by Mintzberg. These three roles are (i) link / statesperson by which the CEO links the external world to the world inside the organization, (ii) figure-head by which the CEO represents the organization in all formal matters, and (iii) liaison by which the CEO interacts with peers and others outside the organization to gain favours and information.
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