Leadership is defined by Oxford Dictionary as an action of leading a group of people in an organization. The definition provides an insight of what a leader should be doing. And leading a group of people does not in a simple sentence imply “LEADING”. In a more exhaustive manner it implies understanding the internal and external environment and then leading the group of people. Internal environment implies understanding the group dynamics – as every person in the group will have his own unique nature to be dealt with. External environment will mean to understand the objectives of the organization and then align the group towards achieving the objectives. Further due to the interactions with other groups, the leader will have to possess a myriad of traits and wear different hats at different point of time to achieve his goals.
ELEMENTS OF LEADERSHIP AND RELATION TO INTERNAL AUDIT
A Leader as mentioned above must display a variety of traits to guide the team in the achievement of organization objectives. I have mentioned some of them here, relate them to Internal Audit and how these characteristics help in achieving organization goals.
- Teacher – Teaching is an essential skill for the leader to have. Employees look towards their leader for guidance and knowledge. As we advance from a school based learning to self-learning, leader is expected to guide by setting own examples. Further for a beginner or a novice person joining the Internal Audit Team or any Department in an organization, teaching the nuances and the requirements is a key skill for the leader to possess and display. Internal Audit Heads/Senior Managers can guide the juniors on how to ferret out the information required for performing the job. And at the same time, it is also dependent on the learner’s capability and skill on how he/she can pick it up and learn from it.
- Humility – Humility is a key consideration for a leader to display. In a poll conducted by Mc Kinsey columnist Christine Porath, incivility amongst leaders have been displayed: Employees are affected in a myriad of ways and some of the consequences noted by the article is: – a. Workplace performance; b. Employee turnover; c. Customer experience; d. Collaboration. As Internal Auditors are also involved in Risk Assessment, hence the effects and consequences are dependent on the degree (impact and likelihood) of the incivility.It is imperative that leaders show respect and have proper accountability procedures in place. This places the feeling to the employees that they are being treated in a fair and consistent manner. The research found that those getting respect from their leaders reported much higher levels of health and well-being, derived greater enjoyment, satisfaction and meaning from their jobs, and had better focus, and a greater ability to prioritize. Those feeling respected were also much more likely to engage with work tasks and more likely to stay with their organizations.
- Change Manager – Change is the only thing permanent. The famous statement by Charles Darwin “It is not the strongest of the species that survive, or the most intelligent that survives. It is the one that is most adaptable to change”. In an era dominated by manual ledgers and manual way of working, concept of Risk Management and Risk Assessment was alien. But nowadays with GRC (Governance, Risk and Compliance) concept in prevalence, Internal Audit Heads must be more perceptive of change. Process automation and Robotics is going to be the in-thing and the one that is going to drive the business. It is imperative that the Compliance Heads are in the forefront to provide the right governance directions. In the Katzenbach Center survey, 84 percent said that the organization’s culture was critical to the success of change management, and 64 percent saw it as more critical than strategy or operating model. Yet change leaders often fail to address culture—in terms of either overcoming cultural resistance or making the most of cultural support.
- Communicator – Leaders are expected to be at the forefront of communication channel. In today’s world when news travels faster than speed and gossip mongering at the corporate level, effective communication is the key. Getting the right message to the right people at the right time makes all the difference. A leader may have the right message and may communicate to the right people but at the wrong time will dilute his credibility.
So as an example Internal Audit Department may be aware of a fraud happening in a department and have all the evidence in place. However if it is not communicated to the Audit Committee/reporting Authority in time, then the Department’s role becomes diluted.
- Transparent – Transparency ranks as an important element in a leadership. It speaks a lot about the leader if the team does not perceive him/her to be transparent. It shows that the leader lacks confidence to handle the outbreak of the news. And then how to handle the consequences. Leader has to be transparent in his way of working, in the words he communicates so that his word do not appear to be different from what his actions are. Employees have the right to know the correct picture. Nobody likes surprises in workplace.
By being transparent, the leader is also giving an opportunity and empowering his/her employees to come up with solutions. There is a possibility that a leader may not have the solutions for all the work problems but then when it is shared with his/her team, the solutions can always be worked on.
However excessive transparency may sometime be an impediment to fair perception. A judgement call is required by the leader of what details need to be shared and what not. As illustrated below in a McKinsey article, employee’s perception changed when the bonus plan in a company was published.
What went wrong? Interviews conducted with employees suggested two unintended side effects of the new process. First, transparency invited a critical and transactional evaluation, rather than the bonus being seen as an unexpected gift. Second, transparency highlighted those who received larger bonuses, inviting envy on the part of those who fared less well. (source – McKinsey)
- Learn from Failures – A critical piece in being a leader is learning from one’s failures. More often than not, Internal Audit department is blamed for a major control lapse/fraud in the Company. However rather than indulging in blame game, there needs to be a proper soul searching to ensure that the source of failure is understood and necessary actions taken thereupon.
In the case of Wells Fargo when staff opened 2 million deposit accounts and applied for approximately 500,000 plus credit cards, then question arose as to what was the role of Internal Audit and Risk Management.
Learning from failures and taking the necessary steps is key to ensure the achievement of long-term goals.
In the new environment wherein 5th Industrial Revolution is being discussed, Governance, risk and compliance will have a major role to play. Internal Audit will have to step up. The Chief Audit Executive will need to possess the necessary skills and capabilities to provide the right guidance to his team so the Internal Audit Department as a whole is effective and considered as a serious business partner.