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Legitimate Power and Informal Leadership

Blogs Mike Jacka, CIA, CPA, CPCU, CLU Jun 05, 2020

​When I worked for Farmers Insurance, we did a lot of agency audits — reviews of agents' operation intended to help them establish better controls. These got pretty interesting.

First off, they were surprise random audits, so there was always the chance you might walk into a fraud situation — agent, customer service rep, wife, son, someone stealing money. (And, yes, I saw these and many other weird situations.)

Next, the agents were scattered throughout the U.S., so we were traveling everywhere. Our territory was Arizona, Nevada, and New Mexico. That meant we traveled to such far-flung areas as Phoenix, Las Vegas, Albuquerque, Reno, Deming, Lake Havasu City, Truth or Consequences, Wilcox, Bullhead City, Ely, Chinle, Winnemucca, and Roswell. (Look 'em up; they're all real.) Or to quote the song "Willin'" by Little Feat, "I been from Tucson to Tucumcari, Tehachapi to Tonopah." Only one of those was not in our audit territory.

But, perhaps most importantly, the agents were independent contractors. So, while contractually the company had certain expectations, the agents had the flexibility to work as they felt necessary — to meet the needs of their specific situations. And that often took some…interesting…turns. (At lunchtime, one auditor walked into an agent's office and found a rather heated card game going on in the back room — a game which included the mayor and more than one other municipal dignitary. It is unknown what amounts of money were involved.)

I guess that is all a long-winded way of saying we went just about everywhere and, accordingly, met every kind of agent. (The stories I could tell. The stories I have told. The stories I will tell when we all meet at the bar afterwards.)

Interestingly, our biggest challenge was that some of the agents didn't really want to meet with us. Maybe they were stealing money (actually pretty rare), maybe they thought we thought they were stealing money, maybe they didn't see any value in what we were doing, or maybe they didn't have any time. (And that last was usually the reason/excuse we were given.) Well, the contract they signed included an agreement that a representative of the company could review their records at any time. It further said that failure to comply would lead to termination. So, I'd guess you could say that, in the event of an argument, we would win.

But there is winning and there is winning.

In real life (like internal audit isn't real life, but you know what I mean), there are formal and informal leaders. Formal leaders are those who are given a title along with the inherent responsibilities. Informal leaders are those who have no title and no authority, but have the necessary skills to bring people together, without any authority, to achieve a common goal.

Formal leaders are given big sticks. That big stick is the title, the authority, the power they can wield based on whatever title they have been given. And it is very easy for formal leaders to fall back on using that stick, wielding it at any appropriate (or inappropriate) opportunity. But any leader should remember President Teddy Roosevelt's famous quote, "Speak softly and carry a big stick."

When people look at that quote, they often focus on the big stick, going with an interpretation that focuses on the ability to speak softly because those words can be backed up with a stick. However, I prefer to look at it the other way. Yeah, I've got a big stick. But if I really want to accomplish anything, the big stick is a last resort. The power is in my words; the power is in speaking softly.

What Roosevelt recognized was that, as president, he had a lot of power at his command. And, if he so desired, his first, second, and third response could be bringing out the big guns — start firing, start attacking, start siccing the dogs on anyone who disagreed with him. But he knew that such use of his power was the anathema of leadership. He knew that true power — true leadership — came from an ability to talk before falling back on that last resort.

As an informal leader (even one who has power given to them by something like a contract) speaking and communicating is often the most effective approach for getting things done. That means you can tell a real leader or the potential of leadership in someone by how well they understand and practice these ideas.

I had an auditor working for me that, based on this, proved time and again he would never be a good leader. Let's go back to those agency audits.

At least twice a year, this auditor would walk into an agent's office, meet resistance, and immediately start "waving the contract" (as we called it.) The agent would not let him in, and the auditor would reply that he had to let him in, it was "in the contract." Seriously, when first confronted with resistance, he would, effectively, threaten the agent with termination. This would usually lead to escalation and an eventual call to the regional office where our sales department would back up the fact that auditing had to be let in to review the information.

However, the ensuing audit was usually less-than-valuable (cooperation is fundamental to a successful audit) and it always took a while for us to smooth the sales department's ruffled feathers.

Personally, I take pride in the fact that, in the large number of years I performed agency audits, I never once had to "wave the contract," even in fraud investigations. If the agent balked, I talked. And, eventually, we worked together to find how best to complete the audit.

Did it mean I was good leader? Hardly. It just showed an ability to effectively communicate and persuade. But the actions of the other auditor provided ample evidence that he did not have leadership qualities or potential. (And history proved this to be true. His stint as a supervisor was the end of his career. There's more to that story, but, again, it'll just have to wait until we all get together at that bar.)

I've worked with auditors who, when presented with resistance, instantly start screaming that the client has to let us in because "it's in the charter." (Like anyone outside the audit department, audit committee, or maybe the CEO knows what an audit charter is.) I've been in training sessions where attendees, when confronted with case studies about resistance, instantly begin to wave the charter. (Again, charter? What's a charter?) I have seen leaders — audit, organizational, and world — who think the best response is to go to their explicit authority, to go to the aggressive attack, to go to the big stick, because they do not have the leadership acumen to understand that the most impactful attribute in these situations is communication.

There are times when the power of ultimate authority — the right to access information, to force your will, to meet resistance with more powerful resistance — may well be the solution. But the leader that turns to such tactics too easily is a leader I don't want in charge of my audits, my audit team, or my department. (In fact, they probably shouldn't even be in charge of pencil erasers — but I digress.)

When in a confrontation, look at your reaction. Are you waiving the charter, are you looking for a stick, are you meeting resistance with resistance? Or are you looking for a solution? And, as you watch and learn from those who lead you, be cognizant of their approaches. And, from that, understand who you want to follow.

Mike Jacka, CIA, CPA, CPCU, CLU

Co-founder and Chief Creative Pilot, Flying Pig Audit, Consulting, and Training Services (FPACTS), based in Phoenix.