The relationship advantage:

Maximizing chief audit executive success

by Richard F. Chambers, Charles B. Eldridge, Paula Park, and Ellen P. Williams

March 2011 As chief audit executives (CAEs) find themselves in a

Relationship acumen, or the highly visible, pressure-packed role, many have come
ability to initiate and develop to realize that business and financial acumen are no
strong connections with key longer enough. Relationship acumenthe ability to
stakeholders, is becoming more
crucial to chief audit executives,
establish and maintain strong connections with key
who must navigate complex needs stakeholdersis now also a prerequisite for success.
and competing agendas of senior
managers and audit committees. Given most auditors accounting background, such interpersonal savvy
hasnt been readily ascribed to the profession. Accountants, by nature, were
often green-eyeshade-wearing bean counters but that stereotype has
crumbled. Corporations increasingly view the role as critical, and look
beyond the walls of internal audit when filling it; many make the position
a short-term, rotational, executive-development platform. Armed with
broader organizational experience, these non-traditional CAEs in fact
exhibit impressive relationship-building skills.

CAEs certainly need them. Most have dual reporting structuresto

the CFO, CEO, or another C-level officer (administratively) and to the
audit committee chair (functionally)and so they must craft effective
relationships with both. That can mean navigating complex, competing
stakeholder agendas, including with external auditors, regulators, and
others. Thus, if management wants a CAE in a business partnering or
consultants rolewhich is increasingly the casewhile the board is
looking for an advisor and internal watchdog, the CAE must traverse these
seemingly conflicting agendas and preserve a good working relationship
with everybody.

We try to operate as a professional services organization, said Mike

Cowell, 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 how
can we help them be successful. Yes, we must be an independent and
objective audit organization, but if we can do our work and deliver our
 services 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 be

uncomfortable and stress-inducing. On one hand, the CAE must be a keen
observer and assessor of organizational risks, which requires access that
comes only with a close working relationship with management. On the
Contributors other, this same CAE must remain objective, diligent, and guard the
independence of the internal auditing function. That job inevitably
Hal Garyn
Vice President, North American Services results in the occasional unflattering if not damaging report about senior
The Institute of Internal Auditors executives. Such conditions easily can erode relationships over time; nearly
Stuart Kaplan everyone associated with internal audit knows of a highly respected CAE
Global Chief Operating Officer colleague whose career was upended by conflict with senior members of
Korn/Ferry Leadership and corporate management.
Talent Consulting

But as Alex Stephanouk, vice president and internal audit director at Aflac,
Acknowledgments put it, Having high-quality relationships is not an accident. You have to
Korn/Ferry and The IIA thank the CAEs work at it purposefully.
and directors who participated in the
creation of this paper.
Dennis R. Beresford
Ernst & Young Executive Professor of
Accounting at the University of Georgia
Attributes that add up for CAEs
Director and Audit Committee Chair of
Doosan Infracore International Inc., To determine how effective CAEs build these high-quality relationships,
Fannie Mae, Kimberly-Clark Corp., we spoke to more than a dozen veterans from the field and also a number
and Legg Mason Inc.
of audit committee chairs. Their comments reflected a wide range of
Mike Cowell perspectives on how to manage these complex, intertwined relationships.
Senior Vice President, Chief Auditor
From those, we teased out some common themes.
TIAA-CREF

Mark Gaumond
Retired Partner, Ernst & Young
It goes without saying that strong technical audit skills and business savvy
Director and Audit Committee remain essential to todays CAEs. But the attributes that constitute what
Member of Rayonier Inc. and weve dubbed relationship acumen benefit CAEs in specific ways:
Booz Allen Hamilton

Robert Guido Positive intent: A fair, independent, and objective approach to the job that
Retired Vice Chair of Ernst & Young;
projects the CAE has everyones best interest at heart. Makes clear that he
Director and Audit Committee Chair
of Commercial Metals Company or she isnt set on being right, but is set on finding the right answer.
and Bally Technologies Inc.

V. Ann Hailey Diplomacy: Direct, forthright communication (including listening) skills,

Director and Audit Committee political astuteness, and sensitivity to the organizations culture and how
Member of W.W. Grainger Inc. things get done. CAEs need to be intuitive about people and have the ability
and Avon Products
to read an audience. The best can be skillfully contrarian without being
Kiko Harvey confrontational.
Vice President, Corporate Audit and
Enterprise Risk Management
Delta Air Lines Inc. Prescience: Spotting the risks ahead requires curiosity, an ability to see
matters with fresh eyes, and a willingness to question assumptions. Top
CAEs can see around cornersthat is, anticipate needs before theyre
felt and issues before they arise.
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Trustworthiness: A CAE must always walk the talk, keep confidences,
operate with integrity, and be mindful of maintaining credibility with
those he or she advises. While consistency and predictability may sound
boring, theyre desirable qualities in this job.

Leadership: A CAE must set the tone for the entire internal audit staff, to
be sure. But he or she must also be able to steer others toward consensus,
manage conflict, and gain alignment on issues. Being a leader also Acknowledgments
contributes to comfort with other corporate leaders. Continued
Leslie Heisz
Empathy: CAEs must be able to understand and focus on each stakeholders Director and Audit Committee Chair,
point of view, and be sensitive to those needs and feelings. He or she Ingram Micro Inc.
must listen. A genuine caring about others amplifies all the other qualities Director, HCC Insurance Holdings Inc.

on this list. Jeanette Hughes

Vice President, Internal Audit Ingram Micro Inc.

Leon J. Level
Director and Audit Committee Chair
Applying relationship acumen Levi Strauss & Co. and UTi Worldwide Inc.

Wolfgang Muehlbauer
Ken Robinson, CAE at Procter & Gamble, oversees a global internal audit Senior Vice President, Chief Audit Officer
adidas Group
function with more than 150 people in six cities around the world. He
attributes his successful eight-year run at the $80 billion company to his Ken B. Robinson
Vice President Finance, Global Internal Audit
commitment to absorbing and understanding the business goals of his
The Procter & Gamble Company
colleagues. This didnt stem just from casual business lunches and quarterly
Manny Rosenfeld
meetings, but from previous experience: before joining internal audit,
Vice President of Internal Audit
Robinson was the senior finance manager in P&Gs personal beauty care Commercial Metals Company
business and also ran global customer business developments finance
Julie Scammahorn
organization. I know the company very well, he said. Senior Vice President and General Auditor
American Express Company
Understanding the corporate culture earned him credibility in building Joe N. Steakley
the internal audit organization he now overseesbut listening is a job that Senior Vice President Internal Audit and
Enterprise Risk Services
never stops. We spend a lot of time bringing senior leaders in to talk to
Hospital Corporation of America
our group about whats going on in the business and what theyre trying to
Alex Stephanouk
accomplish. It allows us to engage with them, but more importantly, it also
Vice President, Internal Audit Director
allows us to understand the business. Aflac, Inc.

Brian Thelen
Robinson employs what he calls the customer relationship model, which Vice President, Internal Audit Services
he uses with all of P&Gs senior managers. It reflects his diplomacy, Delphi Automotive
trustworthiness, and positive intent right off the bat. Charlie Wright
Vice President, Internal Audit
One of the things that has worked for us is getting alignment up front, Devon Energy Corporation

he explained. We say to senior managers, Now that we understand

the business, what do you expect of us and what do we expect of you?
We drive this by establishing our credibility, by demonstrating our
commitment to transparency. We dont pull any punches and we are clear
where we see concerns. We raise those concerns through the appropriate
channels. And most important, we are consistent. One of our challenges in
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 the past in an organization as big as P&G has been an inconsistent approach
to 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 chair

Many CAEs report that the regular annual or quarterly meetings with the
audit committee chair are simply a starting point. CAEs and chairs who
establish stronger bonds tend to reap the benefits.

At American Express, for

For audit committee chairs, the CAE can be an example, CAE Julie Scamma-
invaluable conduit into the company, someone with horn, a veteran with twenty-
a unique perspective and the ability to influence seven years of financial
experience, described how she
every part of the organization.
created a strong relationship
with one recent audit committee chairman. It was important for me to
establish a relationship outside of formal company time, she said. Once a
quarter, we would spend a morning together to address concerns strategi-
cally and to discuss any issues we see forthcoming for the company. The
audit chair knows that if I reach out to him outside of our established
meeting, 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 top
fifty executives. If one of the executives encounters problems that become
concerns for the audit committee, Scammahorn works side-by-side with
the executive and attends all meetings in search of a solution. She recently
worked with a newly promoted business unit president in this manner
to resolve a challenging audit report. Because of this, we have a great
relationship, 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 the
company, someone with a unique perspective and the ability to influence
every part of the organization. Dennis Beresford, audit committee
chairman for Fannie Mae, among other boards, says the foundation of
an effective relationship is setting expectations and establishing lines
of communication. And a confident tone is important. Historically, the
CAE has been extremely deferential with comments like I hate to bother
you but, a stance that rankles Beresford. They should never feel that
way, he stated.

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Beresford worries about the lack of self-confidence among CAEs. They
may feel that they dont have the necessary support, he said. The audit
committee chair needs to spend extra time with the CAE because they are
really alone at the top. Another audit chair we spoke with concurred that
time with the CAE was well spent: They have to know you wont throw
them 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 Bally
Technologies, believes that CAEs need to be more prescient and diplomatic,
and show more leadership in staking out their influence with the audit
committee. CAEs have to generate new ideas in order to provide value,
Guido said. They cant always show up on the doorstep of the business
with bad news. Relationship acumen, Guido pointed out, is based on the
idea that you build the relationship before you need it.

Developing your own relationship acumen

The abilities that got you the CAE Key jobs (70 percent): It is essential that Mentors, coaches, and bosses (20 percent):
jobobserving, absorbing, probing, before stepping into the CAEs role, the The second most important way to deepen
listeningshould also be applied to person has worked in jobs or situations in relationship acumen is through direct
your own development. which strong relationships are required in coaching and feedback from others, both in
order to succeed, and in which something and outside of the organization. For current
Behavioral scientists have made strides over important is at stake. These might include: and aspiring CAEs, this might require actively
the past decade in decoding the personal change management roles, international seeking out some tough love on their people
attributes that lead to strong professional assignments, staff leadership without formal skills. Cultivate relationships with mentors
relationships. Daniel Golemans seminal work, authority, or turnaround situations in which who tell you not what you want to hear, but
Emotional Intelligence, brought these types of roles are not clearly defined. The research is what you need to hear. In addition, objective
EQ skills into stark relief against the more very clear that there are no shortcuts: people measures, such as 360 assessments (which
technical skills prized within many corporate learn far more from situations in which they proffer feedback from supervisors, direct
functions. Building on that, Korn/Ferrys personally were stretched and challenged. reports, peers, and clients), can provide
Lominger research, which identified specific However, these experiences alone dont essential input.
competences that correlate to high EQ, teach. What makes the difference is stopping
clarifies how leaders can develop these skills to reflect on what has been, and still can be, Courses, seminars, and books (10 percent):
over time. learned. This extra step separates lifelong While they are valuable framing for our
learners from those who dont grow over time. developmental journey, these should not be
Experience is the best teacher, it substituted for the experience and coaching
turns out. Korn/Ferry refers to this as CAEs, and aspiring ones, shouldnt hesitate to above. In ideal situations, course, seminar,
the 70-20-10 rule: volunteer for or accept opportunities that and book materials are integrated so as to
stretch your boundaries. That special project, supplement the learning that occurs through
assignment, or transfer could be the fuel to action.
propel your career faster forward.

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 Experience leads to empathy
CAE Brian Thelen, considered a turnaround specialist, came to Delphi
during the transformation of the company. During his five years at Delphi,
he has worked through multiple transitions in leadership, including the
CEO and board members. He has found that empathy is a key ingredient
to building effective relationships.
I put myself in the
I put myself in the shoes of the operating people, Thelen said. Ive been
shoes of the operating
there; I understand the environment in which they operate. Intent is
people. Ive been there; important to us, as is the ability to adapt. I dont have a textbook where
I understand the every i has to be dotted and t crossed.
environment in which
Among his first moves leading Delphis internal audit function was to
they operate. Intent is make sure his staff understood the positive intent he wanted to project.
important to us, as is Our aim is not to be punitive, Thelen declared. Were advocating
the ability to adapt. behavior change. I dont want my managers to hammer the organization;
I want them to coach it and help it become even better.

Brian Thelen
Vice President, Internal Audit Services
Successful CAEs dont take anything for granted, especially relationships.
Delphi Automotive At Aflac, CAE Alex Stephanouk created what he calls a relationship
index to rate and measure how well internal audit is working with key
stakeholders. Its easy to say, Ive got a good relationship with my audit
committee chair, but we struggled with how to measure all the influencers
to these key people, he said. The index is set up to rate internal audit
against the goals it had set with stakeholders. How well, for example,
are action plans being implemented? Are customer satisfaction scores
improving along with management survey scores?

Long-term care
Successful CAEs understand that even in the best of circumstances, the
process of building and sustaining relationships is never-ending: senior
executives come and go or change hats, and the audit committee roster
changes. The CAE must reach
The CAE must reach out early and often to initiate out early and often to initiate
new relationships when
new relationships when personnel change. personnel change. Tending to
long-standing relationships is
also imperative. Picking up the phone, or extending a lunch invitation to
talk through a touchy issue, pays enormous dividends to the CAE, and the
entire internal audit staff.

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Building trust and understanding requires an investment of the CAEs time
and energy. Its also a moving target. The needs and expectations of key
stakeholders are constantly evolving. Successful CAEs recognize the signs
of change and recalibrate.

Establishing and maintaining important allegiances changes the entire

CAE experience. Having the audit chair as an ally gains the CAE credibility
with the whole committee and inspires respect from management.

One measure of success in building long-term relationships is receiving an

invite from a new business unit leader to send in the team to evaluate the
situation, 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 Wolfgang
Muehlbauer, chief audit officer at adidas Group. CAEs report that they
know a bond is solid when a senior executive solicits their input or advice
outside of audit situations.

In the long run, success depends on a balanced mix of strong technical

knowledge and relationship acumen. One without the other inevitably will
result in diminished results or failure. As Stephanouk said, No one will
tell you the truth unless they trust and value you.

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 Richard F. Chambers, CIA, CCSA, CGAP, is the President and CEO of The
Institute of Internal Auditors. He has more than 35 years of internal audit
and related experience. Prior to leading the IIA, Chambers served as national
practice leader at PricewaterhouseCoopers and held various internal audit
and inspector general positions with the federal government.

Charles Eldridge is a Senior Client Partner in Korn/Ferry Internationals

Financial Officers Center of Expertise, a specialized, global group of more
than forty professionals dedicated to recruiting Chief Financial Officers
and their direct reports, as well as financial experts for board of director
positions. He is based in Atlanta.

Paula Park is a Senior Client Partner in Korn/Ferry Internationals

Financial Officers Center of Expertise, based in San Francisco.

Ellen P. Williams is a Senior Client Partner in Korn/Ferry Internationals

Financial Officers Center of Expertise, based in Stamford.

About The Institute of Internal Auditors

The Institute of Internal Auditors is an international professional association
headquartered in Altamonte Springs, Florida. It is the professions global
voice, recognized authority, acknowledged leader, chief advocate, and
principal educator. Members work in internal auditing, risk management,
governance, internal control, information technology audit, education, and
security. For more information, visit www.theiia.org.

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8 2011 The Korn/Ferry Institute