By Richard Chambers | February 10, 2017
Last month’s announcement that Ringling Bros. and Barnum & Bailey Circus would cease operations after more than 146 years generated significant reaction across the United States.
For those who had relentlessly protested the use of live animals by the circus, the announcement was Public trust in government and big business is dropping at an alarming rate. Whether viewed through a political lens in the surprising Brexit and U.S. presidential votes, or the consumer and regulatory backlash against a corporation embroiled in scandal, the repercussions of those misgivings can be profound.
This growing distrust reflects a fundamental erosion of faith in the institutions that are the bedrock of modern civilizations. As internal auditors, we are guardians of trust in the organizations we serve, and to be effective, our stakeholders must be confident that we will do the right thing, speak the truth, and be courageous. I gave a great deal of thought to what makes a trusted leader while researching my new book, Trusted Advisors: Key Attributes of Outstanding Internal Auditors. My research, assisted by The IIA’s Audit Executive Center (AEC), included surveying some of the top professionals in internal auditing about what attributes they believe are essential to becoming a trusted advisor. Toward the top of the list is ethical commitment. An excerpt from the book (below) focuses on this trait and discusses why internal auditors must go beyond commitment and demonstrate ethical resilience.
I enjoy watching football (that is, American football, not soccer). Sometimes during the game, when an infraction is committed before the play begins, the referee will throw a penalty flag. The flag often signifies a false start if certain players on the offensive team move before they’re supposed to. At times, there are referees who either ignore the infraction or are passive about making the judgment call.
Internal auditors who sit on the sidelines and fail to call out inefficiency, waste, fraud, or mismanagement are spectators. More commonly, internal auditors are referees, observing the plays that make up the normal course of business operations and blowing a whistle or throwing a yellow flag when circumstances warrant. They are objective in assessing whether a foul or infraction has occurred, but they are in reactive mode — responding to what took place in the past.
The most effective internal auditors are those with enough fortitude to blow the whistle before trouble ensues. They see troubling issues in the formation stage, raise a concern, and take a stand to ensure things are done right.
But, as I discovered years ago, there has to be a high degree of trust between internal auditors and those whom they are cautioning about pending wrongdoing or calamity. Without trust as a basis for engagement, the conversation can become awkward or even polarizing.
Ethics is an area that plays a significant role in my view of outstanding internal audit performance; so much so that I decided to feature ethical resilience as my first area of focus. I’ve been known to characterize ethics as “table stakes” for those wishing to engage in internal auditing. It’s a strong statement, but I stand by it. Internal auditors can’t accomplish their mission without a diligent, unceasing commitment to ethical behavior.
Larry Sawyer, an iconic internal audit author, wrote about the importance of trust in ethical behavior. He wrote, the “key to any profession is the trust placed in it by its clients.” Everyone knows how important ethics are; that’s a foregone conclusion. But I believe that, for internal auditors, ethical behavior is so critical, it goes beyond just a commitment. Outstanding internal auditors do more than just commit to ethics; they model ethical conduct in everything they do by being resilient, even when it may not be a popular stance. They may be tested ethically, but they withstand the challenges to their ethical convictions and bounce back stronger than ever.
Obviously, the CAEs who responded to the AEC survey agreed with this view. More than half of them selected ethical commitment as one of the top three traits shared by successful internal auditors.
Reinforcing that viewpoint, the Internal Audit Foundation’s Common Body of Knowledge (CBOK) 2015 Global Internal Audit Practitioner Survey asked CAEs around the world to rate themselves on their perceived level of competency on 10 core competencies, with 1 being “novice” to 5 being “expert.” The survey data indicated that CAEs rated themselves highest in ethics (4.3 overall), which validates my point that ethical resilience is a top attribute for outstanding internal auditors.
Paul Sobel, vice president/CAE for Georgia-Pacific LLC, states it very simply and powerfully: “In our role as auditors, ethics and integrity are the foundation for our ability to provide objective assurance, advice, and insights. In essence, it’s the foundation for our credibility.”
As the leader of a global organization that requires compliance with a formal Code of Ethics to serve as a member or hold a certification, I have an unwavering commitment to behaving ethically. At The IIA, we don’t skirt the issue; we believe internal auditors must stand for what is right, adhere to the highest ethical code, and never yield to pressures to bend the rules. An ethical lapse by one internal auditor can undermine trust not only in that individual but also in those around him or her. The higher in the organizational chart the transgression occurs, the more damaging the potential impact. We in the profession must share a commitment to ethics. For the most part, I believe we do.
In most organizations, the internal auditors are perceived as being far more likely to disclose ethical misconduct than to act unethically themselves. But we are human. I will never forget my surprise and disappointment when I viewed the results of a survey of 70 CAEs attending an IIA event a few years ago. One-third of the respondents acknowledged that they had “discovered or witnessed unethical actions” within their own internal audit functions.
Making the effort to clean our own ethical house is important not only in the context of what internal auditors do in their everyday jobs, but also in their role as business leaders. In her book, 7 Lenses: Learning the Principles and Practices of Ethical Leadership, Linda Fisher Thornton says getting employees to act ethically is largely driven by their desire to “follow the leader.” If they see top management behaving ethically, desiring to serve others, and making a positive difference, they are inclined to respond in kind.
Organizational commitment to ethical behavior is not just a matter of hosting an “ethics day” or showing a slide presentation during new-hire orientation, although all efforts at communicating expectations relative to ethics are valuable. The most impactful things leaders can do to influence employees are subtler: openly discussing ethical gray areas, acknowledging the complexities that can arise in work situations, treating ethics as an engrained way of behaving, celebrating displays of ethical conduct, showing respect for those with different opinions and difficult personalities, and expecting everyone to meet ethical standards.
These behaviors (at any rank in the organizational chart) should not be difficult. If we think of ethics as a way we interact, collaborate, and create synergies with others, it should be natural to act ethically and expect the same behavior from others.
The results of such behavior can yield unexpected results. Early in my career as a CAE, the chief financial officer (CFO) asked my internal audit team to perform an audit. He had a strong personality and was sure the company was being billed for purchases it didn’t make. He wanted my team to find evidence to support his belief. I sent the internal auditors to conduct the audit and they found no evidence of transgression, which put me in a bit of a tight situation. The support from the CFO and other executives was important and necessary to me, yet I knew that our audit results weren’t what he wanted to hear. By telling him he was wrong, I risked losing both his fledgling trust in the internal audit department and his willingness to use us for future projects, but I knew I had to be straightforward with him. As expected, he did express some disappointment that we didn’t validate his concerns.
Not long after that, he called me to ask my team to do some work in another of his functional areas. After I expressed our willingness to do so, I told him I was surprised he had contacted me for an additional project since I didn’t give him the news he wanted to hear the last time. He responded that my honesty in those circumstances proved to him that my team and I would be fair and objective and he could rely on our work. I don’t think he intended our first encounter to be a litmus test, but it was. Once your stakeholders have a chance to check your ethical compass and confirm that it’s pointing true north, they know they can follow you because you won’t lead them in the wrong direction.
No one is saying that exercising ethical behavior is easy, but maybe half the challenge is in agreeing on exactly what constitutes ethical resilience. In the AEC survey, we used the following terms to elaborate on what we meant by ethical commitment, and I suspect few would argue with their inclusion:
Courage especially seems to be a factor in ethical behavior. A number of the survey respondents ruminated on the importance of courage. Take the following comments, for example:
“Inner courage: to follow leads, to follow your gut belief, to professionally confront management and the board, to raise the questions few people want you to raise, to put it all on the line (in terms of taking the risk to do what is right).”
“Courage: the ability to express one’s opinion and give advice even when the ideas are not popular or wanted.”
“Courage to stand alone, if needed, when tough issues need to be raised to management and the board.”
Courage is what drove Bethmara Kessler, senior vice president, integrated global services, and former CAE of Campbell Soup Co., to select ethical commitment as one of her top two choices in the AEC survey. She explains that courage is a particular challenge for auditors because in her long experience of managing audit teams, she has seen internal auditors sometimes waver in their defense of difficult findings for a variety of reasons: They, like most humans, want to be liked; they want to avoid difficult conversations; they feel the pressure to serve too many masters with competing needs; and they fear their actions may hinder their future career opportunities in the business. But, she remarks, “We have to remind internal auditors that courage is important and they should step forward when they see something. Look at Harry Markopolos, who tried multiple times to break open the Madoff scandal. He just kept going back to the [U.S. Securities and Exchange Commission] over and over to make his point. I’m sure it was not an easy thing to do. It took a lot of courage. In my view, he’s a hero.”
Another internal audit hero who deserves notice is Heidi Lloce-Mendoza, currently undersecretary general for the United Nations Office of Internal Oversight Services, and before that, commissioner and officer-in-charge of the Commission on Audit (COA) of the Philippines. Mendoza came to the world’s attention as a result of a 2002 audit her team conducted that uncovered massive bid rigging by former Makati City Mayor Elenita Binay. Mendoza served as a government witness in some of the antigraft cases filed against the former mayor. In response to her speaking out against the former mayor’s corruption, Mendoza’s home was broken into multiple times and she was the target of threats that required special security protection. Yet, despite her admission that she was still being harassed about her role in the corruption trials 13 years after the fact, when she resigned from the COA in 2015 she indicated that her passion for her work had not abated and she felt “no pain, no trace of regret” for her experiences.
Ethical resilience is a trait that not only provides value in and of itself, it also supports the other traits mentioned in this book. Having a firm grip on our own ethical beliefs clears away some of the clutter that can distract us from focusing on desired results.
Trusted Advisors: Key Attributes of Outstanding Internal Auditors is available at The IIA’s Bookstore.