1. The relationship advantage:Maximizing chief audit executive
successby Richard F. Chambers, Charles B. Eldridge, Paula Park, and
Ellen P. WilliamsAs chief audit executives (CAEs) find themselves
in ahighly visible, pressure-packed role, many have cometo realize
that business and financial acumen are nolonger enough.
Relationship acumenthe ability toestablish and maintain strong
connections with keystakeholdersis now also a prerequisite for
success.Given most auditors accounting background, such
interpersonal savvyhasnt been readily ascribed to the profession.
Accountants, by nature, wereoften green-eyeshade-wearing bean
counters but that stereotype hascrumbled. Corporations increasingly
view the role as critical, and lookbeyond the walls of internal
audit when filling it; many make the positiona short-term,
rotational, executive-development platform. Armed withbroader
organizational experience, these non-traditional CAEs in
factexhibit impressive relationship-building skills.CAEs certainly
need them. Most have dual reporting structurestothe CFO, CEO, or
another C-level officer (administratively) and to theaudit
committee chair (functionally)and so they must craft
effectiverelationships with both. That can mean navigating complex,
competingstakeholder agendas, including with external auditors,
regulators, andothers. Thus, if management wants a CAE in a
business partnering orconsultants rolewhich is increasingly the
casewhile the board islooking for an advisor and internal watchdog,
the CAE must traverse theseseemingly conflicting agendas and
preserve a good working relationshipwith everybody.We try to
operate as a professional services organization, said MikeCowell,
who heads the internal audit function at TIAA-CREF. We ask,Who are
our customers? and we focus on what they see as value and howcan we
help them be successful. Yes, we must be an independent
andobjective audit organization, but if we can do our work and
deliver ourMarch 2011Relationship acumen, or theability to initiate
and developstrong connections with keystakeholders, is becoming
morecrucial to chief audit executives,who must navigate complex
needsand competing agendas of seniormanagers and audit
committees.
2. 2services in a manner that helps business professionals
succeed, ultimately,we will get them to a place where they see
value in what we do.Successful CAEs acknowledge that these
competing expectations can beuncomfortable and stress-inducing. On
one hand, the CAE must be a keenobserver and assessor of
organizational risks, which requires access thatcomes only with a
close working relationship with management. On theother, this same
CAE must remain objective, diligent, and guard theindependence of
the internal auditing function. That job inevitablyresults in the
occasional unflattering if not damaging report about
seniorexecutives. Such conditions easily can erode relationships
over time; nearlyeveryone associated with internal audit knows of a
highly respected CAEcolleague whose career was upended by conflict
with senior members ofcorporate management.But as Alex Stephanouk,
vice president and internal audit director at Aflac,put it, Having
high-quality relationships is not an accident. You have towork at
it purposefully.Attributes that add up for CAEsTo determine how
effective CAEs build these high-quality relationships,we spoke to
more than a dozen veterans from the field and also a numberof audit
committee chairs. Their comments reflected a wide range
ofperspectives on how to manage these complex, intertwined
relationships.From those, we teased out some common themes.It goes
without saying that strong technical audit skills and business
savvyremain essential to todays CAEs. But the attributes that
constitute whatweve dubbed relationship acumen benefit CAEs in
specific ways:Positive intent: A fair, independent, and objective
approach to the job thatprojects the CAE has everyones best
interest at heart. Makes clear that heor she isnt set on being
right, but is set on finding the right answer.Diplomacy: Direct,
forthright communication (including listening) skills,political
astuteness, and sensitivity to the organizations culture and
howthings get done. CAEs need to be intuitive about people and have
the abilityto read an audience. The best can be skillfully
contrarian without beingconfrontational.Prescience: Spotting the
risks ahead requires curiosity, an ability to seematters with fresh
eyes, and a willingness to question assumptions. TopCAEs can see
around cornersthat is, anticipate needs before theyrefelt and
issues before they arise.ContributorsHal GarynVice President, North
American ServicesThe Institute of Internal AuditorsStuart
KaplanGlobal Chief Operating OfficerKorn/Ferry Leadership andTalent
ConsultingAcknowledgmentsKorn/Ferry and The IIA thank the CAEsand
directors who participated in thecreation of this paper.Dennis R.
BeresfordErnst & Young Executive Professor ofAccounting at the
University of GeorgiaDirector and Audit Committee Chair ofDoosan
Infracore International Inc.,Fannie Mae, Kimberly-Clark Corp.,and
Legg Mason Inc.Mike CowellSenior Vice President, Chief
AuditorTIAA-CREFMark GaumondRetired Partner, Ernst &
YoungDirector and Audit CommitteeMember of Rayonier Inc. andBooz
Allen HamiltonRobert GuidoRetired Vice Chair of Ernst &
Young;Director and Audit Committee Chairof Commercial Metals
Companyand Bally Technologies Inc.V. Ann HaileyDirector and Audit
CommitteeMember of W.W. Grainger Inc.and Avon ProductsKiko
HarveyVice President, Corporate Audit andEnterprise Risk
ManagementDelta Air Lines Inc.
3. 3Trustworthiness: A CAE must always walk the talk, keep
confidences,operate with integrity, and be mindful of maintaining
credibility withthose he or she advises. While consistency and
predictability may soundboring, theyre desirable qualities in this
job.Leadership: A CAE must set the tone for the entire internal
audit staff, tobe sure. But he or she must also be able to steer
others toward consensus,manage conflict, and gain alignment on
issues. Being a leader alsocontributes to comfort with other
corporate leaders.Empathy: CAEs must be able to understand and
focus on each stakeholderspoint of view, and be sensitive to those
needs and feelings. He or shemust listen. A genuine caring about
others amplifies all the other qualitieson this list.Applying
relationship acumenKen Robinson, CAE at Procter & Gamble,
oversees a global internal auditfunction with more than 150 people
in six cities around the world. Heattributes his successful
eight-year run at the $80 billion company to hiscommitment to
absorbing and understanding the business goals of hiscolleagues.
This didnt stem just from casual business lunches and
quarterlymeetings, but from previous experience: before joining
internal audit,Robinson was the senior finance manager in P&Gs
personal beauty carebusiness and also ran global customer business
developments financeorganization. I know the company very well, he
said.Understanding the corporate culture earned him credibility in
buildingthe internal audit organization he now overseesbut
listening is a job thatnever stops. We spend a lot of time bringing
senior leaders in to talk toour group about whats going on in the
business and what theyre trying toaccomplish. It allows us to
engage with them, but more importantly, it alsoallows us to
understand the business.Robinson employs what he calls the customer
relationship model, whichhe uses with all of P&Gs senior
managers. It reflects his diplomacy,trustworthiness, and positive
intent right off the bat.One of the things that has worked for us
is getting alignment up front,he explained. We say to senior
managers, Now that we understandthe business, what do you expect of
us and what do we expect of you?We drive this by establishing our
credibility, by demonstrating ourcommitment to transparency. We
dont pull any punches and we are clearwhere we see concerns. We
raise those concerns through the appropriatechannels. And most
important, we are consistent. One of our challenges
inAcknowledgmentsContinuedLeslie HeiszDirector and Audit Committee
Chair,Ingram Micro Inc.Director, HCC Insurance Holdings
Inc.Jeanette HughesVice President, Internal Audit Ingram Micro
Inc.Leon J. LevelDirector and Audit Committee ChairLevi Strauss
& Co. and UTi Worldwide Inc.Wolfgang MuehlbauerSenior Vice
President, Chief Audit Officeradidas GroupKen B. RobinsonVice
President Finance, Global Internal AuditThe Procter & Gamble
CompanyManny RosenfeldVice President of Internal AuditCommercial
Metals CompanyJulie ScammahornSenior Vice President and General
AuditorAmerican Express CompanyJoe N. SteakleySenior Vice President
Internal Audit andEnterprise Risk ServicesHospital Corporation of
AmericaAlex StephanoukVice President, Internal Audit DirectorAflac,
Inc.Brian ThelenVice President, Internal Audit ServicesDelphi
AutomotiveCharlie WrightVice President, Internal AuditDevon Energy
Corporation
4. 4the past in an organization as big as P&G has been an
inconsistent approachto audit from region to region around the
globe. During my time as CAE,weve been driving a consistent
approach that helps build credibility.Forging a bond with the audit
chairMany CAEs report that the regular annual or quarterly meetings
with theaudit committee chair are simply a starting point. CAEs and
chairs whoestablish stronger bonds tend to reap the benefits.At
American Express, forexample, CAE Julie Scamma-horn, a veteran with
twenty-seven years of financialexperience, described how shecreated
a strong relationshipwith one recent audit committee chairman. It
was important for me toestablish a relationship outside of formal
company time, she said. Once aquarter, we would spend a morning
together to address concerns strategi-cally and to discuss any
issues we see forthcoming for the company. Theaudit chair knows
that if I reach out to him outside of our establishedmeeting, the
issue must be of importance and requires immediate atten-tion. That
not only creates a stronger working relationship, but adds value.At
the same time, Scammahorn has built strong relationships with the
topfifty executives. If one of the executives encounters problems
that becomeconcerns for the audit committee, Scammahorn works
side-by-side withthe executive and attends all meetings in search
of a solution. She recentlyworked with a newly promoted business
unit president in this mannerto resolve a challenging audit report.
Because of this, we have a greatrelationship, and he calls me to
get my advice on any sticky issues,she said.For audit committee
chairs, the CAE can be an invaluable conduit into thecompany,
someone with a unique perspective and the ability to influenceevery
part of the organization. Dennis Beresford, audit committeechairman
for Fannie Mae, among other boards, says the foundation ofan
effective relationship is setting expectations and establishing
linesof communication. And a confident tone is important.
Historically, theCAE has been extremely deferential with comments
like I hate to botheryou but, a stance that rankles Beresford. They
should never feel thatway, he stated.For audit committee chairs,
the CAE can be aninvaluable conduit into the company, someone witha
unique perspective and the ability to influenceevery part of the
organization.
5. 5Beresford worries about the lack of self-confidence among
CAEs. Theymay feel that they dont have the necessary support, he
said. The auditcommittee chair needs to spend extra time with the
CAE because they arereally alone at the top. Another audit chair we
spoke with concurred thattime with the CAE was well spent: They
have to know you wont throwthem under the bus, she said. The audit
chairs approach should be:What can I do to help without
jeopardizing your key relationships?At the same time, audit chairs
expect more from CAEs than ever before.Robert Guido, audit chair at
Commercial Metals Company and BallyTechnologies, believes that CAEs
need to be more prescient and diplomatic,and show more leadership
in staking out their influence with the auditcommittee. CAEs have
to generate new ideas in order to provide value,Guido said. They
cant always show up on the doorstep of the businesswith bad news.
Relationship acumen, Guido pointed out, is based on theidea that
you build the relationship before you need it.Developing your own
relationship acumenThe abilities that got you the CAEjobobserving,
absorbing, probing,listeningshould also be applied toyour own
development.Behavioral scientists have made strides overthe past
decade in decoding the personalattributes that lead to strong
professionalrelationships. Daniel Golemans seminal work,Emotional
Intelligence, brought these types ofEQ skills into stark relief
against the moretechnical skills prized within many
corporatefunctions. Building on that, Korn/FerrysLominger research,
which identified specificcompetences that correlate to high
EQ,clarifies how leaders can develop these skillsover
time.Experience is the best teacher, itturns out. Korn/Ferry refers
to this asthe 70-20-10 rule:Key jobs (70 percent): It is essential
thatbefore stepping into the CAEs role, theperson has worked in
jobs or situations inwhich strong relationships are required
inorder to succeed, and in which somethingimportant is at stake.
These might include:change management roles,
internationalassignments, staff leadership without formalauthority,
or turnaround situations in whichroles are not clearly defined. The
research isvery clear that there are no shortcuts: peoplelearn far
more from situations in which theypersonally were stretched and
challenged.However, these experiences alone dontteach. What makes
the difference is stoppingto reflect on what has been, and still
can be,learned. This extra step separates lifelonglearners from
those who dont grow over time.CAEs, and aspiring ones, shouldnt
hesitate tovolunteer for or accept opportunities thatstretch your
boundaries. That special project,assignment, or transfer could be
the fuel topropel your career faster forward.Mentors, coaches, and
bosses (20 percent):The second most important way to
deepenrelationship acumen is through directcoaching and feedback
from others, both inand outside of the organization. For currentand
aspiring CAEs, this might require activelyseeking out some tough
love on their peopleskills. Cultivate relationships with mentorswho
tell you not what you want to hear, butwhat you need to hear. In
addition, objectivemeasures, such as 360 assessments (whichproffer
feedback from supervisors, directreports, peers, and clients), can
provideessential input.Courses, seminars, and books (10
percent):While they are valuable framing for ourdevelopmental
journey, these should not besubstituted for the experience and
coachingabove. In ideal situations, course, seminar,and book
materials are integrated so as tosupplement the learning that
occurs throughaction.
6. 6The CAE must reach out early and often to initiatenew
relationships when personnel change.I put myself in theshoes of the
operatingpeople. Ive been there;I understand theenvironment in
whichthey operate. Intent isimportant to us, as isthe ability to
adapt. Brian Thelen Vice President, Internal Audit Services Delphi
AutomotiveExperience leads to empathyCAE Brian Thelen, considered a
turnaround specialist, came to Delphiduring the transformation of
the company. During his five years at Delphi,he has worked through
multiple transitions in leadership, including theCEO and board
members. He has found that empathy is a key ingredientto building
effective relationships.I put myself in the shoes of the operating
people, Thelen said. Ive beenthere; I understand the environment in
which they operate. Intent isimportant to us, as is the ability to
adapt. I dont have a textbook whereevery i has to be dotted and t
crossed.Among his first moves leading Delphis internal audit
function was tomake sure his staff understood the positive intent
he wanted to project.Our aim is not to be punitive, Thelen
declared. Were advocatingbehavior change. I dont want my managers
to hammer the organization;I want them to coach it and help it
become even better.Successful CAEs dont take anything for granted,
especially relationships.At Aflac, CAE Alex Stephanouk created what
he calls a relationshipindex to rate and measure how well internal
audit is working with keystakeholders. Its easy to say, Ive got a
good relationship with my auditcommittee chair, but we struggled
with how to measure all the influencersto these key people, he
said. The index is set up to rate internal auditagainst the goals
it had set with stakeholders. How well, for example,are action
plans being implemented? Are customer satisfaction scoresimproving
along with management survey scores?Long-term careSuccessful CAEs
understand that even in the best of circumstances, theprocess of
building and sustaining relationships is never-ending:
seniorexecutives come and go or change hats, and the audit
committee rosterchanges. The CAE must reachout early and often to
initiatenew relationships whenpersonnel change. Tending
tolong-standing relationships isalso imperative. Picking up the
phone, or extending a lunch invitation totalk through a touchy
issue, pays enormous dividends to the CAE, and theentire internal
audit staff.
7. 7Building trust and understanding requires an investment of
the CAEs timeand energy. Its also a moving target. The needs and
expectations of keystakeholders are constantly evolving. Successful
CAEs recognize the signsof change and recalibrate.Establishing and
maintaining important allegiances changes the entireCAE experience.
Having the audit chair as an ally gains the CAE credibilitywith the
whole committee and inspires respect from management.One measure of
success in building long-term relationships is receiving aninvite
from a new business unit leader to send in the team to evaluate
thesituation, to offer a view and perspective of where the business
is today(relative to others) and what is needed to be best of the
best, said WolfgangMuehlbauer, chief audit officer at adidas Group.
CAEs report that theyknow a bond is solid when a senior executive
solicits their input or adviceoutside of audit situations.In the
long run, success depends on a balanced mix of strong
technicalknowledge and relationship acumen. One without the other
inevitably willresult in diminished results or failure. As
Stephanouk said, No one willtell you the truth unless they trust
and value you.
8. 8Richard F. Chambers, CIA, CCSA, CGAP, is the President and
CEO of TheInstitute of Internal Auditors. He has more than 35 years
of internal auditand related experience. Prior to leading the IIA,
Chambers served as nationalpractice leader at
PricewaterhouseCoopers and held various internal auditand inspector
general positions with the federal government.Charles Eldridge is a
Senior Client Partner in Korn/Ferry InternationalsFinancial
Officers Center of Expertise, a specialized, global group of
morethan forty professionals dedicated to recruiting Chief
Financial Officersand their direct reports, as well as financial
experts for board of directorpositions. He is based in
Atlanta.Paula Park is a Senior Client Partner in Korn/Ferry
InternationalsFinancial Officers Center of Expertise, based in San
Francisco.Ellen P. Williams is a Senior Client Partner in
Korn/Ferry InternationalsFinancial Officers Center of Expertise,
based in Stamford.About The Institute of Internal AuditorsThe
Institute of Internal Auditors is an international professional
associationheadquartered in Altamonte Springs, Florida. It is the
professions globalvoice, recognized authority, acknowledged leader,
chief advocate, andprincipal educator. Members work in internal
auditing, risk management,governance, internal control, information
technology audit, education, andsecurity. For more information,
visit www.theiia.org.About Korn/Ferry International and The
Korn/Ferry InstituteKorn/Ferry International, with a presence
throughout the Americas, AsiaPacific, Europe, the Middle East, and
Africa, is a premier global provider oftalent management solutions.
Based in Los Angeles, the firm delivers anarray of solutions that
help clients to attract, deploy, develop, and rewardtheir talent.
The Korn/Ferry Institute generates forward-thinking researchand
viewpoints to illuminate how talent advances business strategy.
Visitwww.kornferry.com for more information on the Korn/Ferry
Internationalfamily of companies, and www.kornferryinstitute.com
for thoughtleadership, intellectual property, and research. 2011
The Korn/Ferry Institute