Four Roles and Responsibilities of the CEO within Corporate Governance
The CEO’s responsibility to manage the company is distinct but complementary to the board’s oversight responsibility. The CEO is the senior most management team leader. As such, he or she is accountable to the board for corporate performance.
1. The CEO and the executive team must define and communicate the strategy. An enterprise or business unit strategy describes how value will be created for shareholders. A strategy should outline the financial targets and outcomes. It should also describe how the financial objectives will be achieved, i.e., the non-financial drivers of value. Since value is derived from customers, processes and intangible assets such as human and information capital, a multi-business company may have multiple strategies.
2. Once these strategies are defined, the CEO and executive team must effectively communicate them. The first audience is the board and the shareholders who ultimately approve and fund the strategy. Shareholders and directors need to understand the targeted financial outcomes and the non-financial drivers and assumptions that underpin the strategy. The workforce also requires high strategic awareness since their day-to-day activities influence the enterprise. A study found that only about 5% of the workforce understands the strategy and how their actions link to that strategy3.
3. The CEO must fund the strategy. The common tool to allocate funding is the annual budget and long-term capital plan. The budget is a powerful tool for expressing the priorities of the enterprise in quantitative terms. The problem is that 60% of organizations don’t link budgets and capital expenditures to strategy in part due to a lack of modern tools and information to support this4.
4. Because the workforce is the dominant asset for creating value, talent alignment is ultimately a CEO responsibility. The workforce must align directly with CEO priorities. Through the performance management process, the CEO ensures executive talent is aligned to the strategy, accountable and rewarded for executing these priorities. The Human Resource organization ensures the overall workforce is focused on these priorities and motivated to execute them. However, only 50% of organizations link human capital to strategy and only 25% have a consistent way to measure human capital5.