Why do companies need people in charge of the entire company? I get that certain parts of the company (i.e. production, shipping, marketing, etc) need a leader / someone who keeps an overview. But why do they need someone at the top of the company, who’s just there to.. be someone to represent the company? In most cases I’ve heard of, the CEO is in charge of pretty much everything, but barely knows anything about every individual thing the company does. So why not have no CEO, and instead just leaders of individual groups? Why does someone have to be on top of everyone?
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Think of them like a military ship’s captain. Each personnel section of the ship (steering, supplies, weaponry, communications, etc.) has its own leader, in charge of controlling and making sure their areas work well. However, the ship also has a captain who’s job involves getting all of the subsections to work together, charting overall courses for the ship, and communicating with other ships or the captain’s bosses.
The CEO is similar. They make sure all of the different parts of the company mesh well together, they decide upon and chart business plans and goals, and they communicate with shareholders, other companies, and the government.
Every division in a company will need a single top decision maker.
For example, the Chief Operating Officer (COO) will be the decision maker for things that are relevant to operations (like the need to open a new production facility). The Chief Financial Officer (CFO) will make decisions (or more likely advise other divisions) based on finances, such as where a new production facility will be most profitable. A Chief Strategy Officer (CSO) will advise where to open a facility based on risk factors.
A CEO will take in all this information from the different C-levels and be the ultimate authority to make a decision. The COO may want to open the facility locally to make higher quality products, the CFO may want to open it in China to save money, and the CSO may want to open it in Mexico because of risks with operating in China. The CEO will use all this information to make a decision on where to actually open the facility.
Chief executives in any setting (political, business, military, etc.) are responsible for selecting overall goals and being “the final word” on any decision. Individual departments could potentially operate independently for a bit, but there would be no coordination as circumstances evolved.
Consider a company that sells potato chips. Sales have been declining, and the company is running out of money. Something must be done. The head of manufacturing says they should use cheaper potatoes. The head of sales says they should lower the price. The head of finance says they should *raise* the price. The head of R&D says they should develop a new flavor. The head of marketing says they should redesign the bag. Not all of these things can be done at once. At the very least, the heads of all the departments have to meet and come to a decision. Many companies go a step further and designate a chief executive who would run that meeting and make the ultimate decision about what to do.
Big companies are usually owned by thousands, if not hundreds of thousands, of shareholders. The Board of Directors of a company are there to represent the interests of those shareholders (owners). The CEO is the employee of the company who reports directly to the Board of Directors, and therefore the owners of the company.
Ultimately, they are responsible for the highest-level stategic decisions a company makes. For example, are you going to abandon phsical copies of your products and go 100% digitial? Are you going to develop a 5-year plan to expand into another country? Are you going to switch to a fully remote company or adopt a hyrbird working model? All of these decisions are ‘above’ the level of department managers, CTOs, CFOs, etc and invovle the direction of the whole company. The CEO will take input from other people but ultimately, they take the big, strategic decisions.
Several answers here about how the CEO is supposed to tie all the different departments together, etc. None of the things said are wrong, but here is a slightly different way I see it:
The job of everyone in the company is to be good at their specific areas of responsibilities and to fulfill their tasks. So by definition, the various department staff and department heads take care of things inside the company. Everyone is looking *inwards*.
The CEO’s job is to look *outwards*. He is supposed to spend most of his time looking at the wider world, to see far, to understand the external situation, and to steer the company based on what he sees.
Certain departments will interface with the external world, of course. E.g. Sales, Marketing, PR and the like. But note, they only deal with the external world within the narrow confines of their department silos. For example, the sales people will only care about sales activities of competitors. They will not spend time analyzing factors like geopolitical events, public sentiment, etc. Sales people only care about sales. Same for marketing folks. They only deal with marketing related matters, both internal and external.
But the CEO has to be the one who keeps his head clear of specifics, and he has to take in the overall landscape. He’s the one who has to keep an eye on country level inflation and its effects on interest rates and how that weighs on the company’s balance sheet. He has to monitor the bond markets, and understand how that will impact the banking sector, and thus affect the company’s access to loans and credit lines.
So to summarize, the various department heads deal with their individual *narrow* responsibilities and they generally face *inwards*. The CEO has to take in a *broad* view and he primarily faces *outwards*.
Hope that contributes something to this discussion.
The CEO’s job is to see and communicate the big picture… to make sure the production, shipping, marketing, etc. are on the same page; set the course/strategy for the company (that will determine what they produce, how they ship/sell it, what market niche/marketing message they should focus on); communicate the company’s vision to employees, investors.
Let’s say you’re a car company. Sure, there are people who specialize in running design, there are people who specialize in production, there are people who specialize in sourcing parts, there are people who specialize in marketing. But who decides whether the company gets out of the sedan business to focus on SUVs? Who decides whether company has path forward focusing on hybrids vs. jumping into EV strategy? Who decides what market demographic to go after, whether it’s the same customer base as before or they want to pivot given shifts in auto market? And who communicates all that to Wall St.?
Example:
your company has no CEO, and chef of department A and chef of department B.
chef A thinks company should make more hotdogs (and they are made in dep. A)
chef B thinks they need less hotdogs, and more noodles
they will never settle this, until someone who is above them said final word
The individual groups have conflicts sometimes that need to be resolved.
For example sales might be bringing in lots of new customers, but operations have noticed that some of their customers are unprofitable. So someone needs to decide whether operations should make efficiency improvements to handle the unprofitable customers for less money, or sales should change their strategy to focus on acquiring better customers.
Great comments here. Adding my two cents.
The CEO is responsible for long term direction. Most of the organization is concerned about making the current year work. Someone has to take care of the long term. Decisions involving the overall fate of the company, potential entrepreneurial directions (e.g. acquisitions, bold new directions), and envisioning what the company can become –and leading the organization towards this vision– all fall under the CEO’s domain.
This is why, of all the positions, the choice of CEO has the largest impact on share price. An organization is designed to behave like machinery–everyone should be a replaceable part. Finance guy resigns? Just find someone who has the same “specs” and plug that person in. Not so with the CEO, because the CEO’s own personality, values, leadership and vision can be very singular.
You’ve hinted at it in your question. If each department has a head, do you really think they can efficiently come to conclusions on key decisions amongst themselves? For most large organisations, the top level of leaders is a den of snakes, everyone out for themselves, horse trading, bullying, back stabbing and all think they know what’s best for the organisation, yet they can’t all be right. You HAVE to have a single arbitrator over that group, imho. Human nature will always out, having one chief really simplifies things so they can focus on leading their departments
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