February 28, 2019
President vs. CEO: Is It Time to Evolve?
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Simply put, the difference between a President and CEO is value creation and breadth of perspective. As times have changed, the titles given or selected have devolved and are more a function of choice rather than the actual role. Because there has been a blurring of titles across the true roles, the distinction between the two very different roles has become lost.
Historically the role of President was more operational and a step toward CEO. In larger companies, you may still see a segregation between the two roles, but that is becoming less prevalent. Today, there are fewer President roles in large companies in favor of more Chief Operating Officer roles, likely because the title is more descriptive and the role is more focused on operations. In this article, I’ll outline the difference between a President and a CEO.
Presidents have generally come from operational backgrounds and some from sales backgrounds. While this is not always the case, the vast majority of backgrounds originate there. As a result, the perspective tends to be focused on operations. How to make productivity gains, how to increase production, how to increase quality, etc.
Because of the typically operational background, there may not be a full understanding of each of the functions of the company, resulting in a lack of investment in talent and tools. Views tend to be more inwardly focused and not necessarily on how best to partner with suppliers or customers. The views tend to be toward optimizing the product and less about delivering a product that delights the ultimate consumer while making an appropriate return for the company.
The CEO, in contrast, is focused on value creation. They have both an internal and external perspective of the company. More time is spent with investors. Decisions being made are subject to scrutiny, whether it is the returns being generated or the impact of new product lines, markets entered or environmental impacts. This broad perspective will quickly be gained, if not already present, after meeting with bankers, investors, analysts or the media as the questions will be broad and all-encompassing.
The CEO looks more broadly at the company. The perspective includes the entire supply chain from supplier to customer. It includes the whole of the company through all of its functions. It is a more strategic viewpoint. The CEO must have a broader understanding of how the whole company works, its finances, the expectations of investors and banks, the communities it operates in and the impact decisions made both internally and externally.
The CEO realizes it is not possible to be an expert in each area, so the focus shifts to having a robust team that has a full complement of skills necessary to effectively run the company. Leadership becomes more important as inspiring and focusing the people takes on a new level of importance.
As a result of all of these perspectives and actions, the CEO is keenly aware of their purpose – creating value. Value may be expressed in a variety of ways, whether through returns in dollars, or the impact to a specific market segment or community. When done well, all of their conversations both internally and externally will be focused on the whole of the company and not just one segment. Thus, a broader perspective, focused on value creation.
The distinction between President and CEO typically becomes more prominent as companies move from the low end of the middle market to the upper end of the middle market. The reason being, the company has reached a scale that outside financing becomes more important, the company has a significant impact on its community and thereby attracts more attention from the media, and the head of the company can no longer manage by strictly walking around.
If you’ve never done it, dial in to a public company earnings call and listen to how the CEO and CFO describe the results of the company and the questions that are being asked by analysts. Most publically traded companies will have replays of their earnings calls on their websites. Additionally, websites like Seeking Alpha will recap calls and provide analysis of most major publically traded companies. The point being – there is an expectation that the CEO be able to present or answer a broad range of perspectives from markets to operations to financial results to customer trends to general economic conditions. Rarely will this perspective be asked of a President.
The difference between the role of a President and a CEO is dramatic. And while it may not be discussed often, the distinction is critical as companies grow. It informs key stakeholders, typically owners and boards, the skills gap between the two roles and the development needs that place as the company evolves. Missing the distinction can
Getting the right team in place is essential to success. It is natural to feel a sense of loyalty and obligation to the individuals that got the company to where it is today. Equally important is recognizing that as a company evolves, so must the skills of its people, especially those leading the company. When was the last time you looked at the composition of your executive team for the appropriate skillsets? Building skills or making changes may be necessary. If you haven’t made the shift from the internal/operational perspective to value creation across the breadth of the company’s reach, don’t hesitate to get started today!
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