Archive for October, 2009

Thanks to all for the feedback regarding last week’s apparently popular post.  We seem to get a lot of reaction to the Recon whenever we publish a “tell like it is” type post.  Most of the feedback has been supportive, although some people were indignant that we were “giving people ideas” about how to destroy internal audit careers. 

One point of clarification we would like to make is that we don’t make any judgments about whether these items are fair or just.  To do so would be tantamount to entering into a discussion about whether “life is fair.”  Our objective is to inform prospective IA Leaders, CFOs and Audit Committees about the traits required to be successful in a very difficult job.  

Without further introduction we now complete our discussion of, “5 Easy Ways to Destroy Your Career” in Internal Audit.  

Vote for Logic

Someone once told me if you understand the politics of an organization you can get a lot done.  The converse is also true; not understanding the company’s politics will frustrate even the most technically savvy internal auditor.  

Now before we go on, we should clarify what we mean by politics.  We are not talking about the smarmy gossip that goes on regarding who did what to whom and if they were good at it or not.  This type of office politics is for the most part meaningless and paying attention to it will only detract from any potential success.     

The type of politics that we should be very concerned about are the answers to the following questions:  

• How are decisions made by the company?
• Who is the most powerful person in the organization?
• Who doesn’t make any specific decisions but heavily influences the final outcome?
• Who has the ability to block, or render meaningless, decisions that have already been made? 

In essence, we are talking about the classical definition of politics.  We once again quote Wikipedia.  Our emphasis has been added.  

Politics is a process by which groups of people make decisions. The term is generally applied to behavior within civil governments, but politics has been observed in all human group interactions, including corporate, academic and religious institutions. It consists of “social relations involving authority or power” and refers to the regulation of a political unit, and to the methods and tactics used to formulate and apply policy  

Many people fail in their political analysis because they answer these questions with what they think should be the answers rather than seeing the situation for what it is.  For example: 

The most powerful person in the company is the CEO right?  And decisions are always carefully considered at the Corporate office and then clearly communicated to operating units where directives are followed to the letter…anyone with me? 

To be successful you have to ignore conventional wisdom and sacred cows.  For example, titles are meaningless.  The most powerful person in the company could be the CEO, the VP of the operating unit that makes the most money, the CFO or the General Counsel.  Every company is different and you have to understand who is calling the shots at your company in order to have any hope of enacting positive change.  

Fortunately this is not hard to do if we open our eyes.  When decisions are made follow the flow of events.  Where was the decision made?  When was it made?  Was the decision implemented or ignored?  

Understanding the politics of your organization will allow you to better identify control, governance and risk issues and formulate workable solutions to these problems that will get implemented.  Ignoring this very important aspect of your job will render you a mere footnote in the decision making process.  

The Stalk of Wheat

An uncle of mine once advised me that in business negotiations you cannot be too stiff or you will be broken and you cannot be too soft because then you will be folded.  You have to be like a stalk of wheat that has the strength withstand the high winds but also the flexibility to bend and stand up again when pressure is applied.    

Moderation in business is a skill that is acquired through experience.  Knowing when to stand like a rock and knowing when to compromise requires an IA Leader to draw upon a vast database of prior experiences and outcomes.  This is perhaps the most difficult trait for IA Leaders to obtain for it cannot be learned; it can only be acquired through experience.  

The job of the IA Leader is to improve the control, risk and governance processes of the company.  These improvements rarely take place linearly but rather occur in fits and starts.  Knowing which improvements are critical for the organization and which are minor points separate the professionals from the neophytes.  

Have a great week, 

Michael Bechara, CPA

Managing Director

Granite Consulting Group Inc.

mbechara@consultgranite.com

www.consultgranite.com

We are increasingly asked by many CFOs and Internal Audit (IA) Leaders alike about what makes the “ideal” candidate to lead the Internal Audit function.  Many of the preconceived answers focus on technical skills and regulatory awareness.  Clearly, these two characteristics are important and their absence will become apparent after a short time on the job.  

But let’s stop here and ask an easy question.  Is lack of technical skills the primary reason many IA Leaders fail completely, or more commonly, fail to excel within their organizations?  

No.

Nor is it a plethora of touchy, feely soft skills that forge a successful IA leader.  We haven’t seen many people succeed in Internal Audit by being in “touch with their inner child” or layering syrupy sweet “empathy” on everyone in the office. 

The reason why many IA Leaders frustrate their Audit Committees, CFOs and themselves is failing to understand what they really do for a living and how this fits in with the rest of the universe.  

Contrary to most consultants who have never had the pleasure (and its opposite) of sitting at the helm of Internal Audit at a publically traded company, we at Granite happen to know..cough..cough..a few people who have.  

So with this, we present five ways that many destroy their career.  Many of these points cannot be neatly classified as either technical or soft skills; rather they are mixtures of the two in different ratios and different shades.  Sort of like life itself, where things are never clear cut and not easily classified.  

We don’t know where we’re going, but wow, are we getting there fast!

Internal Audit Planning is the most overlooked part of an IA Leader’s job.  So many leaders are focused on “getting things done” that they fail to realize that getting the wrong things done is more harmful than doing nothing at all.  

Its spectacular to watch how little thought and effort goes into many IA plans.  Planning is the strategic part of the job and it demands foresight, critical thinking and sheer brain power.  So many IA planning processes consist solely of the IA leader scurrying from one executive office to another, playing the role of some sort of pseudo Sigmund Freud by asking the overused and nauseating question, “What keeps you up at night” or a variation thereof.  

There are far more effective ways to put together an IA plan. 

If the IA plan is sound, you know that you are auditing the right things.  Your focus can largely shift toward execution.  If your plan is a “he said, she said”, type of process that does not cover the major risks to the organization, then even perfect execution is meaningless.  You have failed from the get go.  

Loving what you do too much or…It’s all about me!

Every function within a company thinks they are doing the work of the Almighty.  Marketing people believe the company’s brand does not exist without them, Operations believes that they are the only function that is required and Financial people believe bankruptcy would occur instantaneously without them.    

The same is true for many Internal Audit Leaders.  They tend to believe processes and controls are the company rather than a part of the company.  Over controlling and layering in unnecessary process requirements is not the hallmark of a well run company.  

In addition, we have seen many an IA Leader decimate their credibility by always having the same answers to every business problem; more process, more control, more documentation.  Such an approach exposes the IA Leader as one dimensional, narrow minded and not very helpful to the Audit Committee, Senior Management and the Operating units.    

To solidify our understanding of this point lets use the analogy of the human body.  Each function within a company is like a major organ; the kidney, heart, brain, etc.  Each is responsible for a major function that keeps the company “alive.”  IA Leaders mistakenly see themselves as a major organ.  

This is incorrect.  

IA is more like the blood or the nerves that connect major organs and body parts together and allow them to work in harmony.  Good governance, processes and controls communicate information throughout the company and allow the various company functions to work together as a system rather than as separate organs.  

Good governance, processes and controls compliment the major functions of a company and do not replace them.  They are a means to an end and not an end in themselves.  

Disrespecting the Audit Committee

A common fallacy in the business world is that more information is always better.  Many IA Leaders have not avoided this trap.  

The Audit Committee is typically a group of senior executives with busy schedules.  They are looking to the IA Leader to provide them with expert advice on governance, risk and controls.  Instead of an insightful, concise and relevant presentation on the current state of affairs in these areas, we have many Audit Committees receiving reams of paper.  Amongst this tsunami of data are full internal audit reports, detailed risk assessments and day by day work schedules.  

So what are we saying to the Audit Committee by giving this amount of data?  Well a number of things: 

• I have no insight, here is the data you figure it out
• I do not have any confidence in my ability to interpret data and identify what is important and what is not, hence I am providing everything in the hopes of avoiding any blame
• I am unable to manage the day to day affairs of my function and need your detailed supervision and input 

Many would challenge us at this point by saying, “But the Audit Committee wants this information!” or “They requested it!”  

Our response to this is that they likely requested the data out of frustration and/or because they were not receiving the results they expected.  IA Leaders will not gain the respect of the Audit Committee if they continually demote themselves to a clerk like status by simply gathering data and expecting the Audit Committee to provide the analysis and insight.      

Of course the same is true when reporting to Senior Management…..Tune in next week for Part 2 of our discussion.  

Have a great week, 

Michael Bechara, CPA

Managing Director

Granite Consulting Group Inc.

mbechara@consultgranite.com

www.consultgranite.com

“Just keep smiling”, I thought with considerable annoyance. 

The minutes ticked by like molasses on a hot summer day.  I hoped, I waited and I prayed for it to be over, but still the torture continued. 

I hate birthday parties. 

This one followed the familiar formula of turning the kids loose on the inflatable yard toys, followed by the solemn cutting of the cake and finally a “group” activity where everyone is pronounced a winner. 

Sometime between the cake and the group activity, I got to talking to one of the guys at the party.  The man was turned out to be the Assistant Principal of one of the high schools. 

Ready to burst and unable to maintain my brain in the semi animated suspension of small talk any longer, I asked him, “So what do you think of the No Child Left Behind law?”

His look said it all. 

A tinge of embarrassment crossed his face and was followed almost instantaneously by the familiar bland professional posture.  He began his response by giving an equivocating and meaningless pro/con type description of the law. 

It took me two or three follow ups before he dropped the façade and really started talking to me.

 In a nutshell, No Child Left Behind carries the currently fashionable belief that “we are all winners” to another level.  If a child is unable to do well on standardized tests then the questions must be asked “in a different way” to better suit the child’s “learning style.”  The unsaid reality is that “in a different way” just means easier questions.  

Apparently it’s more important for the child to pass to the next grade level than to actually attain a base level of knowledge.  

Attaining the trappings or the “symbols” of achievement seem more important than actual achievement these days, not only in school, but also politics and business. 

 Witness the commentary on the recent debate over Healthcare reform.  Whatever your views are on this issue, doesn’t it strike you as odd how the media vigilantly repeats the mantra that the President “needs to get something he can call Healthcare Reform passed?”  Success has been redefined as getting something passed rather than attaining any positive results.  

Politics is always a rich area for bad examples, but we’ll stick to the world of business and finance, where there are some striking lessons to be learned.   

Business metrics can be useful in setting expectations, measuring success and incentivizing employees.  What we’ve seen recently, however; is a bastardization of how we measure success.  Similar to the educational and political spheres mentioned above, we have placed a false priority on appearing to be successful over actually being successful.  

Think about this question.  Is it possible to meet or exceed business metrics and appear to be successful when in fact we have utterly failed?

 For example, we know that managers at Bear Stearns and Lehman Bros. hit their metrics and were rewarded richly for their “success.”  Yet both of these firms are now out of business.  

I am sure that somewhere in an HR file there is documented evidence that these managers, increased shareholder value, expanded sales and grew market share.  They attained the appearance of success but failed in the ultimate measure of success; namely survival.  

On the other hand, there are people who seemingly have failed to “achieve” the trappings of success but are wildly successful in the larger picture.  For example, 

Have you ever known a salesman who declines business and avoids an unprofitable contract?  Or how about, an executive that refuses to enter into a questionable arrangement, holds on to his ethics and avoids lawsuits and penalties? 

And my favorite… 

How about a consultant who gives a truthful (but uncomfortable) answer to a client that results in the client not requiring the consultant’s services? 

On the surface these companies appear to have failed, but in reality they each were very successful in achieving their long term goals.  In the last example the client was very much endeared to the consultant and a strong relationship was formed that continues to this day …..and yes more business followed.  

I suppose it comes down to a short term vs. a long term outlook.  Pass the child and he is happy today but his long term education suffers.  Set rigid short term business metrics and you may fail to attain success in the longer term.  

Anyway, as the Assistant Principal completed his confession, we began to enter stage three of the hallowed birthday ritual; the group activity.  As the children were being hustled into the front yard for the game, the host parents (being fashionable) exclaimed that everyone would receive a prize just for playing.  

As I trudged wearily toward the front yard, I turned back towards the inflatable toys set up on the side of the driveway.   There was a lone kid left inside the trampoline jumping up and down and smiling to himself.  He was repeatedly enticed to come and join the game in the front yard.  “Come on, you’ll receive a prize”, they told him.  

I watched him for a few more seconds, smiled and silently began cheering him on.  

I don’t know about you folks, but to me if the point of the party was to have fun, then he sure looked like a winner to me.  

Have a great week, 

Michael Bechara

Managing Director

Granite Consulting Group Inc.

mbechara@consultgranite.com

www.consultgranite.com

Everyone loves a good bumper sticker.  

Some are funny, some outrageous and others just unsettling.  The medium of communicating a political, economic or social position using a vehicle speeding at 55 miles per hour presents its own special challenges.  The message must be curt, simple and not provoke too much thought.  Follow this formula and you are likely to have a winning bumper sticker.  

One unfortunate result of the success of this medium has been its adaptation into an environment wholly unsuited for such simplistic thinking:  The Business World.  

We have all either created or listened to PowerPoint presentations at one time or another.  I am sure the makers of the software had noble intentions.  “Create a software package that will allow business people to present concepts visually at a high level for discussion”, I believe the thinking went.     

Ah yes,…the concept of unintended consequences.  Software makers really can’t foresee how their application will be used, medicines have unknown side effects and politicians attempt to “fix” the economy with …….ok…ok…back to PowerPoint.  

More often than not, PowerPoint is not used to aid a presentation, rather the PowerPoint slides become the presentation.  

Business presentations have degenerated into a simple recitation of staccato “bumper sticker” like phrases bulleted across the page.  How often have you been in a meeting where the presenter simply reads the PowerPoint presentation…verbatim! 

Reciting the presentation like a grade schooler regurgitating his multiplication tables, offers the audience no detailed insight, no analysis and no thoughts deeper than the classic four word bulleted phrase. 

At this point some of our readers may be thinking that this week’s Recon is all about presentation skills.  No my friends, the issue (as always) is much deeper.  

If it were only that most business people are “bad presenters”, I would not have written this post.  The more troubling issue that affects our competiveness, our innovation and our ability to see beyond the status quo is that we have begun to think in PowerPoint.  

As consultants we often encounter approaches to business problems that are oversimplified, lack any nuance and are boiled down to the lowest common denominator.  In short, business discussions are turned into PowerPoint phrases like, “Lack of documentation” or “Proposals mean more sales!”   

Language is the expression of thought.  You cannot oversimplify your method of communication without oversimplifying your thoughts as well.  If you think about it this makes perfect sense.  Could we explain the philosophy of Rousseau in a few bulleted phrases?  How about quantum mechanics or even….the mind of a woman? 

Closer to home what does a phrase like, “More proposals mean more sales” really mean?  Does the author mean that the number of proposals that are produced has a direct correlation with the amount of sales?  Maybe, but we cannot be sure without stepping outside of “PowerPoint thinking” and into a substantive discussion.  

The final negative effect of thinking in PowerPoint is its limiting effect on discussion and questioning.  The use of commonly used short phrases discourages discussion of the implications behind what is being said or even challenging the underlying assumptions.  Discussion is squashed because, “you’ve heard this all before and we have more slides and more phrases to go through.” 

When I was a Director of Internal Audit giving periodic presentations to the Audit Committee, I sometimes used language in the presentation that was deliberately unfamiliar and/or a little unclear.  

The intent was to stimulate discussion, questions and debate around what was being presented.  This after all is the actual purpose of a presentation i.e. to share and discuss information.  Too often the goal of a presentation is to prevent anyone from challenging the contents and/or to prevent any hard questions from being asked.  

In my experience a presentation and discussion where hard questions are asked (and hard answers are returned) is very often the basis for enacting positive change with an organization.  

I imagine we will reach a breakpoint at some time down the road.  It may be when we begin to speak to each other in PowerPoint.  

I leave you this week with a shameless plug for Granite Consulting Group:

At GCG we:

• Create value
• Find synergies
• Reduce costs 

Have a great week, 

Michael Bechara

Managing Director

Granite Consulting Group Inc.

mbechara@consultgranite.com

www.consultgranite.com