-2 votes

Why do corporations have CEOs?

So last night, I was on the phone with my best friend, who rarely gets into economics and politics, and we somehow got onto the topic of the role of a CEO. She asked her classmates the other day if any of them could shine some light on what a CEO does, and the best anyone could come up with is "make decisions".

So she gives me this scenario while we're talking into the late hours of the night: If the CEO of Fun Meal Palace were to die and not show up for work the next day, nobody would really question it. They would assume that he/she took a sick day, and go about their business. Now say a week goes by; What happens? Oh my gosh, a whole week? Someone must be getting curious by now! Nah, they're just on vacation. So what if two weeks go by with an absent CEO? Damn, Fun Meal Palace must be up in flames by now! Again, no. People just think they are on an extended vacation.

So, in the meantime, if Fun Meal Palace isn't burning to the ground, what is it doing? Well, it is, quite literally, going about it's business. It's only after the third week that people start to talk.

This brings me to my next point: Replacing the CEO.

So, the CEO hasn't been needed for a few weeks to make any major decisions. Now that everyone knows he's dead, the food chain will need a new CEO. So either someone with prior experience gets hired to the job, or someone from a lower rung gets promoted. Easy peasy lemon squeezy. But wait a second! Isn't that pretty much like the President when it comes to making laws?

The answer is yes. While the President has many more things to deal with than making decisions on laws, his role in this small portion of his job is the same as a CEO. People have an idea, or raise awareness on an issue, it's goes to the lower ranks of those in charge, and works it way up. By the time a bill reaches the President, hundreds of people have already approved it. All we need now is that big red check plus on our paper to make it a law. It's the same thing for a CEO, just on a smaller scale, yet they are making millions of dollars year in and year out, while the President, the most well known figure in the nation, is only making $400,000 a year for up to eight years.

Do you see where I'm getting at here? A CEO rarely makes minor current event decisions that could slightly impact their company and then say that profits need to be raised or steadied each quarter. Doesn't seem like the kind of job to be makings millions off of each year for a decade or two.

So, to wrap things up, I want to hear your thoughts about what could be done to make improvements for both the corporations and the people. If CEOs were to take a pay cut, or perhaps just taken out of the equation entirely, places like Fun Meal Palace would have a much larger profit, which in turn would increase wages, not just for their employees, but employees of multiple nearby companies. It would be a chain reaction. I am already living a steady life, an increase in my wage would allow me to buy things I want, go get more new clothes more often. This increases customers at retail stores, which increases need of production. That increases the need for more workers and creates new jobs. That's right folks, increasing wages would help CREATE more jobs.

So just tell me your thoughts on the matter and hopefully we can have a nice discussion.




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A few thoughts...

The problem is corporations. Corporations are dead, fictitious entities. If we would outlaw them, we would have a return to family-run businesses and responsibility instead of monopolies and an ever shrinking array of choices.

Corporations divert responsibility and encourage greed instead of service. Everything we do should be for the purpose of filling a need, not our bank account. Corporations put the cart before the horse. They emphasize wealth over production, honesty and integrity.

I could not be a salesman because I would never talk somebody into buying something I did not believe they needed.

CEO's do not do what is right, they do what the investors demand - again money-driven instead of need-filling driven.

"The love of money is the root of all evil." (1 Timothy 6:10)

Freedom is the ability to do what you want to do.
Liberty is the ability to do what you ought to do.
"Where the Spirit of the Lord is, there is liberty." 2 Corinthians 3:17

Your last statement

Have you ever read and worked at the understanding of your last statement? It says the LOVE of money. The bible has many teachings of money and it never says to not make any. It does not even teach to not be wealthy. Money is a form of trade for effort to be acceptable to both sides. It is a means of trade for value of service or product provided. When money becomes evil it is Because you love the fact of having more than another or wish to have money over belief. The details of what we might agree could be different but your use of 1 Timothy is wrong in context. Corporations are not evil, it is the use of money (power) to gain a leg up that is evil. A person of any age can 'Own' a corporation, they don't become evil till they decide to use corrupt politicians to unfairly get ahead. I would have thought on the DP that this would have been better understood..

I agree with your understanding of 1 Timothy 6:10

It is indeed the LOVE of money that is the root of ALL evil.

But I disagree that I used it wrongly in this context. Corporations promote evil.
1) They lead people to do things for the love of money. I know, maybe not ALL people, but the vast majority. Why do you think they call it "a dog-eat-dog world"?
2) They "protect" leaders from liability, which promotes a sense of irresponsibility; which leads to injustice. The first thing mentioned as to why We the People were forming a more perfect Union was "to establish Justice".

We need to get back to Mom and Pop stores, family-owned businesses, etc.

Freedom is the ability to do what you want to do.
Liberty is the ability to do what you ought to do.
"Where the Spirit of the Lord is, there is liberty." 2 Corinthians 3:17

You could use a large dose of Austrian economics.

"what could be done to make improvements for both the corporations and the people"

Corporations, though a separate legal entity, are simply associations of people. To improve the situation for people, get government out of taxation and regulation so there is a truly free association of shareholders, employees and customers.

"I am already living a steady life, an increase in my wage would allow me to buy things I want, go get more new clothes more often."

Using the same faulty logic you used, I could argue that if your wages were cut, it would allow the customers to get more new clothes more often, thereby leading to more jobs. So, decreasing wages would help CREATE more jobs.

This is actually the same economic fallacy...

professed by liberals all the time. Actually, there are several here.

1.) Jobs are not what the economy is about. It's about the improvement of the human condition and the preservation of capital. Jobs are only a side effect of that. What would be the point of a job if it didn't amount to anything(i.e. digging a hole and filling it up)? It'd just be money spent. Nothing would've been produced and that capital would've been wasted.

2.) Production is what creates wealth, not consumption. Consumption is the byproduct of production. The latter can't exist without the former, without going into debt anyway, but that wouldn't be sustainable along a long enough timeline. New business is created only from increased production in other areas of the economy. For example, if the workers of a car parts warehouse see that a tailor has produced a line of new suits that they like they'll work hard to earn the money to buy it. When somebody else notices this increase in popularity for suits they'll start producing ties to go with those suits and things will continue to snowball like that. It might sound like it was the consumption of the warehouse workers that spurred the economic growth, but without the productivity of their labor they never would've had the money to buy the suits in the first place.

3.) Corporations pay their CEO's according to their skill level. Why should someone with a genius level IQ be a CEO of a company for 20x normal wage when another company will offer 50? It's competition for labor that drives their salaries up, much in the same way as professional athletes. Now, sure, you can propose the idea that a CEO would reject a high salary for a modest one for whatever reason, but that doesn't mean that the extra money would go to the workers or that it would even amount to that much. It might just be rolled over as profit into the next year or put into R&D or marketing or, better yet, invested in another company. Such things would benefit the business a great deal more than paying workers more money for a job that might not be worth that much (Hearkening back to #1).

4.) CEO's do more than just approve other people's ideas. Their rolls are as diverse as businesses themselves. They could decide the company's marketing strategy, or be the innovator of the next big thing, or negotiate contracts with other companies. The possibilities are endless.

If you have any other questions feel free to ask. I'd be more than happy to clarify.

Why CEO's Exist...

In general terms, a CEO works "on" the business - while managers, employees, etc, work "in" the business. And those are two completely different skills.

Let's talk about a hypothetical business. Jerry is a roofer. He starts in the business young, only a kid but he works hard. By the time he's 21 he's a foreman. At 25 he's been running his own crew for a few years, and doing well. He decides to start his own company.

Nothing wrong with that. Pretty soon Jerry has a few sales guys and a couple of crews working under him. Sometimes he's handing work orders to his foremen, or generating new leads for the sales guys, or inspecting jobs himself and even getting his hands dirty when a job requires it.

That's fine - that's what Jerry is good at. He's learned how to work "in" the business. But he has no clue how to work "on" a business.

And because of that he can't grow, he can't scale, he's stuck - because all of his time is working "in" the business.

So he brings in Mark as the CEO. Mark doesn't know much about roofing, in fact he's never been on a roof in his life. What Mark does know is how to work "on" a business and scale it.

He knows how to recruit the most talented foreman and crews. He knows when it makes since to merge with or acquire a competitor. He sees vast opportunities in commercial sectors and entirely different markets that Jerry could never see.

He knows how to find the best advertising people, the best recruiting people, the most cost efficient suppliers for quality tools and materials, the best legal teams and he understand how to put the best systems and procedures in place to predictably and consistently grow the business.

Jerry, the president, is great at what he does, working "in" the business making it work as well as he can. And he spends 100% of his time and energy doing so - and he should - that's where his talent is.

Mark on the other hand spends 100% of his time "on" growing the business, again, that's what he's good at. And within a year Mark brings the company from grossing a million a year to grossing $50 million a year - because he utilized his time, talent and resources on growing the business, not working inside of it.

That's something that Jerry could have NEVER done alone - even in 50 years - because it's completely different skill-sets. And even if he wanted to learn the skills required, the business required Jerry to spend 100% of his time working "in" the business, making sure the day-to-day operations were running smoothly.

So even though CEO Mark never spent a day building a roof, with his help the company was able to build 100x more roofs at a decent profit margin.

That's a random example. A "CEO" can be a partner, a sole-proprietor or an executive officer in a company, and they can take on many roles. But the key difference, IMHBAO, is that a CEO works "on" the business, a manager, owner, supervisor, whatever... Spends their time working "in" the business.

You need a guy working 100% "in" the business. And you need a guy working 100% "on" the business - at least if you want to grow a successful business.

They need each other to succeed. And while Mark never gets his hands "dirty" like Jerry does, his skill-set delivers a LOT more value than Jerry's, which is why Jerry and anyone else with ownership is happy to pay Mark a competitive salary - they understand the value that he brings to the table.

A smart CEO is the difference between Starbucks and the guy working 80 hours a week to keep his lone coffee shop afloat. It's the difference between the guy spending his whole life flipping burgers or a smart burger flipper owning a large share of an empire like McDonald's.

But the heart of the matter is this - it doesn't matter what you think anyone who works any position at any company *should* be paid or what anyone thinks *should* be done about it.

If you don't sign the checks it's none of your business or anyone else's. And businesses don't pay CEO's high salaries for fun - they're in high demand.

If you think you deserve more money learn how to create more value.

The fact that "Fun Meal Place" has a systematic process to profitably go about its business on semi-autopilot can 99.999% of the time be directly attributed to the CEO who got them there.

Your post reads like "I want more money so I can buy more stuff". Most people who end up as a CEO think "How can I create more value, so I can earn more money?" Completely different mindsets.

Sorry buddy but

Although that is the mark of a good CEO it is not an attribute of being a CEO.

A CEO is simply the Chief Executive Officer. The Highest Authority in the hierarchical chain of command. That's all it is.

He can be a hands on guy that works in the business or he can be a world shaker that works on the business. Neither is a critical aspect of being a CEO.

Yeah, I'd agree...

But in most businesses it's in the businesses and the CEO's best interest to be a strategic thinker.

If you want to talk corporatism or clueless corporations that's another topic for another time.

Role of CEO

The role of the CEO is to execute the will of the board and the major shareholders who have voting rights. What do they will upon the CEO...? increased stock values and dividends.

Tactics such as gaining market share, product development, "making a nice place to work", etc... only count if they are proven to drive share price. Downsizing (firing) can also drive share price BTW.

Recap: the CEO exists within a company as a representative of the board and shareholders and if he/she does not perform through his/her executive team the board and shareholders will fire him/her.

"One resists the invasion of armies; one does not resist the invasion of ideas" Victor Hugo

True leaders are extremely rare.

A poorly organized group is always more powerful than a mass of individuals no matter how driven they might be. History is full of examples of the former prevailing against the latter. Even now the libertarian movement defeats itself because of its anarchistic leanings and so plays into the hands of its foes who have less principle and therefore less inner strength, and mostly because the foes act in some semblance of unison.

A team of stars does not win a league. A well-drilled team, under a coach who knows how to bring them together, frequently does win though.

Some core of common principles is required to align a group and this is probably what is being reached for in trying to have a small government rather than a big one. But an unorganized mass, no matter how able its individuals might be, will just not make enough headway against something that resembles a team , no matter how screwed up the goals of that team-like structure might be. A principled group acting as a team, with a limited number of goals which are inclusive of real freedoms for all, that all can clearly understand by all to be such, could attain unheard of states of being for a society.

could be a troll post or could be someone who earnestly

wants to learn.

Either way, the OP has no clue about the topic.

We can use it as an opportunity to discuss corporate structure.

I honestly was not looking for any attention

I understand that my knowledge on the matter is limited, and I appreciate those who took the time to give out real responses rather than insults. The ignorant should not be treated as something beneath you. I think we should all keep that in mind when spreading the message of liberty.

Believe me, if I knew of any way to delete this post, I would have done so already.

Don't be ashamed of the post...

It's a valid question - Especially if you're genuinely looking for answers. There may be a hint of criticism (my other post included)but you brought up a great discussion, and if you're open to the feedback you may find the answers you were looking for.

No such thing as a stupid question. No one's going to hold it against you, especially if you're sincerely reaching out for and open to answers.

We Should Aim To Increase Wealth, Not Wages

Higher wages do not increase wealth.

___________________________________________________________________________
"Bipartisan: both parties acting in concert to put both of their hands in your pocket."-Rothbard

I down voted this immature

I down voted this immature nonsense.

______
"When the people fear their government, there is tyranny; when the government fears the people, there is liberty."

Big bump for the downvoting trolls on this thread.

See you at the top guys...

I saw the best minds of my generation, destroyed by pandas starving hysterical naked

-Allen Ginsberg

This is a question posed by

This is a question posed by someone that has no idea about private business. The CEO is a strategic planner who answers to the Board of Directors. Hourly wage and line division managers do the day to operating of the business.

______
"When the people fear their government, there is tyranny; when the government fears the people, there is liberty."

Exactly

what I was about to write. Thank you.

"Endless money forms the sinews of war." - Cicero, www.freedomshift.blogspot.com

This couldn't be further from

This couldn't be further from the truth I'm afraid...
CEOs didn't just materialize into their positions overnight, they worked through increasingly more responsibility ladened positions and time commitments to get where they are. They have to be dynamic and must be competent in many aspects of their business (Tech, HR, Strategy) and be able to make decisions for the people that report to them on the fly.

To the second part of your question, why not raise your wage to $20 an hour? Or $100/hr? Why didn't the government give every citizen over 18 in the US $1 Million dollars during the bailout in 2008?

Southern Agrarian

That's not necessarily true

One can materialize the position of CEO by chartering a corporation. Depending on the state, a few hundred bux makes it reality. Shazaam CEO.

Or one can be hired by a board of directors...

a CEO is the guy used for funneling money out of a company while

It is still profitable.

I saw the best minds of my generation, destroyed by pandas starving hysterical naked

-Allen Ginsberg

Geez man -5?

Who down votes a joke?

Not laundyheadski.

Boom! -4!

"I'm Ron Paul." - Ron Paul

Sounds like ...

... Congress.

or a professional sports player.

Or a celebrity.

I saw the best minds of my generation, destroyed by pandas starving hysterical naked

-Allen Ginsberg

Wrong

they get paid based on the return they will provide to the business. George Clooney is paid because he provides a return on investment.

"Endless money forms the sinews of war." - Cicero, www.freedomshift.blogspot.com

I was CFG (Chief Fall Guy) at my last job. The pay was great but

the irresponsibilities were exhausting.

I saw the best minds of my generation, destroyed by pandas starving hysterical naked

-Allen Ginsberg

Wow

CEO stands for Chief Executive Officer.

In a hierarchical system of organization one must be at the top. Hence one is the Chief, the top.

Executive means he carries into being, or executes, the will of the board of directors. Through the hierarchical system that he is the chief of.

The president can be the chief executive or not.

You would need a non-hierarchical system of organization to do away with the chief.

Another way of looking at it is the chief is the one with the highest authority over some aspect of something. You can walk into a MacDonalds and ask to speak to the chief executive and you will get the highest ranking manager. "Who's the chief executive here?"

Unlike a nation, a company

Unlike a nation, a company with a benevolent dictator of a captain at it's helm is usually the best model. The powers of the CEO as captain are held in check by the board of directors. The CEO is the person most responsible to set the course of the ship. If the captain screws up too much, the ship's hands revolt and throw the captain overboard.

Are you and your friend ...

... in high school? You both have a very immature view of the world and especially the business world.

A corporation is owned by its shareholders. The shareholders hire a board of directors to oversee the major actions of the corporation. The directors hire officers, including a CEO, to run the day-to-day operations.

The CEO decides the overall strategy of the company, within the context of what the directors have decided. His primary job is to drive profits to the bottom line. The company can only survive in the long run if it is profitable.

Ben and Jerry's Ice Cream thought the socialist idea of limiting the CEO's salary would be a great idea. They found that the people they got for the job were terrible, and they ultimately had to hire a CEO who knew what he was doing. And they had to pay him much more than they pay people to put ice cream into the containers. Anybody can put ice cream into a container. Not everyone has the brains and the balls to be a CEO.

Socialists underestimate the brains it takes to be a CEO. And socialists have no concept of the balls it takes to be a CEO, because most socialists have no balls. They cannot comprehend what the job even is.

If you want to understand how a CEO makes strategic decisions then watch an episode of "The Profit" on CNBC. Marcus Lemonis is effectively the CEO of the companies he invests in. He makes major decisions that drive the direction of the company. You can see how his decisions are always made based on increasing the profitability of the company (which causes them to hire more employees and/or save the jobs of existing employees, but that is a side effect of the CEO's decisions).

If a company becomes more profitable, the employees might or might not get raises. The company might reinvest those profits to expand the business. It might lower its prices to increase volume. It might pay dividends to its owners to reward them for the risk they take. It might retain profits for future growth or to make it more attractive to new investors or lenders. The idea that employees would (or even deserve to) get raises is an assumption without merit.

Employees swing the hammers and put ice cream into the containers. They do not make decisions about which hammers should swing or which flavor of ice cream should be made. Yet, it is those strategic decisions that ultimately decide whether the company is a success or failure. That is why the CEO makes more money than the line worker. It's because he makes the tough decisions that make or break the company. He deserves more reward for a much more important job.

Finally, it is not consumption that drives an economy. It is productivity. The CEO is the person primarily responsible for increasing productivity of a business. Everyone is responsible for the productivity of an economy.

Only through increased production will an economy expand in the long term (in the short term, debt can do it, too, but that won't last). This is why Keynesian is a false economic model. It claims that consumption and debt will drive an economy, when those only bring artificial, short-term results. Only productivity will drive an economy in the long run.

So, your entire argument if flawed. Watch "The Profit" to see what a CEO does. Read up on some Austrian economics to see a correct economic model.

Demand precedes supply

"it is not consumption that drives an economy"
-No demand = no need for supply or no place for the supply to go.
-Demand precedes and drives supply.

"He deserves more reward for a much more important job."
-He deserves what he is able to command based on the companies ability to replace him. See above.

Demand/Consumption does drive a market. The type of consumption determines the wealth of the consumer.

If a shopkeeper's window is broken and he spends his wealth on replacing the broken glass, then all that's happened is the wealth of the shopkeeper is transferred to the window supply chain. The shopkeeper isn't made more wealthy for spending his money. His wealth is diminished. If this happens to enough people, the wealth of the society is diminished.

However,if he spends the same money on upgrading his station in life through some other trade, then both the shopkeeper is made more wealthy and the supply chain that he supported is made more wealthy.
Even if the Shopkeeper borrows the money to fund his purchase, so long as the benefits of the purchase outweigh the cost, all parties are still made wealthier.

The keynsian model fails for many reasons, 2 of which are incorporates debt to fund warfare.
Borrowing money(at a cost)to fund bombs and other bad investments.
Who is made more wealthy by blowing up bombs...? Unless the bomb defends life and property, then only the supply chain of the bomb maker is made more wealthy, in which case we're back to the broken glass example above.