There haven’t been as many recent high profile corporate scandals involving ethical misconduct by corporate executives, but that doesn’t mean the risk has diminished.  As recent as 2018, PwC disclosed a stunning statistic in its annual Strategy & CEO Success Study: more CEOs lost their jobs because of ethical lapses than for poor financial performance or battles with their boards. That had never happened before in the study’s 19-year history.

During the years since the PwC study captured headlines, COVID and an endless stream of risk-induced disruptive events have lessened the focus on ethical misconduct at the executive level. But if history is any indication, two things should be kept in mind. First, many scandals involving executives don’t make headlines. Unless the misconduct arises to the level of criminal wrongdoing (such as fraudulent financial reporting), companies and their boards often handle the offenses swiftly and behind the scenes. The reputation of the organization and potential legal risks often take precedent when considering whether to publicize ethical misconduct in the C-suite. The other thing that we shouldn’t overlook: unless the organization maintains a proactive ethics compliance program, ethical misconduct may be concealed until it’s too late.

As I contemplate the risk of ethical misconduct at executive levels, I ask myself some probing questions. How should a company ensure that executives are held to the same ethical standards as the vast percentage of employees? Who monitors executive conduct when it comes to ethical compliance? How does the board exercise its oversight? Who provides assurance about overall ethical compliance in the organization?

To the last question, I would answer that the question should include internal audit. Certainly, we do not undertake this delicate task alone. Human resources, legal counsel and others have important roles to play alongside us. But any monitoring system that doesn’t have internal audit in tow is fraught with risk. For as the “third Line” we are the only monitoring and oversight function in most organizations that has a direct reporting line to the board.

Ethical behavior from internal auditors themselves should be a given. I have characterized ethics as “table stakes” for anyone wishing to practice our noble profession. Indeed, I identified ethical resilience as the No. 1 desired trait for internal audit leaders in my second book, Trusted Advisors: Key Attributes of Outstanding Internal Auditors.

Outstanding internal auditors do more than just commit to ethics; they model ethical conduct in everything they do by being resilient, even when the ethical position may not be a popular stance.

However, my focus here is not just about internal auditors modeling ethical behavior but also internal audit’s role in monitoring ethical behavior in the organization — even in the corner office. Internal auditors are well-positioned to understand and monitor ethics and have an obligation to speak out about unethical behavior no matter where it occurs within the organization’s hierarchy.

Some of the profession’s greatest triumphs involve internal auditors speaking out, including Cynthia Cooper at WorldCom. I personally know countless other upright internal auditors who have acted with equal courage. To be clear, this is more than just an exercise in “gotcha” auditing. This is more than internal auditors blowing a whistle when executive leaders run an “ethical red light.” Ethical leadership is fundamental to good governance that models the same core values that make internal audit great — accountability, transparency, and honesty. 

Internal auditors should leverage the emerging environment of greater accountability to promote ethical behavior throughout their organizations. This means being willing to speak out at the first signs of trouble. From Trusted Advisors:

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.

I also stress in the book that internal audit must do the hard work of building relationships and credibility within the organization to be seen as trusted advisors. A clear benefit to achieving trusted advisor status is having our warnings about pending wrongdoing or calamity being taken seriously. Without trust as a basis for engagement, conversations about unethical behavior can become awkward or polarizing.

But the potential for conflict should never deter internal auditors from raising a red flag when unethical behavior is suspected. The words of Maggie Kuhn, the founder of the senior citizens’ rights group The Gray Panthers, clearly articulate the fortitude necessary to be the voice of ethical behavior:

Leave safety behind. Put your body on the line. Stand before the people you fear and speak your mind, even if your voice shakes.

Speaking of Cynthia Cooper, she and I have been partnering on an important study on behalf of AuditBoard on corporate culture and internal audit’s role in the 21^st century. Watch for our report coming soon. In the meantime, I encourage you to consider your role in monitoring ethics in your company – even those in the corner office.

I welcome your thoughts on this important topic. Please comment on LinkedIn or Twitter, or send me an email at blogs@richardchambers.com.