Mind of Jacka: The Building's On Fire

As part of the training to become a manager at Farmers Insurance, candidates were brought to the Los Angeles home office for multiple weeks of training: lectures by executives explaining the organization, insight into the organization’s future, and a group project intended to showcase the talents that brought us to someone’s attention. Further details of all this, while interesting for other reasons, are unimportant to the story at hand.

During the second week, on a Wednesday night, the riots began. The next day, without realizing how widespread the disaster was to become, we went back into the office. As the day wore on, we could see the fires moving up through the city from the south, heading toward our offices. But the training continued. Fortunately, by mid-afternoon, we were told to return to our hotel. It was then, watching television (pre-social media days), that we all learned the size of the riots. We also learned  that shortly after we returned to the hotel, the riots had spread north past the home office.

Once things calmed down (an eerie calm that is worth its own essay), the training commenced. The CEO made his presentation and discussed the past days’ events. And it was in that presentation that I recognized a major issue in the way our organization was run — a major problem with communication and honesty. (Again, remember, this was 30+ years ago, so this story has no relevance to the way things are now run.) He made a comment that he would have let everyone out earlier, but his office faced north so he hadn’t seen the progress of the riot, and no one had advised him of the impending problem.

I’ll give you a chance to take a step back and look at all sides of that one.

Danger approaching, and no one was willing to let the leader know.

Communication is the key to success anywhere within an organization. Nowhere is this more important than employees feeling free to tell their superiors when things are going wrong, to let them know the fires are headed for the building. And it reaches its greatest importance when speaking to the executive level.

Accordingly, it is fundamental to any review internal audit performs to determine if such communication occurs freely. Of course, this should be a part of any audit over organizational culture. But it should also be embedded in almost any other audit.

How often have you done a review and been told that something is going wrong? However, when you ask the individual if the message has been sent up the chain, you get responses consisting of blank stares, fear, or humiliation. And then there is the worst response. “Oh, they already know.” (Which always raises the question, “who are ‘they’ and what do ‘they’ know?” Which usually results in blank stares, fear, or humiliation.)

The further up the corporate chain you go, the more important this becomes. Too many C-suite officers have reputations of shooting the messenger. And you can get a feel for how many shots have been fired by the way directors, assistant vice presidents (AVPs), etc. react to any potentially bad news you have given them that is to be delivered to the trigger-happy. You don’t have to ask. You can see their reaction and tell if they fear delivering the message.

But such communication issues exist everywhere — even in internal audit. Ask yourself how people react within your own department. Is there open communication and honesty within internal audit? Are the auditors willing to be open with the leads, the leads open with the managers, the managers open with directors, and the directors open with the CAE?

I had been training an internal audit department — a large group, over 100 people, and found there were significant issues in the way the audit department was working. As the training transformed into a discussion of the issues everyone was experiencing, it became apparent that not only the auditors and supervisors (the focus of the training) knew about the issue, but so did the managers. In the debrief, I mentioned this to the AVP, who looked shocked. He never knew, and yet, I could tell by his reaction that the CAE would never become aware of the issue. The AVP did not want to be the one to let him know.

The building was on fire, and no one wanted to raise an alarm.

And of course, there is one more area where internal audit needs to be concerned. Is the internal audit department willing to tell management — particularly executive management — when things are going badly? I like to think this is a moot point, not a problem with internal audit shops. But, again, I have heard stories where serious issues were identified and audit management asked the auditors to go back and make sure, questioned the auditor’s ability to make such conclusions, and eventually even swept it under the rug. (At least one of those operations is no longer in business.)

I feel this is a small minority of audit functions. But there are subtler approaches that can have the same effect. Come risk assessment time, are some high risks put off for a year or two? Are certain tests avoided? And do issues come up during the year for which no time is available, no matter how important? Are things avoided because audit management will not want to take responsibility for what is found?

When it comes to speaking truth to power, there are several ramifications for internal audit. First, what is the climate of the organization? Are such negative situations raised to the appropriate levels? Second, is there a similar issue in internal audit? Are such negative issues raised to the appropriate levels? And, finally, does internal audit stand up in all instances and let the powers that be know about significant issues?

The minute any of us stop communicating — employees, auditors, or audit leadership — is the minute the fire begins to rage unchecked. If the building is about to catch fire, do you hesitate? Or are you willing to let people know, no matter the consequences?