The CEO’s Scorecard
A CEO answers for the whole business while touching almost none of it directly.
A sales rep has the cleanest job in the company. Hit the number or don’t.
They know their quota. They know their pipeline. At the end of the quarter there’s a figure with their name on it, and it’s obvious to everyone, including them, whether they made it.
The CEO is also responsible for that same number. But the CEO never joins a single sales meeting.
The CEO sits far from the actual sale. Doesn’t dial the phone. Doesn’t sit in the client meeting. Didn’t hire the rep either. Someone they hired did that, or someone that person hired. Has probably never met the customer, and isn’t writing the proposal, booking the meeting, or closing the deal.
What the CEO did was everything around it. Picked the market the rep is selling into. Set the pricing that makes the deal winnable, or hopeless. Chose the product. Approved the comp plan that decides which reps to hire. Decided there was money to build a sales team at all, which meant raising capital or earning it first.
The rep controls the sale. The CEO owns the result.
This isn’t a stretch. It’s the ordinary accounting of the job. Warren Buffet was known to say that most CEOs reach the top through marketing, or production, or engineering, and then land in front of the one task that defines the seat: deciding where the company’s money goes. It is, in his words, “a critical job that they may have never tackled and that is not easily mastered.” The biggest lever in the business routes to the desk least trained to pull it. And it routes there anyway. Most of what a company becomes was chosen at that desk, one decision at a time.
In public markets nobody argues about this. The CEO owns the share price. The board, the analysts, the shareholders all hold one person accountable for a number that thousands of people actually produced, and nobody calls it unfair. It’s just how it works.
A private company has the same accountability, just no live ticker. So the ownership is just as real and quite a bit easier to look away from.
When something breaks, the easy move is to fire the person closest to the problem. Sometimes that’s right. But who hired them? Who built the thing they failed inside? Who set the priorities that left the gap?
Follow it far enough and it always arrives in the same place.
The Cost of Your Incompetence
There’s an exercise I like to walk CEOs through. It’s a little confronting, so I tend to apologize before I start.
Take your bottom-line net profit margin. Now find the best businesses in your industry — not the theoretical best, the real operators doing more or less what you do — and take their margin percentage. The gap between yours and theirs, multiplied by your revenue, is a number.
An $8M landscaping company at an 8% margin is doing $640,000 of profit. If the best operators in the same business run 18%, that ten-point gap is $800,000 a year, every year, walking out the door.
Hold that gap a decade and it’s $8M left on the table, a full year’s revenue. And since a business sells for a multiple of profit, it shows up again in the sale. At four times earnings, the 8% operator is worth about $2.6M and the 18% operator close to $5.8M. Same trucks, same crews, same town. More than double the value, for running the identical business better.
I call this measuring the cost of a CEO’s incompetence.
The word is deliberately hard. I don’t mean it as an insult and don’t mean it literally. It’s an instrument. It takes the vague unease every honest operator carries — am I leaving something on the table? — and turns it into a figure you can actually look at.
And it runs both ways. Close the gap and those ten points become value you created out of nothing but running the place better than it was run before. The number that measures the shortfall is the same number that measures the prize.
Here’s the part that surprises people. Everyone accepts that a public-company CEO drives the bottom line. The CEO of a smaller, closely held company has just as much impact, and usually more.
When researchers went looking, they found exactly that: the CEO's effect on performance was materially larger at private firms than public ones (Quigley, Chirico & Baù, 2022). The effect was larger, not smaller, where the company was smaller and more closely held. The less machinery there is between the seat and the outcome, the more of the number is you.
The Objections
The obvious objection is luck.
How much any single CEO matters is genuinely debated. Some of what looks like the CEO’s doing is chance. A rising tide, a good decade, one lucky hire. Fair enough.
But that’s an argument for the method, not against it. The way you pull luck out of a number is to hold the market steady and compare yourself only to the people who got the same weather. Whatever is left after that is you.
The rest of the objections are fair too, but none of them get you off the hook.
Some margin gaps are a choice. You can run thin on purpose, by buying share, holding price, or reinvesting ahead of growth. Some of the best operators have edges you can’t copy: real scale, a protected market, a lock on a town too small for a second player. And every income statement carries noise. A bad year. A write-off. A bet that hasn’t paid yet.
All true. Strip the noise out, adjust for the structural stuff that’s real, compare against the honest best instead of the theoretical one, and a gap almost always survives. That leftover is the signal.
Economists gave this a name a long time ago. In 1966 Harvey Leibenstein called it X-inefficiency: the difference between what a company produces and what it could produce with the exact same resources, owed not to the market but to the slack inside the walls. Two near-identical businesses, same equipment, same capital, can post very different numbers. The whole difference is how well each one is run.
Blast Radius
This is why the number runs as large as it does.
Look at where those ten points actually come from. The pricing decision that protected the margin or gave it away. The VP hire who built a real team or cost you two years before anyone would admit it. The customer everyone let become a third of revenue. The product line kept alive five years past its case. The acquisition that added scale or swallowed the balance sheet. Not one of those is a line on a spreadsheet. Each is a decision, made by one person, and each moved the margin a point or two, then kept moving it for years.
Ten points isn’t one heroic call. It’s a hundred of these, compounding in one direction or the other.
And the two directions aren’t symmetric. Destruction is faster than creation. A bad acquisition can undo a decade in a quarter. A wrong hire at the top can hollow out an entire function. Value, to reference a famous Hemingway line, builds slowly and leaves fast.
The Full Report Card
So where do you sit? And how would you actually know?
That’s the uncomfortable part. The CEO seat has more impact than any other in the building, and it comes with a hundred ready-made reasons the number isn’t your fault. The market. The team. The timing. Some of them are even true, which is exactly why the discipline is so easy to skip. If you take extreme ownership seriously, and most good operators say they do, this is where it gets tested. Not in the language. In whether you can look at the gap and claim it. (I’ve written elsewhere about what the seat is actually for: see On Judgment and Ruthless Prioritization.)
Because the P&Ls of a good CEO and a great one don’t look a little different. They look nothing alike.
Over a long enough run, the numbers are the lagging tell on everything upstream of them, applied ten thousand times and compounded.
So this was never really a financial exercise. The number is just where it all lands.
What It’s Worth
This reframes an argument people love to have.
The CEO pay packages that make headlines look outrageous right up until you hold them against the spread. When the pay is genuinely tied to value created, the board is buying a slice of a number no other seat can produce, and it’s usually cheap at the price.
And it doesn’t only cut the flattering way. If the gap is real and it’s held for years, the honest reading isn’t always “work harder.” Sometimes it’s that the wrong person is in the seat. The math that justifies paying up for the operator who closes the gap is the same math that says replace the one who can’t.
But the flattering side is just as true, and CEOs almost never let themselves feel it. There is no higher-leverage seat in a company. The same ten points that measure the shortfall measure the opportunity, and the opportunity is enormous.
Real value, conjured out of nothing but a business run better than it was yesterday. Most of it goes unclaimed, because the person who could claim it isn’t focused in the right areas.
This exercise isn’t meant to shame you. It is to tell you how much of the outcome is actually yours, which, if you’re any good, is the most hopeful thing here.
You’re not a passenger on your company’s results. You’re the author. And a CEO’s report card always lands eventually.
