and the CEO was hired to do it.
Yes, and the CEO is hired to keep an eye on everything that happens in the company. That's his job. Not the owners at this point. The owner doesn't tell the CEO to employ psychopathic people (unless he does excplicity, ofc). He tells the CEO: "Here's your monthly salary, don't fuck it up" and that's it. Every further responsibility is with the CEO.
Insulating owners from the consequences of their choices
But hiring the wrong people isn't the owners choice. The owner doesn't make any choices anymore, otherwise he would be the CEO and not employ someone to run the business in their stead.