Internal Audit Must Monitor Ethics in the Corner Office, Too
Blogs Richard F. Chambers, CIA, QIAL, CGAP, CCSA, CRMA Jul 29, 2019
In a recent review of PwC's annual Strategy & CEO Success Study, I was stunned by one revealing statistic. In 2018, more CEOs lost their jobs because of ethical lapses than for poor financial performance or battles with their boards. This has never happened before in the study's 19-year history.
Frankly, I found the results of the PwC study to be very troubling. After all, I have echoed The IIA's view for years that internal audit should report administratively to CEOs. If these same CEOs are now being fired for ethical misconduct in record numbers, what does that mean for internal audit's prospects to carry out its important work free of interference?
After some reflection however, I asked myself some probing questions about the results of the PwC study. Were CEOs less ethical in 2018? Is there an epidemic of bad behavior in the corner office? The growth in ethics-related firings more likely stems in part from the #MeToo movement, which brought scrutiny to executive misconduct. Additionally, board members are feeling pressure to provide adequate oversight as investors and regulators push for more accountability. If my theories are correct, what should internal auditors take away from these developments?
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 identify 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.