Thank You!

You are attempting to access subscriber-restricted content.

Are You Ready to Experience Everything Internal Auditor (Ia) Has to Offer?

Beyond Diversity and Inclusion​

Today's social justice movements are demanding responsible action from organizations on social equity — and internal auditors can help them respond.

Comments Views

Demands for racial justice went global in recent months, largely in response to the publicized killings of George Floyd, Ahmaud Arbery, and Breonna Taylor in the U.S. The movement that galvanized around this issue followed soon after other recent movements that drew attention to injustice and inequality related to race and ethnicity, gender, religion, and sexual orientation. Increasingly, the importance of social equity and justice is gaining recognition in today's globally interconnected world.

For example, more than three-fourths of Americans surveyed last year by research organization JUST Capital say they strongly believe companies should publicly condemn structural racism and racial injustice and take concrete steps to create a more equitable future. As support for social equity has grown stronger, employees, customers, and investors are putting pressure on companies to lead transformative change.

"Internal auditors have an opportunity to make a significant impact with the energy and momentum of recent social justice events," says Susan Haseley, executive vice president and global diversity and inclusion leader at Protiviti in Dallas.

She says internal auditors can lead discussions with senior management and the board about risks and opportunities related to diversity, equity, and inclusion (DEI) as part of organizational culture. Beyond that, auditors can design a roadmap to reach the organization's strategic DEI objectives, provide ongoing insight about how to overcome obstacles, and hold the organization accountable to achieve the agreed-upon objectives.

The Goal of Equality

Inequality persists globally — especially on the basis of race, ethnicity, and gender — despite incremental progress made by decades of social movements and legislative changes, according to an Oxfam briefing paper (PDF) released in January. The COVID-19 pandemic has reflected and magnified that inequality, with its health and economic impacts disproportionately impacting women, as well as people who are Black, Indigenous, or in ethnic minority groups. 

Reducing inequality and supporting marginalized and disadvantaged people are among the 17 Sustainable Development Goals (SDGs) the United Nations seeks to achieve by 2030. The reasons for the SDGs' focus on inequality are practical. The World Economic Forum's Global Risks Report 2020 (PDF) warns:

"Inequality hinders growth and damages macroeconomic fundamentals … slows down economic activities, and casts doubt on a country's stability. This damages investor confidence and undermines political capital — both fundamental conditions for prosperity, especially in times of economic volatility."

​MORE

IIA members, click here and log in to read The IIA's Global Knowledge Brief, Beyond Diversity and Inclusion: Social Equity and Corporate Social Responsibility.

The SDGs have created a new reality for businesses, says IIA Global Board Chair Jenitha John, who led DEI initiatives in her former role as a chief audit executive (CAE) in post-apartheid South Africa. "The reality is that the blended value proposition in organizations has to align with the SDGs as well as the transformation imperatives in a specific organization," she explains. According to the blended value proposition (PDF), a company's economic value works in concert with its social value. "These should be vital for internal audit to consider," John says.

Stakeholders want to see corporate social responsibility and other environmental, social, and governance issues measured, tracked, and reported (PDF) transparently. A recent Agenda report suggests DEI-related metrics will become more heavily weighted in executive compensation plans.

And CEOs are starting to receive this message. Last year, the Business Roundtable, a group of 181 CEOs of prominent U.S. companies, signed a new Statement on the Purpose of a Corporation (PDF). In it, the CEOs committed to "move away from shareholder primacy" and instead to lead their companies "for the benefit of all stakeholders — customers, employees, suppliers, communities, and shareholders."

Auditing DEI

The CEOs' emphasis on social responsibility — including DEI issues — aligns with a growing focus on corporate culture. Internal audit is uniquely positioned to assess culture, says John, who was recently named CEO of the Independent Regulatory Board for Auditors in South Africa. "Internal audit has the mandate to see holistically across the organization; to audit against a framework, criteria, policies, and procedures; and to test whether the talk is being walked by leadership," she says.

For organizations just beginning their DEI efforts, internal audit can conduct consulting engagements to establish baseline data that may help prompt the discussion (see "Conducting Baseline Assessments" below). Such engagements should consider the organization's unique context and the maturity of its DEI journey. Internal audit should coordinate its work with the organization's human resources (HR) and senior leadership, the board, and other key stakeholders. Organizations should consider seeking assistance from an external DEI expert or firm, if necessary.

Leadership's Role

In assessing the organization's DEI efforts, internal audit can work with senior management and the board to explore how the organization's current state compares with its vision for the future. Any discussion about social equity must begin with a close look at the organization's values, says Perry Liu, CAE and diversity and inclusion champion at CSAA Insurance Group in Walnut Creek, Calif.

"It's also important to look at your competitors and then ask, how do we want our brand to be represented?" he explains. "Are our mission, vision, and value statements just words on paper, or have they been translated into tangible actions?" If they haven't, the organization should determine why not and how it can change.

When internal auditors notice inconsistences, they should speak up to management, John says. "Internal audit can act as the catalyst by pointing out the red flags emanating from the audit process through root cause analysis, interviews, data analytics, conducting an audit engagement, or just observing behavior," she explains. John notes that addressing especially sensitive observations may require CAEs to have closed discussions with the chairman and members of the audit committee, without management present.

"Leadership, from the top down, sets the tone for culture, for what behavior is acceptable and what is not acceptable," Haseley says. Without such commitment, DEI initiatives are unlikely to be prioritized, which leaves them doomed to struggle and fail.

Cultural Intelligence, Empathy, and Persistence

A key to shifting to a culture that embraces all stakeholders, according to John, is bringing awareness to cultural intelligence. She describes cultural intelligence as the "connective, collaborative, collective intelligence" that recognizes the value of each person's unique beliefs, intellect, wisdom, and qualifications.

"If we can educate, train, and bring awareness to cultural intelligence, then we can harness that uniqueness and bring about the best for organizational value creation and success," John says. "Innovation and creativity are harnessed best when working as a collective."

To gain cultural intelligence, leaders must demonstrate empathy — a true desire to understand the experiences of others who are unlike themselves, says Tony Williams, senior vice president of Global Human Resources, Transformation Enablement and Regions, at The Estee Lauder Companies Inc. in New York. "Understanding, in a thoughtful manner, the psychological journeys and hurdles faced by other human beings enables leaders to better leverage their power to influence positive change based on those learned perspectives," he explains.

And persistence is key, according to Liu. "If you can recruit one high-level person to be on your side, they'll help you recruit others," Liu says. It's similar to following up on open audit issues. "You can't mind being that pest to consistently bring up issues until they are remediated," he explains. "It's all about celebrating the small wins and hoping they turn into bigger wins."

Conducting Baseline Assessments

To gather baseline information about the state of the organization's DEI, internal auditors may consider assessment activities, including:

  • Conducting interviews, focus groups, and surveys on the views and experiences of employees, customers, and other stakeholders related to diversity, inclusion, and social equity and justice. These should include reflections on the organization's operations and communications.
  • Reviewing ethics hotline calls for reports of DEI-related concerns and how they were managed.
  • Reviewing internal and external communications related to DEI, including crisis communications plans.
  • Reviewing HR policies, practices, and metrics, and benchmarking them against a DEI framework.
  • Determining whether the organization has measurable DEI goals with specific, meaningful performance targets, indicators, and incentives. Internal auditors should identify how management is held accountable for achieving equity targets.
  • Evaluating social equity implications related to goods, services, processes, and stakeholder relationships. For example, auditors should review the organization's philanthropic activities and contributions, as well as the investments of the business and its affiliates for risks and alignment with the organization's mission and values. Additionally, auditors should review supply chain management and processes to determine whether they promote supplier diversity, including providing opportunities for small and minority-owned businesses. Moreover, they should determine whether those processes detect, monitor, and restrict practices detrimental to social equity, such as the exploitation of workers.
  • Evaluating whether the organization's stated values are integrated into its strategy, reflected in its policies and communications, and aligned with its actions. Auditors should identify discrepancies, shortcomings, and their root causes, as well as potential remedies.
  • Evaluating public transparency related to DEI metrics as part of nonfinancial reporting.
  • Reflecting on results with senior leaders and the board.

Lauressa Nelson
Internal Auditor is pleased to provide you an opportunity to share your thoughts about the articles posted on this site. Some comments may be reprinted elsewhere, online or offline. We encourage lively, open discussion and only ask that you refrain from personal comments and remarks that are off topic. Internal Auditor reserves the right to remove comments.

About the Author

 

 

Lauressa NelsonLauressa Nelson<p>Lauressa Nelson is a content writer and technical editor, Standards and Professional Knowledge, at The IIA. <br></p>https://iaonline.theiia.org/authors/Pages/Lauressa-Nelson.aspx

 

Comment on this article

comments powered by Disqus
  • FastPath-October-2020-Premium-1
  • AuditBoard-October-2020-Premium-2
  • CIALS-October-2020-Premium-3