Recently, the world’s largest ongoing study of the internal audit profession—the Global Internal Audit Common Body of Knowledge (CBOK)—was completed by the Institute of Internal Auditors (IIA) and Protiviti to ascertain expectations from key stakeholders regarding internal audit performance at organizations of varying operational models and sizes. The study sought input from members of audit committees all over the world about their expectations of the internal auditor’s role in the organization. We think all directors will find the results of the study applicable to their work in the coming year and beyond.
Below are six imperatives for internal auditors from the CBOK study based on feedback from audit committee members.
1. Focus more on strategic risks. According to the CBOK study, two out of three board members believe internal audit should have a more active role in evaluating the organization’s strategic risks. Study respondents indicated that internal audit should focus on strategic risks (as well as operational, financial and compliance risks) during audit projects (86 percent) and periodically evaluate and communicate key risks to the board and executive management (76 percent). Accordingly, chief audit executives (CAE) must focus their function sufficiently on the bigger picture to think more strategically when evaluating risks, proposing risk-based audit plans, and formulating audit findings. By understanding the organization’s business objectives and strategy, and identifying risks that create barriers to the organization achieving its objectives and executing its strategy successfully, the CAE increases internal audit’s value proposition.
2. Think beyond the scope. The call for internal auditors to think strategically leads to another challenge: thinking beyond the scope of the audit plan. Thinking beyond scope means, for example, that the auditor should:
“Connect the dots” when considering enterprisewide implications of the findings of multiple audits, particularly findings with significant business model underpinnings;
Broaden the focus on operations, compliance, and nonfinancial reporting issues; and
Watch for patterns or signs indicating a deteriorating risk culture.
By focusing more broadly on the implications of audit findings, and thinking beyond the expressed or implied boundaries set by the audit plan, internal audit is better positioned to deliver stronger, more practical, and harder-hitting recommendations aligned with what directors are seeking.
3. Add more value through consulting. In today’s era of slower economic growth, a high premium is placed on operational effectiveness and efficiency. The CBOK study respondents picked up on this point, as 73 percent of respondents recommended that internal audit advise on business process improvements. For example, consulting activities by internal audit can result in: strengthening of the lines of defense that make risk management work; more effective collaboration with other independent functions focused on managing risk and compliance; improvements in the control structure, including greater use of automated controls; and suggestions for improving and streamlining compliance. These study findings underscore the benefit of investing in consulting services that will strengthen business processes.
4. Facilitate effective, high-quality communication. Board members generally rate internal audit’s communication at a high level of confidence. For example, a large majority of directors give high scores for the quality (83 percent) and frequency (81 percent) of internal audit’s communication. That’s good news and a great foundation on which to build the board’s satisfaction with the internal auditor’s role.
5. Elevate stature and perspective. Intentionally positioning the CAE and internal audit within the organization is vitally important to their ability to meet elevated expectations. Access and perspective have always been keys to positioning. Access has typically been attained through direct reporting to the audit committee, as well as to the C-suite. But beyond these reporting lines, the study reports that two out of three board members rank the CAE’s participation in board settings beyond the traditional audit committee meetings as an effective strategy for broadening the CAE’s perspective. The board settings that are relevant in this context must be defined by directors to fit the organization’s specific needs. However the goal is defined, increased access to and more frequent interaction with the board broadens the CAE’s perspective of the organization and elevates the stature and visibility of the internal audit function within it. It also enables the CAE to establish relationships with directors, understand their views on addressing competing audit priorities, and earn the right to be viewed as a valued source of insight for the board.
6. Align with stakeholder expectations. In most organizations, not all stakeholders see eye to eye or want the same value from internal audit. This reality creates a significant challenge for CAEs tasked with building consensus among stakeholders. While directors may not expect their company’s CAE to address all of the above imperatives, they should initially and periodically assess whether internal audit is doing what matters based on previously-established imperatives. The CAE bears the brunt of the responsibility for addressing this challenge by articulating the value that a top-down, risk-based audit plan contributes to each facet of the organization, and by providing an assurance and advisory perspective that the board, executive management, and other stakeholders can understand.
Following are some suggested questions that directors may consider based on the risks inherent in the entity’s operations.
Does the board periodically evaluate the scope of internal audit’s activities and discuss whether modifications are needed in view of changes in company operations and the business environment? Is the board getting the insights it needs?
Does internal audit provide adequate attention to strategic risk issues, including barriers to the organization’s execution of the strategy?
Does internal audit have an appropriate mix of consulting and assurance activities?
Does internal audit have the stature and access necessary to maximize its effectiveness?
Jim DeLoach is managing director with Protiviti, a global consulting firm.
Few issues invite more spirited discussion than the question of leadership style. Case in point: a roundtable discussion our firm hosted last month at the 2015 Fortune Most Powerful Women Summit in Washington, D.C., where a distinguished panel examined the behavioral patterns that individuals draw on when serving in leadership positions. Leadership style, the panelists agreed, is one of the most important keys for unlocking the full potential of the organization.
For directors, assessing leadership style is critical in discharging their most important responsibility: choosing a CEO. Although, as our panelists pointed out, the most effective leaders learn to flex
Anne Lim O’Brien
their style according to the situation, most nevertheless have a go-to style that dominates, especially when they face new challenges. Understanding and identifying the dominant styles of CEO candidates, rigorously and systematically, should be a part of every board’s succession process, enabling the selection of a chief executive whose leadership style is best suited to the organization’s business situation, strategy, and culture.
Pilot: strategic, visionary, embraces complexity. Pilots relish challenges and thrive in situations requiring visionary leadership. But they can sometimes leave little opportunity for others to lead, and charge ahead without learning from the past or thinking through the future.
Collaborator:empathetic, talent spotter, coaching-oriented.Collaborators take a team-first approach, share credit, and attract talent. But their focus on others may come at the expense of strategic vision and clear direction-setting, and they can have trouble holding others accountable.
Provider:action-oriented, loyal to colleagues, eager to provide for others. Providers are driven by two different, yet equally strong forces—the desire to lead from the front and to take care of those around them. Their teams may experience them as deeply caring and thoughtful, but also as confident in their own ideas to the exclusion of all others.
Harmonizer:reliable, quality-driven, execution-focused, inspires loyalty. Harmonizers prefer environments where everyone is using the same playbook to ensure reliable, efficient execution, and they are adept at finding the right people to make that happen. But while they are consistent and supportive, they may be cautious when it comes to large-scale, transformational change or significant shifts in the way business is conducted.
Forecaster:learning-oriented, deeply knowledgeable, visionary. Forecasters relish the chance to continually gather data, expand their knowledge base, enhance their subject-matter expertise, and generate new insights about the future. However, they tend to rely on the strength of their ideas to carry the day, shortchanging the importance of influencing skills.
Producer:task-focused, results-oriented, linear thinker, loyal to tradition. Producers value results, consistency, efficiency, and proven approaches. But their emphasis on reliable execution can get in the way of incorporating new perspectives, appearing rigid rather realistic.
Composer:independent, creative, decisive, self-reliant. Composers are often gifted problem solvers, with an instinct for innovation and trust in their ideas. But because they are most comfortable when operating independently they may find collaboration and relying on colleagues difficult.
Energizer:charismatic, inspiring, connects emotionally, provides meaning. Energizes combine a magnetic personality with an ability to create a strategic vision, build enthusiasm in others, and inspire strong performance. Nonetheless, their determination may at times blur into relentlessness that is perceive as dismissive of those who don’t think as they do.
These brief sketches only begin to suggest the richness that emerged from our research. A far more detailed analysis of each style—its particular power, its potential blind spots, and the work environments in which it may thrive or struggle—can be found in our recent Harvard Business Reviewarticle. There you will find not only a useful guide to the leadership styles of potential CEOs but also an opportunity to identify your own style, a thorough understanding of which can bring even greater depth to the succession decision.
Bonnie W. Gwin is vice chair and managing partner of Heidrick & Struggle’s board practice in North America. Anne Lim O’Brien is a partner in Heidrick & Struggles’ New York office and a member of the global Consumer Markets and CEO & Board of Directors practices.
The 2015 NACD Global Board Leaders’ Summit officially opened Sunday evening with the bang of drums and the bagpipes of the St. Andrew’s Society of Washington, D.C., a local Scottish heritage association. Their performance was followed by an interactive video experience that challenged the audience to question the borders of the screen. Each of these sensory experiences underlined the theme of the year, Beyond Borders: Leadership Evolved. The opening night keynote speakers–NACD Chair Dr. Reatha Clark King, and philosopher and author, Kwame Anthony Appiah–explored how directors should weather the evolution of the boardroom.
King is a fan of challenges. A seasoned director herself who values the good businesses can do in the world, King centered her message on all the work that boards have done to better the world around us—and the work left to do. “We have been successfully adjusting the trajectory of governance systems and have made improvements, but we still have much to do,” said King. “The board’s agenda gets longer. We offer no encouragement that the agenda will get shorter. Instead we prepare ourselves for the greater demand.”
One of the demands King identified was the need for directors to hold fervently to core beliefs. One among the many she cited was accountability: “I am a student of the word ‘accountability,’ and it looms large in my mind for directors to understand and embrace it.” King asked the audience to also embrace leadership in challenging times in spite of the many chances to falter. Among the recommended ways to lead with strength through governance challenges were the concepts of embracing broader perspectives, finding the courage to do what’s right, and to be brave enough to change if needed.
King’s suggestions for leadership to the audience of more than 1,200 were strengthened by Kwame Anthony Appiah’s discussion on honor. Appiah is author of The Honor Code, a best-selling book that examines four points in history where honor outweighed other forces to catalyze social change for the greater good. Appiah distilled his observations on honor into applications for the boardroom and professional practice as a whole.
At the core of his message was that honor will trump money, regulation, and even the coercion of law to guide a person’s moral compass and that only honor holds up in the face of the greatest ethical challenges that inevitably arise.