I'm asked that question a lot. A lot of it stems from a fundamental misunderstanding of a CEO's
role. What it is that a CEO does first of all understand that CEO is a job title and
it basically is the top person on the totem pole. A CEO may report to a board of directors or
depending if it's a small company, they may not have one. But at the end of the day the
only authority that the board has (they don't have any direct operational authority) the only
authority that the board has is generally speaking to replace the CEO. And for all practical purposes,
that's all they can do. It's the CEO who really is the final arbiter of all things so
let's discuss a little bit about what it is the CEO actually does a lot of people confuse what
a CEO can do with what a CEO actually does and with what a CEO needs to do to be - in order to
be a CEO so for example a CEO is responsible for everything at the end of the day everything that
happens in the company is the CEOs responsibility that's one of the reasons that a lot of CEOs say
oh the company did incredibly well you should pay me trillions and trillions of dollars because they
want to take credit when everything goes well interestingly enough those same CEOs rarely use
that logic when things go wrong then they say ah we had some bad apples somewhere else wasn't me
and they still take the trillions of dollars but the extensible justification for those trillions
of dollars is that it's the CEO who is responsible for everything the buck stops there when there are
hard decisions to be made or easy decisions to be made they are the final arbiter and
final authority over those decisions they have the higher firepower they're essentially the
absolute dictator of the organization and that's just simply how we work organizations so a CEO is
responsible for everything now how does the CEO actually spend their time that's the interesting
thing because they're responsible for everything they have hire and fire authority and essentially
complete control over everything that happens they can spend their time however they want in
small companies there are CEOs who spend their time emptying the garbage and talking to people
in large companies there are CEOs who spend their time managing by walking around when I heard that
I always thought I could walk around also maybe I can be a CEO someday because walking around isn't
really that hard and if it is hard you can get a motorized wheelchair but some other CEOs managed
by the financial statements so what they do is they pour over financial statements all day and
they make decisions based upon these numbers so in the course of a day-to-day observation
of those two CEOs if you were to watch them you would see them doing something entirely
different one would be walking around talking to people the other would be sitting in a desk poring
over numbers but yet both of them are CEOs and depending upon the company both of them can be
highly effective so the way that a CEO actually spends their time and spends their day is it is
not necessarily an indication of what a CEO in general does we know they're responsible for
everything which doesn't really narrow very much down we know they can actually do anything which
again doesn't narrow it down so what distinguishes a CEO uniquely from everyone else and for that we
need to ask what are the things that a CEO does that can only be done by the CEO and if the CEO
is not doing them they're not going to get done or they're going to get done just by random
happenstance and there's four of these things that I concentrate on even first and foremost
is a CEO sets the strategy of the company because they have yes no authority over all decisions they
decide the strategy that the company is going to use to succeed in the marketplace now if you
don't know what strategy is I could do another video on that at some other point but strategy
is essentially saying how is the company going to be perceived in the marketplace how is it
going to respond to its competitors and how is it going to deploy its resources I was going to
spend money the kinds of people that it's gonna hire what he's gonna have those people do such
that the company can accomplish its goals in the marketplace a strategy is a a vague and mysterious
thing I don't know that it was really thought about much prior to of I believe about the 1960s
1970s but it turns out to be fairly essential for example one of the things that happens in
strategy is acquisitions of acquisition through new lines of business or expanding into a new line
of business that would be a strategic decision so let's say that that you had a bookstore and
the bookstore decided that gee we want to get into the business of selling groceries and so they went
and acquired a grocery chain that's a strategic decision and at the end of the day it's the CEO
who decides yup the most sensible strategy for us to proceed and to succeed in the marketplace is
for us to diversify from books into groceries now there may be very valid reasons for doing
this and you're probably already thinking hmm he's describing the amazon.com acquisition of
Whole Foods yes I am however in other four other bookstores maybe for your neighborhood bookstore
that's owned by a mom-and-pop trying to expand into being a grocery might not be a good idea but
it's the CEO who makes the call for an alternative growth strategy the CEO could decide you know what
we're gonna put all our efforts towards really getting people to buy more books and instead of
this grocery store strategy we're gonna go out and find people who don't have books but who
are celebrities or who are sports figures or who are people who we believe that with their name
behind it could sell more books and our strategy will be not to expand into a different line of
business and different product but instead to expand into more of the same product but give
ourselves a wider product base and then do a lot of marketing to hopefully get people to buy more
books those are both strategies you know they may be appropriate for different companies one
may work one may not regardless its the CEO who finally signs off on it the CEO might hire a
consulting firm like a McKinsey and company is a management consulting firm Bain BCG if you've
heard these names these are the management consulting firms these are some of the really
big ones and what they may do is they may come in and on the CEOs behalf they'll analyze the
marketplace they'll analyze the capabilities of the company and they will decide you know what
given the marketplace given who the competitors are given the regulatory environment given the
capabilities you have as a company we think these are the ways that you should succeed in
the marketplace and that you should grow and the new products you should put out some one and so
forth however even though the consulting company might be the one doing the bulk of that research
the CEO says yes or no it is the CEO who controls the company's strategy the second thing that only
a CEO can do is lead the top team we organize our companies hierarchically there are a few
companies for example the gora corporation that makes cortex that are not organized in this kind
of hierarchy but those are rare enough that I'm gonna stick with our standard corporate
structure and in the standard corporate structure you have a hierarchy and the CEO is the person at
the very top what that means is the people one level down generally business division units or
or vice president's or directors depending on the size of the company whoever it is that's the CEO
they are the person who leads the team of those people right beneath it now what it means to lead
a team in an organizational sense is it means coordinating it means making sure that what is
going on in with one of your team members meshes with the efforts that are going on with another
team member such that at the end of the day the two work together and whatever the company's work
product is gets turned out on time on budget for the right price in the case of the senior
team this might mean making sure that the product development organization is working in line with
the marketing organization which is working in line with the company's finance department to
make sure that the money is correct and we can afford to do the things that we're doing and so
on and so forth if there is nobody running that senior level team then unless you just happen
to get a group of people who are spontaneously amazing and working together in a collective
which I can count on zero hands the number of times I've encountered a group of people who are
really really great at operating without somebody fulfilling a coordinating role whether or not they
have hire that fire authorities a separate issue but there is an actual coordination function and
the CEO is the only one who can do that because the nature again of organizations at least of
hierarchical organizations is that it's only someone higher in the hierarchy who can a group
a particular group of people and in this case that means the CEO manages the senior team whether they
want to or not whether they step up and do their job or not that is a fundamental part of the CEOs
job and if the CEO doesn't do it it probably is not going to get done the third thing is being a
role model for acceptable behavior and corporate values and culture and this one this one can't
really be delegated the problem or the phenomenon is that human beings are hierarchical creatures
we look to the people upper upper we look to the people higher than us on the hierarchy for cues
about how to behave if they behave in a certain way we feel free to behave in the same way if
they don't behave in a particular way and we do behave that way and they come down and say no no
no not acceptable then we stop behaving that way and this seems to be I've never read science on
it I'm making the following statement up but this seems to be hardwired into humans as far as I can
tell it seems like as soon as somebody is labeled as being in a position of power or authority if
they have a lot of money if they're dressed in the right uniform people automatically look to
them for cues about how to behave in times of crisis and also how to behave in times not of
crisis because the CEO is at the top of the company at the end of the day they simply are
the model that everyone at the company looks to for direction if the CEO makes it a practice to
to show up and kick people out of the parking spot that's closest to the door and make sure that they
have a private lunchroom and that the only people who get to see them are the people at the very
top of the company and then they talk about how they want to have an egalitarian workforce where
everybody can walk up and talk to everyone else but they don't behave that way didn't neither
does anyone else because everyone looks to the CEO and says that person is not living up to what they
say why should I in fact you can see this not just in companies and in organizations that are
business organizations you can see this in the political arena one of the questions that a lot
of people that a lot of people don't what people ask what difference does it make for example who
the leader of a country is and the answer is if you take a look at it the leader sets the
tone now that's a fluffy nebulous statement but that doesn't change the fact that it seems to be
true when the leader behaves in certain ways that legitimates those behavior patterns for everyone
else which means if you're CEO and you waste money on frivolous things other people will feel like
they too can waste money on frivolous things if you berate people in meetings and insult them and
and trash their ideas other people will feel like that's acceptable behavior if on the other hand
you make it a point to hear everyone out people will take the message that that's an important
behavior there are some CEOs for example who say if you want to bring a proposal for a new project
or a new product or a new business line into the into the company you have to present a pitch and
you pitch it to the CEO and the CEO has to become convinced when the CEO listens to a proposal and
then says look you didn't do the right financial analysis you didn't check out the markets and
gives a whole list of criteria that should be in that presentation people take that criteria
they spread it throughout the company and it can become part of the culture so that's one of the
key pieces that a CEO does whether they want to or not their behavior becomes modeled by everyone
else at the corporation now when I say everyone else of course not every single person but it
becomes a standard by which people which people use to judge what is there isn't acceptable and
if the CEO behaves in ways that they forbid other people to behave then other people may
compliantly behave the way the CEO behaves however they're gonna go yeah right this is a hypocritical
statement and requests on the part of the CEO and it's gonna foster cynicism at best and really bad
morale and possible actual undermining of the company's goals at worst so like it or not the
way a CEO behaves makes a powerful values and cultural statement to a company and then lastly
is resource allocation resource allocation is really that the CEO ultimately approves
how money gets spent in a company this is related to strategy the CEO says okay you want a bill you
want to acquire a chain of grocery stores mr. CFO or chief marketing officer whoever I'm willing to
sign the check to make that happen at the end of the day even though a company does have a chief
financial officer it is the chief executive officer the CEO who approves where money does
and doesn't get spent and they approve everything that the CFO proposes in fact if the CFO says hey
we should take out a loan ultimately even though it may be the financial functions the financial
departments function in terms of figuring out the financial strategy the CEO makes the yes or
no decision and when it comes to spending money that can have huge gigantic consequences if the
CEO decides they're gonna allocate a 50 million dollar a year budget to sweeping the floors in
their chain of restaurants they get to make that decision and that will have a different
impact than if they say you know what we're gonna spend at most $2,000 on our entire chain of 450
restaurants to sweep the floors the way that the CEO decides about money impacts which things can
and can't get funded within the company which then determines what the experience of the company's
product and service and future plans are like so I hope this has been helpful once again the CEO
can do they're responsible for everything they can do anything they want to in terms of how
they spend their time but at least four of the elements that that are unique to the CEO that
the CEO really cannot delegate because at the end of the day they are responsible for these
things and no one else is is number one setting the strategy deciding how the company is going
to compete the marketplace and broadly speaking what course of action is it going to take to be
able to win at the game of business to managing the senior team it might be like herding cats but
in that case the CEO has to be a cat herder and they have to do that because they're the only one
in the organizational position to be able to do that number three is modeling the culture and the
values and again this is less an organizational phenomenon and much more about how people look to
their leaders for signals about what is acceptable behavior and about how to respond in times of
uncertainty and then finally resource allocation the CEO Altima signs off on the big checks and
they have to approve the budget and decide where money is going to be spent and if they decide
wrong those impacts will be felt throughout the organization regardless of what other people in
the organization think and regardless of whether or not those are wise financial decisions to make
so I hope this does a good job of summarizing and articulating exactly what it is to be a CEO
you