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​Internal Auditors Must Stand Tall — But Know When to Walk

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Global headlines recently noted that the chief audit executive (CAE) of a major publicly traded company had resigned amid questions about the company's CEO improperly executing a stock-linked compensation plan. There was a lot of speculation about the connection between these events, including whether the CAE quit on principle in the face of corporate pressure. I don't know if that's true, but the speculation alone stimulates conversation once again about how CAEs should respond in a toxic or tone-deaf culture. 

I have tackled this topic several times in this blog, including a 2014 entry on the challenges for CAEs working in an environment where tone at the top is troubled. As internal auditors, we understand more than most the impact of a strong tone at the top. It affects an organization's culture and often the organization itself — for better or worse. A strong and also positive tone sets a clear direction — operationally, ethically, and morally — and enables us to do our jobs and effectively serve our stakeholders.

As I noted in 2014:

For some organizations, management and/or the board may seem profoundly tone-deaf and unable to articulate a clear path or purpose. Or worse, the tone they do set is less than desired and perhaps even counter-productive. The impact may go unnoticed, or it may become quite visible: goals and objectives are missed, morale and productivity falter, revenue and profitability plummet.

When the tone at the top is deaf or flat, it's difficult for anyone, including internal auditors, to determine a best course of action.

As internal auditors, how should we proceed when tone at the top is ineffective, or perhaps toxic, and our ability to effect positive change is compromised? That is one of the enduring questions facing our profession.

When I wrote about this problem in 2014, I naively proclaimed the issue was "less common than in the past." I said "boards and audit committees have become much more attuned to management's ability — or inability — to lead." Oh my! Was that optimistic view unwarranted. Since 2014, I have written countless blogs about companies whose toxic cultures and clueless boards wiped out billions of dollars of shareholder value.

One thing is clear: Internal auditors cannot and should not try to coexist in toxic cultures. Where the culture is bad, our priority must be to work tirelessly to educate and assist management and boards toward righting the ship. That is our mandate. It is one of the ways we serve the public good.

Much has been written about toxic cultures. However, as I have noted, "ultimately, culture itself may not be the real culprit; it's the people who bring corrosive ideas and actions into an environment. A destructive corporate culture is a symptom of much deeper problems." We must do everything we can to foster stronger cultures in our organizations.  

But at the end of the day, it's up to each of us to decide whether we can continue to work in a toxic culture. Some of us thrive being part of an effort to turn around a bad situation. However, if we are ignored, circumvented, or (worse yet) subjected to retaliation, our last word may need to be "goodbye." Leaving a troubled organization is a difficult decision, and that should be a last resort. But we all need to have the satisfaction of knowing that our hard work can make a difference. And the cold, hard facts are, where management is unable or unwilling, the opportunity for making a difference may be limited.

It's crucial that each of us remember our commitment to our organization and strive to effect positive change. We also need to assess what we hope to accomplish. Each organization is unique, and each internal auditor has unique goals and objectives. My hope is that we will all find a work environment in which we can make a difference. For some, that may be one in which we face tremendous challenges. For others, in order to stand tall, we may need to walk.

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