The CEO is a decision-maker who receives salary, while the owner has a decision-making role and receives dividends. The CEO has the responsibility of the company and guarantees with its position, the owner assumes the risk of successful business and guarantees with the capital.
The two roles have different responsibilities that find their correspondent, among others, in the company's accounting. While the CEO has the obligation of generating results that is directly correlated with performance indicators he/she must achieve, such as net profit or revenue growth, for the owner just the dividends are important. The CEO is mainly guided by the financial indicators against to which performance is measured. For him/her, the accounting is a control tool and a set of principles that must be followed and applied coherently, otherwise the owner is penalized with its function or even legally.
The separation between control and ownership is the essential mechanism for the CEO to be allowed to do the job using professional management tools and for the owner not to confuse the company's budget, in fact, the money thereof with his/her own pocket. From an accounting and legal point of view, the company is a separate entity.
For the entrepreneurial companies which do not have a Board of Advisors, this roles separation has multiple benefits as follows:
1. The operational task is taken over by the CEO while the owner has a consultative role on the strategic direction of the company.
2. The delegation of decisions to the CEO, which in turn has a strong leadership structure at every business function, keeps the owner away from the risk of micro-management and stress.
3. Professional management uses tools to test development plans, track economic and financial outcomes, to overlap personal and organizational goals and less the ego of one person.
4. Employments or redundancies are based on clear criteria by applying processes and practices that underpin the employment, dismissal or training decision.
5. For the CEO, decisions are the result of consultations with top management that can even oppose resistance, while an owner can block any opinions different from his/hers.
6. Taking calculated risks for the CEO who must account for strategic decisions while the owner does not answer to anyone and can make very risky business bets based on instinct/flair and taken very quickly.
7. Owner’s lack of experience and CEO's experience in scaling the business after accessing capital from a banking institution or investment fund highlights once again the importance of separated roles.
The moment when to hire a CEO in an entrepreneurial company differs from one company to another, from one industry to the other, from one situation to another. When it happens, this moment attests the company's growth up to a level of complexity that deserves the intervention of a professional manager. The transition from a leadership whose source of authority derives from the ownership to a leadership stemming from the management science is necessary and mandatory for accessing another stage of business development.
The right approach of the entrepreneur to the company must not be that of a parent who is overly controlling on his/her child, but of the one who understands that, just letting the child assume his/her independence, he/she becomes a responsible and harmoniously developed adult. The same happens with the company: you set it up, grow it and then, if you want to see it become a BIG company, you must let it grow independently of your influence!