At The Money: What the Best CEOs Actually Do  

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Barry Ritholtz (0:22)

What do CEOs actually do?

What are the most important parts of their job, and how much do they matter to their stock's performance?

To help us unpack all of this and what it might mean for your portfolio, let's bring in Professor Nitin Nohria. He's former Dean of the Harvard Business School, where he's still a professor. He's also Executive Chairman of Thrive Capital, Joshua Kushner's venture firm. His new book is out, It's The CEO, Role, Reality, and Responsibility.

So let's start basically. I always assume the most important aspect of a CEO was allocating the firm's capital. Turns out to be a little more complicated than that.

Nitin Nohria (1:05)

Certainly allocating capital is one very important aspect of the CEO's job. But beyond that, CEOs are responsible for all of the decisions that companies make. And while they cannot make but a very small number of those decisions, their responsibility is to create the conditions so that the decisions that are being made by everyone in the organization are decisions that they can endorse, feel good about, and move the company forward in a direction that is aligned with the priorities and goals that they have.

Barry Ritholtz (1:37)

Yeah, there's a quote from the book that resonated with me. CEOs matter not because they control everything, but because they shape everything that matters. That really seems to sum up a lot of that, doesn't it?

Nitin Nohria (1:50)

Yes, and what are the things that are part of that shaping that CEOs can do? Resource allocation is one.

Strategy is another. Culture is a deeply important thing.

Sometimes CEOs also have to create the processes by which things get executed in firms, and here CEOs have to create the conditions for execution. What are the standards to which people execute? What happens when performance is missed? How do you go in and intervene? What is green, red, and yellow look like in any organization? All of these create the architecture on which decisions get made, and that's the real job of the CEO, is to create the architecture of these things that surround people and enable them to make good decisions.

Barry Ritholtz (2:37)

As Dean of the Harvard Business School, not only do you work with a lot of students, but you also help oversee the workshops that the business school puts on, and there's very specific, I forget what it's called, very specific set of skills that are taught at executive leadership classes that Harvard gives.

Some of the data that came out of that was really shocking. So the people who participate in Harvard Business School workshops average about $17 billion in revenue, have about 25 years of executive experience prior to becoming CEOs. And they describe the role as, quote, the steepest learning curve of my life. Why does prior leadership roles just not prepare people for what the CEO position is like?

Nitin Nohria (3:32)

So these workshops that you described are new CEO workshops. We have people come to them in their first year of having been appointed CEO. As you note, they're all CEOs of very large companies. And these are very experienced leaders. You don't become a CEO of a Fortune 500 type company unless you've had plenty of leadership experience before. And yet, to a person, they will describe the job as a surprise, as something that they suddenly have did not realize all that would entail. Simple things from, oh, I used to serve in board meetings. And when I was presenting at board meetings, it's one thing. But now, I have this board that I have to manage. I used to know how to manage one boss. This crazy group of 10 or 12 people is a very different kind of boss than I was.

Every word that I now say gets magnified, amplified. It's put under a microscope in a way that I never imagined. I used to be able to speak my mind a little bit freely. I can't do that anymore. I thought when I became CEO, I would finally have access to all the information in the world. Then people realize, actually, information comes to me packaged, presented in a way that everybody has an agenda around. So actually getting to know the real truth is even harder than I imagined.

These are just examples of the ways in which people feel surprised by the job. I could give you more, but it's an illustration of why people experience this as a gigantic surprise. You suddenly have every constituency in the world wants a little bit of your time, and you only have so much time to give anyone because as a CEO, that's your scarcest resource. So this is why I think people, despite being tremendously seasoned leaders, experience the CEO's job as a surprise and one of their steepest learning curves.