What do CEOs do? A CEO Job Description

What do CEOs do? A CEO Job Description

Chief Executive Officer

The Chief Executive Officer is one of the most coveted titles, and least understood jobs in a company. Everyone believes that CEOs can do whatever they want, are all powerful, and are magically competent. Nothing could be further from the truth. By its very nature, the job description of a CEO means meeting the needs of employees, customers, investors, communities, and the law. Some of a CEO’s job can be delegated. But several elements of the job must be done by the CEO. Read on for the details of what makes a CEO.

What is intrinsic to the CEO’s job?

This isn’t a traditional job description; it’s an examination of the actual roles that a CEO plays (legally or de facto) within a company. A CEO’s job description includes a few important areas. Any individual CEO may take on any tasks that they wish, but these are the things that can’t be delegated:

  1. Setting strategy and direction
  2. Modeling and setting the company’s culture, values, and behavior
  3. Building and leading the senior executive team
  4. Allocating capital to the company’s priorities

While a CEO may get input for some of those duties, it is the CEO’s—and only the CEO’s—responsibility to perform those well. Being the CEO, they can spend the rest of their time doing whatever they decide they want to spend their time on. But ultimately, everything else about a given CEO’s job is optional.

Success as a CEO requires more than just knowing the CEO’s job description. A CEO needs to know how to measure their success as a CEO, avoid the pitfalls that are unique to the CEO’s job, and conduct themselves to stay sane and skillful over time.

A CEO Job Description, Part 1

Admit it. We all feel a touch of awe when someone has it: the CEO title. The power, the salary, and the chance to Be The Boss. It’s worthy of awe!

Too bad so few CEOs are good at what they do. In fact, only 1 in 20 are in the top 5%[1]. Many don’t know what their job should be, and few of those can pull it off well. The job is simple—very simple. But it’s not easy at all. What is a CEO’s job?

More than with any other job, the responsibilities of a CEO diverge from the duties and the measurement.

A CEO’s responsibilities: everything, especially in a startup. The CEO is responsible for the success or failure of the company. Operations, marketing, strategy, financing, creation of company culture, human resources, hiring, firing, compliance with safety regulations, sales, PR, etc.—it all falls on the CEO’s shoulders. Being responsible means that the CEO is the one held accountable for the success of the company’s efforts, across the board. But of course, the CEO doesn’t actually do all that work.

The CEO’s duties are what she actually does, the responsibilities she doesn’t delegate. Some things can’t be delegated. Creating culture, modeling values, building the senior management team, financing road shows, ultimate approval of how money gets spent, and, indeed, the delegation itself can be done only by the CEO.

Many start-up CEOs think fund-raising is their most important duty. I disagree. Fund-raising is necessary, but the CEOs contribution is in building a superb business with the money raised.

Setting strategy and direction

What is the CEO’s main duty? Setting strategy and vision.The senior management team can help develop strategy. Investors can approve a business plan. The Board can approve, advise, or ask the CEO to revise a business strategy. But at the end of the day, it’s the CEO who ultimately sets the direction:

  • Which markets will the company enter? Against which competitors?
  • What will the company’s product lines be?
  • How will the company differentiate itself? Will it be low cost? High service? Convenient Locations? Flexible financing? High-touch? Mass produced?

The CEO decides, sets budgets, forms partnerships, sells off incompatible product lines, makes acquisitions, and hires a team to steer the company accordingly.

Modeling and setting the company’s culture, values, and behavior

The CEO’s second duty is building culture. Work gets done through people, and people are profoundly affected by culture. A lousy place to work can drive away high performers. After all, they have their pick of places to work. And a great place to work can attract and retain the very best.

Culture is built in dozens of ways, and the CEO sets the tone. Her every action—or inaction—sends cultural messages (see “Life Under a Magnifying Glass”). Clothes send signals about how formal the workplace is. Who she talks to signals who is and isn’t important. How she treats mistakes (feedback or failure?) sends signals about risk-taking. Who she fires, what she puts up with, and what she rewards shape the culture powerfully.

This can not be emphasized enough! People imitate a CEO’s behavior when deciding how to act. The book Pre-suasion by Robert Cialdini, documents at length the ways in which, for example, a dishonest CEO makes employees feel as if they can cut corners, steal from the company, and generally behave according to those same standards.

A project team worked weekends launching a multimedia web site on a tight deadline. Their CEO was on holiday when the site launched. She didn’t call to congratulate the team. To her, it was a matter of keeping her personal life sacred. To the team, it was a message that her personal life was more important than the weekends and evenings they had put in to meet the deadline. Next time, they may not work quite so hard. The emotion and effect on the culture was real, even if it wasn’t what the CEO intended. Congratulations from the CEO on a job well done can motivate a team like nothing else. Silence can demotivate just as quickly.

If vision is where the company is going, values tell how the company gets there.Values outline acceptable behavior. The CEO conveys values through actions and reactions to others. Slipping a ship schedule to meet quality levels sends a message of valuing quality. Not over-celebrating a team’s heroic recovery when they could have avoided a problem altogether sends a message about prevention versus damage control. People take their cues about interpersonal values—trust, honesty, openness—from CEO’s actions as well.

Building and leading the senior executive team

Team-building is the CEO’s #3 duty. The CEO hires, fires, and leads the senior management team. They, in turn, hire, fire, and lead the rest of the organization.

The CEO must be able to hire and fire non-performers. She must resolve differences between senior team members, and keep them working together in a common direction. She sets direction by communicating the strategy and vision of where the company is going. Strategy sets the direction for the senior team, who in turn set it for the rest of the company. With clear direction that everyone understands, the team can rally together and make it happen.

Don’t underestimate the power of setting direction. In 1991, at Intuit’s new employee orientation, CEO Scott Cook presented his vision of Intuit as the center of computerized personal finance. Intuit had just 120 employees and one product. Ten years later, it’s a billion-dollar company with thousands of employees and dozens of products. Worldwide, it is the winner in personal finance, bar none. The success is due in no small part to every Intuit employee knowing and sharing the company’s vision and strategy.

Allocating capital to the company’s priorities

Capital allocation is the CEO’s #4 duty. The CEO sets budgets within the firm. She funds projects which support the strategy, and ramps down projects which lose money or don’t support the strategy. She considers carefully the company’s major expenditures, and manages the firm’s capital. If the company can’t use each dollar raised from investors to produce at least $1 of shareholder value, she decides when to return money to the investors. Some CEOs don’t consider themselves financial people, but at the end of the day, it is their decisions that determine the company’s financial fate.

Footnotes for Part 1

[1] Pay no attention to the math background peeking from behind the curtain… back

Measuring Success as a CEO.

Knowing the job description is a good first step for a CEO, but to know how she’s doing, she needs to design her own measurement system.

Unlike inconvenient lower-level jobs, no one tells the Chief Executive how she’s doing. Do managers let her know she’s undermining their authority, making poor decisions, or communicating poorly? Not likely. Even when a CEO asks for honest feedback, the fear is there: non-flattering feedback may stall a promising career[1]. Even when a company uses 360-degree feedback, no one penalizes the CEO if she doesn’t act on the feedback.

The Board of Directors supposedly oversees the CEO, but they are far removed from day-to-day actions. Over time, they can evaluate performance, but they look mainly at share price and company strategy. They are rarely interested in—(or qualified to comment on!)—the CEO’s daily behavior.

But the CEO’s daily behavior will make or break the company! The CEO’s duties don’t change because they are unmeasured. Indeed, lax measurement makes it easy for the CEO to feel confident, even when she shouldn’t. Good feedback is the only way to know what’s working, but share price simply doesn’t do it. External measures measure the company, not the link between the CEO’s actions. A low share price tells her something’s wrong, but it doesn’t help her figure out what.

By measuring her performance based on her duties, a CEO can learn to do her job better. As explained in part 1, the CEO’s job is setting strategy and vision, building culture, leading the senior team, and allocating capital. The last of these is easy to measure. The first three are more of a challenge.

How does a CEO know she’s doing the vision thing? It’s hard. Having vision isn’t enough—that just takes a handful of mushrooms and a vision quest. Communicating the vision is the key. When people “get it,” they know how their daily job supports the vision. If they can’t link their job to the vision, that tells a CEO that her communication is faulty, or she hasn’t helped her managers turn the vision into actual tasks. Either way, a CEO can monitor her success as a visionary by questioning and listening for employees to link their jobs with the company vision.

Culture building is subtle, the culture a CEO sees may be very different from the culture of the rank-and-file. One company had a facilities policy that all equipment within 450 feet of the senior management offices was kept in top working order. Senior managers saw a smoothly running company, while everyone else saw neglect and carelessness.

Surveys about openness, values, and morale can be used to develop a measure of culture. The questions to ask aren’t rocket science. The book First, Break all the Rules gives a great questionnaire for measuring overall culture. Also, check turnover. When 95% of your workforce says they can’t wait to get to work, something is going right. If people rarely leave, and if it’s easy to attract top talent at below-market prices, you can be sure the culture plays a large role. If people leave (especially your top performers), again—look to culture. And don’t underestimate the power of walking around and counting smiles. If people are having fun, it will show.

The CEO’s success at team-building can often be measured through the team. Teams usually know when they’re effective. They can also rate their team using assessments that measure specific behaviors. For example, “I can trust my teammates.” “My teammates deliver their part of the project on time.” “Every member knows what is expected of them.” Regular team self-assessments can help the CEO track the team’s progress and hone her abilities to keep the team running smoothly[2].

Easiest to measure is a CEO’s capital allocation skill. In fact, financial measures are the ones made public: earnings and share price. But how can a CEO link those to her actual decisions? Working with her CFO, a CEO can devise financial measures appropriate to her business. Sometimes traditional measures are most appropriate, such as economic value added or return on assets (for a capital-intensive company). Other times, the CEO may want to invent business-specific measures, such as return on training dollars, for a company which values state-of-the-art training for employees. By monitoring several such measures, a CEO learns to link her budget decisions with company outcomes. Ultimately, the CEO’s should be creating more than a dollar of value for every dollar invested in the company. Otherwise, her best bet is to return cash to the shareholders for them to invest in more productive vehicles.

In startups, earnings begin low to nonexistent, and share price is more about salesmanship and vision than earnings. So the CEO gets almost no useful feedback about her capital allocation wisdom. She doesn’t know whether a dollar spent on a slightly nicer-than-necessary copy machine is wasted or is a wise investment in a long-term. Careful attention to the design and tracking of financial measures can help her prepare for the transition to an earnings-driven company.

In his 1988 Annual Report, Berkshire Hathaway chairman Warren Buffett included an excellent essay on CEO accountability. Click here to read Mr. Buffett’s observations on CEO measurement.

Footnotes for Part 2

[1] The CEOs don’t help the problem. Many of my CEO clients highlight the value of honest feedback from their coach. Yet they complain about employees who disagree with them, just don’t “get it” or don’t have enough information “to understand the real issues.” In a coaching call, they can hear feedback and consider it. At work, they treat disagreement as dissension, and then wonder why everyone’s a “Yes man.” back

[2] There are dozens of team effectiveness surveys. You can start by checking out http://www.cambriaconsulting.com, http://www.ccl.org, and http://www.pfeiffer.com. back

Pitfalls and Solutions for the CEO

A CEO can tank a company by not understanding their duties, or failing to set up good measurement systems. But it’s also true that the job itself can screw up the person, as well. It’s said that power corrupts, and few positions are more powerful than CEO. While the USA may be a democracy, our companies are legal dictatorships with the CEO calling the shots(1). While she may be having a great time playing Boss, the position may be taking a very human toll.

It’s all too easy for the CEO to become a …; jerk(2)  …; without realizing it. They can forget—if they ever knew—what it was like to have a boss. They are free to ignore feedback that they don’t want to hear, and no one will call them to task for it. They can bypass the chain of command when they want to meddle. They can give themselves raises and genuinely believe they deserve it. And most dreadfully, they can forget what it is like to be “one of the little people”:

workerI have to leave early today.
CEOWhy?
workerTo pick up my kids from daycare.
CEO Oh… (looks genuinely perplexed) Why don’t you have your nanny do that?
workerI don’t have a nanny.
CEOOh…; wanders away with a mildly confused expression

The worker was an incredibly productive person. She worked harder than the CEO, got more done, yet couldn’t have afforded a nanny if her life depended on it. The CEO didn’t intend to be a jerk, but his lack of empathy didn’t win many supporters.

A CEO can become arrogant by externalizing blame

Having no day-to-day accountability for her actions can also turn a CEO sour. When things go wrong, she can blame everyone around her without facing her own shortcomings. “My employees just don’t get it,” proclaims the CEO, never thinking for a moment that she is the one who hired them. Did she hire incompetents? Or has she failed to communicate goals consistently and clearly? “Market conditions have changed.” she declares. A nice excuse, but isn’t it the CEO’s job to anticipate the market and position the company for success under a variety of scenarios? Without someone to keep her honest, she can gradually absolve herself of all responsibility.

Believing in a title can lead to overconfidence

Arrogance also threatens a CEO. “Because I am CEO, I must know the business better than anyone else.” It has been said, but it just isn’t true. No CEO can be an expert in all functional areas. A CEO who is doing her job is spending time with the big picture. If she knows the details better than her employees, she’s either hiring the wrong people or spending her time at the wrong levels of the organization. It’s appropriate for a CEO to manage operations if absolutely necessary, but she should quickly hire good operational managers and return to leading the whole business.

If she also comes to believe that the CEO title grants infallibility, watch out. Even the Pope is only infallible a couple of times each century. But CEOs can reinforce their delusions of grandeur by giving themselves higher salaries (surely she deserves it! After all, salary benchmarks show how underpaid she is) and more perks. Then when layoffs come, the CEO wants applause for having the moral strength to make “hard choices,” quietly overlooking how her own poor decision making led to the need for layoffs.

CEOs can stop learning well

Of course, once infallible, there’s no more to learn, and a CEO may quietly stop learning. Without daily oversight and high quality feedback on how she does her job, she can mistakenly believe her actions lead to success. In reality, she may be doing the wrong thing, but her staff may be working around the clock to cover for her.

Furthermore, sins of omission aren’t penalized. A CEO who does an adequate job, but far less than she could/should have done—goes unnoticed. In hindsight, XYZ Software(3) could have had a $1 billion market niche, and gone public with a valuation of tens of billions. Instead, it stuck to one product, had little understanding of its markets, and ignored competition. Yet it still went public in a $300-million IPO. Was management penalized for a lack of vision and market responsiveness? Hardly! The top managers walked off with $60 million apiece, reinforcing the notion that they had done a great job. Yet with a slightly grander vision, the company might have been 10 or 100 times its size.

Setting vision is the CEO’s job, but nothing tells her if her sights are too low. She isn’t penalized for missing the grander vision. Such sins of omissions are a CEO’s worst enemy. She can be lulled into mediocrity by not knowing what would have been possible. The four-minute mile was considered impossible…until Roger Bannister ran it. Now, it’s commonplace. Likewise, a CEO may limit herself by not realizing she can do her job better.

Though salary benchmarks are common, performance benchmarks are surprisingly rare. Quality learning demands a CEO benchmark herself against other superb CEO’s. Her central learning question is not “are you doing a good job?” but “are other CEOs doing a better job and if so, how can you learn to measure up?(4)

Footnotes for part 3

(1) Ok, ok. Technically the Board of Directors has hire/fire authority over the CEO, but the Board can’t control day-to-day operations. And while there are certainly boards that replace inept CEOs, it takes sustained incompetence over a long time to move a board to action. So for practical purposes, the buck stops with the CEO. back

(2) Her employees may use less diplomatic terms. back

(3) Names are changed to protect the innocent. back

(4) An excellent book on management best practices is “First, Break All the Rules” available by clicking here to go to the books page. back

Coaching tips to stay sane and skillful at the top of the heap.

These coaching assignments will help an executive avoid some of the pitfalls of the CEO job. They are simple, easy, and won’t take much time. They’ll help a CEO stay connected with workers, keep herself humble, and increase her learning while becoming more successful. The suggestions strive to be quick and easy to do, while still producing real results.

Make Space to Practice These Assignments

Set aside 5 to 10 minutes, daily, to developing as a leader and human being. This will be the time you think about the below topics and set your mind for the day. Schedule the time if necessary. Just make sure that you do what’s right for your growth.

Pace yourself. Life is long. Adopt these suggestions one or two at a time, and practice until you make them your own. Then move on. Forcing won’t help; this is about developing at your own natural rhythm. Do one assignment for a few weeks, then move on to another. Keep the ones that work for you and drop those that don’t.

Staying connected with “the little people”

Cultivate an attitude of respect—your respect for them. The “little people” are the ones turning your vision into reality. Meditate on this for a few minutes and ask yourself whether you can their jobs as well as they can. If you can, then you’re not hiring the right people—go change that! Otherwise, once a day, go talk to one of your low-level employees—someone more capable than you in their area of expertise—and learn from them. Choose a different person each day. Get as close to the front line workers as possible.

Listen with an open mind and learn. Learn about their job. Ask what works for them and what doesn’t. Above all, listen to their comments without judgment. Your goal is to connect with their experience of the world, not impose your own. Learn about their life. Find out what motivates them. Why did they come work for you instead of somewhere else? Simply by spending a few minutes understanding their life, you can greatly increase your appreciation of how they’re different (and similar!).

Share your vision and job with them, from a position of service. Pretend that your job is to make this person a success. Ask them how their job fits into the work the company does. If they don’t know, take on the responsibility of helping them understand how their job links to the vision. Clarify any confusion they may have about where the company is going. And ask them what you can do to help them succeed at doing their best. Then do it.

Staying humble

Acknowledge, often! Without your employees, your dreams and plans wouldn’t amount to much. Take every available opportunity to acknowledge the contribution of those around you and give them credit, especially in public. Feedback is rare in most companies, and positive feedback is rarest of all(1).

“Get” that it’s all your responsibility. When things don’t go the way you want, take responsibility—whether or not it’s your fault. The mindset of responsibility will put you in a much more powerful place than the mindset of blame. Regularly review circumstances asking, “What could I do differently (or stop doing) to make a positive difference?” Identify the action and then take it. You’ll be surprised how much more power you have over externalities, operating from responsibility rather than blame.

Gather honest advisors to hold you accountable for your behavior. Sometimes a Board of Directors will give honest feedback, but they are removed from your day-to-day behavior. Actively solicit feedback from third parties: friends, peers, associates. Share your issues and how you’re handling them, and ask for an honest assessment. Everyone in a company is accountable to someone for their behavior, except the CEO. Make yourself accountable as best you can.

Identify your limits. Ask, “can someone else in the world do my job better than I am currently doing it?” If the answer is Yes, seek out that person and ask for their guidance in getting better. If the answer is No, validate that answer by asking your advisors, competitors, suppliers, customers, and employees. Many companies have crashed and burn because they believe they were the best, for no good reason but pride and ego.

Create measurable performance criteria for your executive team, including yourself. Make sure people within the organization know your goals, and know what you can be counted on to do. Hold yourselves accountable. If you don’t meet your goals, withhold your bonus, take no raise, and treat yourself exactly as you would treat an employee who missed their targets. It sends a powerful message to the company that you’re serious about performance.

Ask your direct reports, your Board of Directors, and anyone else you work with for feedback a couple of times a year. You can use a 360-degree feedback process or simply ask in an e-mail. It’s a lot easier to hear feedback on your performance if you’ve explicitly asked for it.

Videotape yourself receiving bad news. Watch the videotape and decide whether or not you would want to work for that person. If the answer is No, learn to chill when you hear bad news.

Learning well

Study excellent CEOs. Call a CEO you admire and invite them to lunch. Exchange tips and adopt tactics that others have found useful. Read books like First, Break All the Rules, which are broad-based studies of habits of top-performers. Adopt at least one new habit a month.

Create systems for gathering feedback. Interview customers, competitors, analysts, and others in your industry to know how your company and products are perceived. Make sure you’re gathering feedback that will disconfirm your beliefs about the world, as much as confirms it. For example, if you think you’re #1 in your market, don’t just ask customers why they like your products. Ask what other products they use, and how your products fall short.

Spend time learning about the fundamentals of a CEO’s job:

  • Setting strategy. The strategy and vision for the company determine where everyone will focus their efforts. Find a vision and strategy and use it to align your entire company.
  • Creating the corporate culture. Your culture will determine what people do and don’t try, who will stay, who will leave, and how business will get done. Culture starts with you. Decide how you want people to act and start modeling the behavior publicly.
  • Capital allocation. Every dollar you raise and spend should produce more than $1 of return for the company, or it’s a waste of money. Learn how to make these judgements.
  • Hiring and Firing. The job of executives is primarily team and culture building. Hiring and firing are must-have skills. Read, take classes, and review past hiring successes and mistakes. Do whatever you can to hone your abilities.

Raise the Bar

Hold yourself to higher standards next year than you did this year. Challenge yourself to learn to get more done with fewer hours and fewer resources while creating a more balanced life for yourself.

These are just a few of the things you can do to increase your chances for success as a senior executive. I also believe in working with a coach to identify and overcome (or compensate for) blocks in your performance. Success can be had with many different skill sets. The more you learn about yourself and your capabilities, the better you will be able to shape a job that works for you. The more you learn about the capabilities of those around you, the better you will be able to build teams that produce spectacular results.

Do Great Things!

Footnotes for Part 4

(1) Social psychology has shown that rewarding desired behavior is far more effective than punishing bad behavior or non-performance. For reasons that aren’t entirely clear, our culture has evolved around using punishment as the main way of controlling behavior. Unfortunately, punishment doesn’t work very well. Interestingly, animal trainers have known this for years. For an excellent book on the subject, check out Don’t Shoot the Dog by Karen Pryor. back

Further Reading

You may also enjoy the article The Executive Mind-Set and my book on business leadership, It Takes a Lot More than Attitude…to Lead a Stellar Organization.

Back to Stever’s articles index

How you scale an organization

I just returned from Black Rock City, NV, better known as Burning Man. Burning Man is an annual event where 70,000 artists, engineers, performers, and makers descend on the Black Rock Desert in Nevada. In one week, they build and inhabit a city made of interactive art. Then they dismantle it and “leave no trace.” They take every bit of refuse home with them, leaving the desert the way they found it.

You know what’s even more amazing? It’s all done by volunteers. Think about that: 70,000 people, paying to attend the event, cooperatively pitching in to build and run a city. (Yes, it’s the size of a city. I once thought it was just called that. Nope. It’s a city.)

Burning Man started as a party with a dozen people on Baker Beach in 1986. As someone who loves growing organizations, it fascinates me. So many organizations struggle with growth. How did Burning Man scale from a beach party to an actual city?

Scale requires different people.

The people you need to run a small organization are different from the people you need to scale. In a small organization, everyone knows everything that’s happening. People can pitch in as needed. They may still have different jobs, but if the situation warrants, you might ask the accounts receivable person to handle a customer service from someone they know. You need generalists.

As the organization grows, jobs shrink. The original crowd at Burning Man handled all aspects of what was, then, basically a camping trip. Each person would be part of choosing where tents would go and how things would run. Generalists make the small event run. 

With a city-sized event, just laying out the street grid requires dozens of people. Each person will spend every day, all day planting flags at the corners of streets that will later guide the city construction. The best people for the job are those who enjoy focusing on this one task, and doing it superbly.

Scale requires uniform processes.

When you’re small, you can get away with everything being ad hoc. If Ozzie Obstacle (the most annoying of your 12-person party) is pitching their tent in the wrong place, you can yell over, “Hey, Oz! Move your tent ten feet to the right!” 

When tens of thousands of people are pitching their tents, you can’t just do everything by the seat of your pants. If you yell “To the right!” while someone yells “To the left!”, poor Oz’s head will explode. And at Burning Man, that could mean literally.

Getting large requires that people be able to coordinate at a distance. Doing the same things, the same way lets people coordinate when the ad hoc approach no longer works.

Scale requires explicit process.

It’s not enough for processes to be uniform. People have to know them, which means they need to be documented and communicated. Sometimes this is done informally, through mentorships or apprenticeships. But often, it’s done via classes, checklists, and explicit instruction. 

With 70,000 people constructing a city, the behind-the-scenes organizations (the Rangers, the Department of Public Works, camp Placement) not only have uniform processes, but they have extensive training and reference resources to teach those processes. They have classes, certifications of skill levels, Wikis, and gatherings to explore and deepen the shared understanding of what gets done and how.

When your organization is successful, you’ll reinvest for growth. But pay attention carefully to the changes that scale requires. You’ll need to change who you hire, how they do their jobs, and how they get trained. It changes the nature of the work, but if done right, you’ll be laying the foundation for great success.

President Trump, viewed as a CEO, part 4

President Trump CEO, part 4: Allocating Capital

 

This is part 4 in a series on President Trump viewed through the lens of being a CEO. Part of President Trump’s great appeal is that he’s perceived as a successful businessperson. He’s even been talked about as being a President with CEO experience.

My article on the duties, responsibilities, and job description of a CEO, lays out four inherent parts of a CEO’s job. These are the parts of the job that, by definition, make a CEO a CEO. The CEO can delegate some things, but others simply can’t be delegated. Capital allocation is the CEO’s fourth main duty.

Allocating capital is the ultimate expression of strategic priorities.

Trump manages money

So far Trump has shown that he takes money very seriously. His position on many international bodies and on America’s role in the world is that all countries should help foot the bill for international costs. His stance so far has, indeed, prompted some countries to step up and contribute more to the U.N.

Domestically, Trump has instituted a hiring freeze on the Government and is presumably going to look at spending within the government.

Like everything else, this is more complicated than it seems. Government spending is a huge driver of the economy, and the government is the largest employer in the country. A business certainly wants to lay off as many employees as it possible can and still keep functioning. That’s how we boost profits.

A government, however, is walking a trickier line. A business is generally not affected by the employees it lays off, or by any reduction in its own spending. But not so, a government. Stop spending too quickly and lay too many people off and it simply drives up unemployment and slows down the economy.

Will spending cuts be done wisely?

In companies, spending cuts can be done by declaration: “cut 30% costs across the board.” This is an attractive way to do things. It’s easy to understand and easy to calculate. But it’s a bad way.

This kind of cutting assumes that there’s 30% waste across the board, and it assumes that all cuts are equal. All cuts are not equal. If you consider a company like Microsoft, cutting 30% of their administrative expenses might be a reasonable goal. But cutting 30% of their programming staff would boost their quarterly earnings while probably destroying their ability to fix bugs and develop products to stay competitive.

Spending cuts + process improvement = win?

The fundamental way to reduce costs in an ongoing business is through process improvement, finding ways to do existing things better.

While the stereotype of the Government is that it is extremely wasteful, that is an oversimplification. Some Government programs (e.g. Medicare) are extremely efficient, much moreso than their private counterparts. Other Government programs (e.g. famously, the Defense Department) have huge amounts of waste.

What matters isn’t whether or not the Government runs a program. What matters is whether there are incentives and structures in place that encourage people to work smarter, work better, and improve continuously.

What gets measured gets … measured

George W. Bush was a Harvard MBA who famously was going to bring business principles to the Government. It’s not clear he did much of that. No Child Left Behind introduced measurement into the educational system, but did so in a way that many teachers view as hindering education, not helping it. The Total Quality movement of the 1970s and 1980s showed that simply setting numeric goals without adding process improvements to reach those goals isn’t, in practice, particularly effective.

The business practices that might help the government use its money more efficiently are those of aligning incentives, re-engineering processes, tying employee pay and promotions to customer feedback, and so on. If Trump implements this kind of thinking in the government, it could, indeed, signal a major shift in how efficiently we use our money.

Big allocations reveal priorities

The capital allocation I was referring to in the CEO job duties article weren’t just cost efficiency. The most important capital allocation decisions are the ones that decide which strategic initiatives stay, and which go.

Whether Trump’s spending will be thoughtful or abrupt remains to be seen. He has already declared his intent to increase military spending, while freezing other budgets. He has given directions for us to build a wall between the U.S. and Mexico. He has stated we will increase infrastructure spending, while possibly withdrawing from international bodies (such as the U.N.) to which we pay dues.

The President doesn’t control the budget

Though Trump can control how capital is allocated within the Executive branch, it’s Congress that sets the overall budget (or often doesn’t, in the cases where we’ve had a Democratic President and a Republican-controlled legislature). Trump can fund or defund the efforts to implement programs created by Congress, but there are limits to how much control he has over the national budget.

Summary

At this point, it’s too early to tell how Trump will allocate capital. If his skills match his claims as a successful businessman, he may well find ways to steamline the government and put it on a path to being more efficient. His larger capital allocation decisions remain to be seen, however.

 

Return to Part 1 of President Trump CEO

President Trump, viewed as a CEO, part 3

President Trump CEO, part 3: Setting Culture

 

This is part 3 in a series on President Trump viewed through the lens of being a CEO. Part of President Trump’s great appeal is that he’s perceived as a successful businessperson. He’s even been talked about as being a President with CEO experience.

My article on the duties, responsibilities, and job description of a CEO, lays out four inherent parts of a CEO’s job. These are the parts of the job that, by definition, make a CEO a CEO. The CEO can delegate some things, but others simply can’t be delegated. Setting culture is the CEO’s third main duty.

The CEO sets culture by modeling behavior and by the policies they set. The behavior of a CEO has a profound effect throughout an organization. Behavioral scientist Dan Ariely’s (Dis)Honesty Project shows that when a cultural norm of dishonesty sets in, everyone jumps on board.

One of the things that’s well-documented is the consistency with which Trump lies, even over things as verifiable as Inauguration attendance.

Some people speculate that this will bite Trump, and ultimately discredit him. Others think we will simply normalize to the lies. If so, given Ariely’s research, that could pose a real danger for America as a culture to begin to see lying as a perfectly fine way to interact.

While I was writing this post, Trump forbid all government agencies from talking with the press. This level of government secrecy is unprecedented in a democratic government. Culturally, the message being sent is one of a change to a command-and-control style of governance, rather than a culture of government accountability to the people.

A culture of inclusion…?

The bigger cultural fear is around marginalized groups. Immediately after Donald Trump was elected, there was a spike in hate crimes, which then eased off.

During inauguration weekend, millions of women marched, ostensibly to send a message to President Trump about the importance of woman-friendly policies under his administration. Trump did not acknowledge the marchers, and one of his first acts on his first day in office was to withdraw aid from international health organizations that discuss abortion as an option for family planning. He has also already issued executive orders that appear to be setting the stage for gutting the Affordable Care Act.

Furthermore, his cabinet picks, as well, show the least racial and gender diversity in 30 years. As far as sending a message of inclusively, the message he is sending by demonstration and by his actions does suggest a specific culture, and not one of inclusively.

Summary

The command-and-control messages Trump is sending are very worrisome. They constitute not just a cultural shift from Obama, but a cultural shift for America as a country. A major goal of the Constitution was to create a government with checks and balances that could be accountable to the citizens. While the last several Presidents have moved increasingly in the direction of low transparency and accountability, Trump is taking this so far and so hard in the direction of non-democracy that it’s scary.

In terms of the cultural messages he’s sending on the social and immigration front, he is clearly not trying to send a message that all are welcome in America. With his cabinet picks, the executive orders he has chosen to sign in his first couple of days, and so on, he is sending a clear message that he will act in the interests of only specific groups in his policy-making. People who can’t afford healthcare or education, and women, are already getting the message that they can’t look to the government for help.

 


Part 4 of President Trump CEO, continued…

President Trump, viewed as a CEO, part 2

President Trump CEO, part 2: Leading the Top Team

 

This is part 2 in a series on President Trump viewed through the lens of being a CEO. Part of President Trump’s great appeal is that he’s perceived as a successful businessperson. He’s even been talked about as being a President with CEO experience.

My article on the duties, responsibilities, and job description of a CEO, lays out four inherent parts of a CEO’s job. These are the parts of the job that, by definition, make a CEO a CEO. The CEO can delegate some things, but others simply can’t be delegated. Leading the top team is the CEO’s second main duty.

In the case of the President, the top team means the Cabinet. Most CEOs don’t immediately replace the top team of a company without seeking to understand something about who’s best for the job. Not so, the President. The President replaces the Cabinet immediately.

Hiring

Most people talk about elections as if it’s a middle school popularity contest. “My candidate won! Neener, neener, neener.” “My candidate lost, I hate you forever!!!” Let me be tasteful and diplomatic in saying that this is idiotic beyond belief (trust me, you don’t want to hear the non-diplomatic version).

Elections are a job interview. We may not like the slate of candidates we’re given, but they’re the candidates we have, and we have to choose one to fill the job.

I’ve heard it said that Trump was elected on the “pass it down” theory of competence: he doesn’t have to have great solutions, he just has to put the right people in place who have solutions.

Has he done that?

From his Cabinet picks, I don’t believe so. When hiring for a job, you generally look for relevant past experience, or a highly transferable skill set (e.g. general management).

A Cabinet pick oversees a multibillion-dollar organization. Not necessarily a business, an organization. Governmental bottom lines aren’t measured in dollars, but in civic terms.

Several appointees don’t necessarily know the playing field of the post they’ve been appointed to. That means that if they can get up to speed in any meaningful way, they have the same learning curve as someone just entering the field. I’m not sure that hiring candidates with the equivalent experience of a new college grad is the way to go.

In short, viewed solely through the lens of hiring the right person for the right job, it appears to me that Trump is not doing a good job.

Leading the team

Once he’s hired the team, he has to lead them. It’s too early to tell how he’ll do in that regard. Stay tuned.

Summary

Trump has appointed a top team whose qualifications for their specific roles are seriously in doubts. Many of his picks have no background in the areas they’ve been chosen to lead, no established reputations and connections in those areas, and no evidence in their backgrounds that they’ve managed similar efforts.

If I were an investor in a company whose CEO had just made these picks for leaders of the company, I would sell my stock.

UPDATE Jan 27, 2017: The entire senior administrative staff of the State Department just resigned. Good CEOs put proper succession planning in place for themselves, and understand the need for orderly transitions to keep things from spiraling out of control. Most institutional memory resides in the employees, not in the policies and procedures manuals. I’m extremely puzzled as to why Trump would allow something like this to happen, and not work harder to keep his senior team. This is a troublesome development, to say the least.

 


Part 3 of President Trump CEO, continued…

President Trump, viewed as a CEO, part 1

President Trump, viewed as a CEO, part 1

President Trump CEO, part 1: Setting Strategy

 

Part of President Trump’s great appeal is that he’s perceived as a successful businessperson. He’s even been talked about as being a President with CEO experience.

My article on the duties, responsibilities, and job description of a CEO, lays out four inherent parts of a CEO’s job. These are the parts of the job that, by definition, make a CEO a CEO. The CEO can delegate some things, but others simply can’t be delegated. Setting strategy is one of a CEO’s main duties.

Setting strategy

The CEO ultimately sets the strategy for a company. For a company, that means external, competitive strategy (how do we win in the marketplace against competitors) and internal strategy—how do we best use our internal resources in pursuit of success.

Strategic decisions generally have huge implications for a company or country. They involve moving time, effort, and money from one set of goals to another. They usually represent a multi-year commitment, whose effects won’t be seen until substantial investment is made. So strategic decisions are usually given a lot of thought and analysis.

Unlike businesses, countries don’t use economics as the only measuring stick. The goal isn’t to win against the competition. The goal is to provide a safe environment for the life, liberty, and pursuit of happiness of the residents. The outward-looking strategy certainly has economic components (e.g. tariffs, trade agreements, tax treatment of overseas corporations), but it also involves strategy around war and conflict, around global resource allocation, and around solving global problems that require cooperation between nations.

External strategy is complicated for a country

President Trump has made it clear that we will no longer be the world’s policeman, without compensation. That’s taking an economic approach to strategy.

That’s one piece of the puzzle. Unlike in business, however, countries deal in currencies other than money. Global problems affect us whether we want them to or not. China’s coal-fired power plants cause atmospheric pollution whose effects we feel. Power vacuums in the Middle East gave rise to terrorist groups like ISIS (ironically in response to our leaving Iraq too soon).

That’s what foreign policy is all about. It’s how we relate to the world stage vis-a-vis world problems. In America, the buck stops with the President when it comes to foreign policy.

There are a lot more moving parts when it comes to a country’s external strategy. External strategy needs to blend economics, diplomacy, war, foreign aid, and probably other things as well, if we’re to maximize our country’s well-being.

On his first weekday in office, today, he has already pulled out of the Asian-Pacific Trade Pact and the TPP. He is clearly sending strategic signals, that America will be withdrawing from free trade deals, with the hope that it will bring jobs back to America. Whether it does or not remains to be seen.

Between the time I wrote the last paragraph and this one, Trump has also actually given orders to build a wall with Mexico, and has discussed pulling out of NAFTA. The speed of these orders and lack of discussion given to the implications suggest to me that these strategic-level decisions are being made dangerously quickly.

Non-economic issues matter to a country’s external strategy

So far, the non-economic elements of Trump’s strategy are a mixed bag. He’s done some things that have horrified career diplomats, such as hinting that the US will pull out of NATO. That may be a negotiating strategy designed to get other countries to foot their part of the bill (an economic strategy). And at the same time, the rest of the world is looking at the non-economic elements (their own safety) of that statement.

His foreign policy might be brilliant. It might encourage other countries to fall in line behind us. Or it might scare others into shifting alliances and finding ways to need the United States less, which ultimately gives us less power in the world and less influence in world events that may affect us.

If it’s true that Trump is actually being manipulated by Russia, presumably Putin is doing so to the advantage of Russia, and not to the advantage of the U.S. But that’s probably a determination that will have to be made in hindsight.

There is already a motion on the house floor for America to pull out of the United Nations. That’s the kind of move that has huge potential repercussions. Some of those are psychological, but some are quite concrete. If we leave the U.N., and the remaining countries in the U.N. remain and act as a single body, we’ve just given up any sway we had as part of any issues the organization addresses.

I don’t think we can draw any conclusions, yet. He’s pulling a lot of levers very quickly, and we haven’t yet seen how the effects ripple through the world.

What he’s doing on the non-economic dimensions seems scary to me, but … he could be right. What he’s doing is drastic. Strategically? Just as we can’t know what the final benefits of his strategy will be, we also don’t know what unintended consequences such a strategy might have.

Internal strategy

Internal strategy is determining how best to use the resources of the country to increase overall well-being.

This one’s tricky; I don’t understand even a small number of the issues myself. As for national building blocks of well-being, here are some of the ones I am thinking of:

  • a population of 300 million
  • a public school system
  • certain publicly owned natural resources
  • an electrical grid
  • physical infrastructure
  • farmland
  • a market-based economic system
  • financial markets

The question is whether our CEO has any strategy that explores the interdependencies between these things over the next several decades, and whether our CEO has any strategy for how to combine them to help our country succeed.

Maybe he does, maybe he doesn’t. I haven’t been convinced that any President in my lifetime has had much of an overall strategy. They all seem to have fragments of strategies for each area, largely disconnected from one another. Since all of those things influence each other, the one approach we know is probably wrong is to treat them as silos.

From what little I’ve heard Trump say, I don’t think he has any kind of sophisticated strategy for best using our internal resources. This does not make him unusual, however. If any other candidate, or any President I’ve heard in my lifetime, has had such a strategy, they’ve never talked about it in public.

Trump’s appointment of non-scientists to posts which require scientific knowledge (or at least the understanding of what science is and how it works) is worrisome. America’s strength over the last century and a half has come from our technological progress, on which we’ve built our economic and business progress.

We’ve already ceded several important industries to other countries: manufacturing, computer hardware and electronics fabrication, etc. Now’s the time to be doubling down on education and scientific infrastructure that can form the basis for American and world prosperity for the next century. My impression is that Trump is going in exactly the opposite direction.

Summary

Trump is making rapid-fire strategic decisions that have global and local implications for the economy, for the environment, for the future of our national competitiveness, and for our safety. On the surface, his policy decisions seem to be made as a hodge podge of campaign promises, not as part of an integrated strategy that takes into account the multiple dimensions of his actions.

While it’s too early to tell how his strategies will play out, I’m pessimistic. In my experience, big, complex decisions made hastily don’t often lead to success.

 


Part 2 of President Trump CEO, continued…