Frankly, my response here is based mostly on accumulated experience rather than solid fact, but I will try to help you view this in context: MBA applications are generally assessed holistically; each component is just one piece of the puzzle. Certain pieces, such as a totally non-competitive GMAT or an ethical violation, might be considered deal-breakers; a less than perfect recommendation answer most likely would not be.

Most of the top business schools got together this year to ask the same two key questions, and that "feedback" question really does disqualify a lot of recommenders that people might otherwise have chosen. So an admissions committee might question your judgment in choosing a recommender who didn't have the perspective to weigh in on this question. That said, if the CEO adds a lot of value elsewhere, and the other aspects of your application are strong, I doubt, as I said above, that this would be the deal-breaker.

Hope this helps,
Margaret Strother