1. The relationship advantage:Maximizing chief audit executive successby Richard F. Chambers, Charles B. Eldridge, Paula Park, and Ellen P. WilliamsAs chief audit executives (CAEs) find themselves in ahighly visible, pressure-packed role, many have cometo realize that business and financial acumen are nolonger enough. Relationship acumenthe ability toestablish and maintain strong connections with keystakeholdersis now also a prerequisite for success.Given most auditors accounting background, such interpersonal savvyhasnt been readily ascribed to the profession. Accountants, by nature, wereoften green-eyeshade-wearing bean counters but that stereotype hascrumbled. Corporations increasingly view the role as critical, and lookbeyond the walls of internal audit when filling it; many make the positiona short-term, rotational, executive-development platform. Armed withbroader organizational experience, these non-traditional CAEs in factexhibit impressive relationship-building skills.CAEs certainly need them. Most have dual reporting structurestothe CFO, CEO, or another C-level officer (administratively) and to theaudit committee chair (functionally)and so they must craft effectiverelationships with both. That can mean navigating complex, competingstakeholder agendas, including with external auditors, regulators, andothers. Thus, if management wants a CAE in a business partnering orconsultants rolewhich is increasingly the casewhile the board islooking for an advisor and internal watchdog, the CAE must traverse theseseemingly conflicting agendas and preserve a good working relationshipwith everybody.We try to operate as a professional services organization, said MikeCowell, 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 howcan we help them be successful. Yes, we must be an independent andobjective audit organization, but if we can do our work and deliver ourMarch 2011Relationship acumen, or theability to initiate and developstrong connections with keystakeholders, is becoming morecrucial to chief audit executives,who must navigate complex needsand competing agendas of seniormanagers and audit committees.

2. 2services 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 beuncomfortable and stress-inducing. On one hand, the CAE must be a keenobserver and assessor of organizational risks, which requires access thatcomes only with a close working relationship with management. On theother, this same CAE must remain objective, diligent, and guard theindependence of the internal auditing function. That job inevitablyresults in the occasional unflattering if not damaging report about seniorexecutives. Such conditions easily can erode relationships over time; nearlyeveryone associated with internal audit knows of a highly respected CAEcolleague whose career was upended by conflict with senior members ofcorporate management.But as Alex Stephanouk, vice president and internal audit director at Aflac,put it, Having high-quality relationships is not an accident. You have towork at it purposefully.Attributes that add up for CAEsTo determine how effective CAEs build these high-quality relationships,we spoke to more than a dozen veterans from the field and also a numberof audit committee chairs. Their comments reflected a wide range ofperspectives on how to manage these complex, intertwined relationships.From those, we teased out some common themes.It goes without saying that strong technical audit skills and business savvyremain essential to todays CAEs. But the attributes that constitute whatweve dubbed relationship acumen benefit CAEs in specific ways:Positive intent: A fair, independent, and objective approach to the job thatprojects the CAE has everyones best interest at heart. Makes clear that heor she isnt set on being right, but is set on finding the right answer.Diplomacy: Direct, forthright communication (including listening) skills,political astuteness, and sensitivity to the organizations culture and howthings get done. CAEs need to be intuitive about people and have the abilityto read an audience. The best can be skillfully contrarian without beingconfrontational.Prescience: Spotting the risks ahead requires curiosity, an ability to seematters with fresh eyes, and a willingness to question assumptions. TopCAEs can see around cornersthat is, anticipate needs before theyrefelt and issues before they arise.ContributorsHal GarynVice President, North American ServicesThe Institute of Internal AuditorsStuart KaplanGlobal Chief Operating OfficerKorn/Ferry Leadership andTalent ConsultingAcknowledgmentsKorn/Ferry and The IIA thank the CAEsand directors who participated in thecreation of this paper.Dennis R. BeresfordErnst & Young Executive Professor ofAccounting at the University of GeorgiaDirector and Audit Committee Chair ofDoosan Infracore International Inc.,Fannie Mae, Kimberly-Clark Corp.,and Legg Mason Inc.Mike CowellSenior Vice President, Chief AuditorTIAA-CREFMark GaumondRetired Partner, Ernst & YoungDirector and Audit CommitteeMember of Rayonier Inc. andBooz Allen HamiltonRobert GuidoRetired Vice Chair of Ernst & Young;Director and Audit Committee Chairof Commercial Metals Companyand Bally Technologies Inc.V. Ann HaileyDirector and Audit CommitteeMember of W.W. Grainger Inc.and Avon ProductsKiko HarveyVice President, Corporate Audit andEnterprise Risk ManagementDelta Air Lines Inc.

3. 3Trustworthiness: A CAE must always walk the talk, keep confidences,operate with integrity, and be mindful of maintaining credibility withthose he or she advises. While consistency and predictability may soundboring, theyre desirable qualities in this job.Leadership: A CAE must set the tone for the entire internal audit staff, tobe sure. But he or she must also be able to steer others toward consensus,manage conflict, and gain alignment on issues. Being a leader alsocontributes to comfort with other corporate leaders.Empathy: CAEs must be able to understand and focus on each stakeholderspoint of view, and be sensitive to those needs and feelings. He or shemust listen. A genuine caring about others amplifies all the other qualitieson this list.Applying relationship acumenKen Robinson, CAE at Procter & Gamble, oversees a global internal auditfunction with more than 150 people in six cities around the world. Heattributes his successful eight-year run at the $80 billion company to hiscommitment to absorbing and understanding the business goals of hiscolleagues. This didnt stem just from casual business lunches and quarterlymeetings, but from previous experience: before joining internal audit,Robinson was the senior finance manager in P&Gs personal beauty carebusiness and also ran global customer business developments financeorganization. I know the company very well, he said.Understanding the corporate culture earned him credibility in buildingthe internal audit organization he now overseesbut listening is a job thatnever stops. We spend a lot of time bringing senior leaders in to talk toour group about whats going on in the business and what theyre trying toaccomplish. It allows us to engage with them, but more importantly, it alsoallows us to understand the business.Robinson employs what he calls the customer relationship model, whichhe uses with all of P&Gs senior managers. It reflects his diplomacy,trustworthiness, and positive intent right off the bat.One of the things that has worked for us is getting alignment up front,he explained. We say to senior managers, Now that we understandthe business, what do you expect of us and what do we expect of you?We drive this by establishing our credibility, by demonstrating ourcommitment to transparency. We dont pull any punches and we are clearwhere we see concerns. We raise those concerns through the appropriatechannels. And most important, we are consistent. One of our challenges inAcknowledgmentsContinuedLeslie HeiszDirector and Audit Committee Chair,Ingram Micro Inc.Director, HCC Insurance Holdings Inc.Jeanette HughesVice President, Internal Audit Ingram Micro Inc.Leon J. LevelDirector and Audit Committee ChairLevi Strauss & Co. and UTi Worldwide Inc.Wolfgang MuehlbauerSenior Vice President, Chief Audit Officeradidas GroupKen B. RobinsonVice President Finance, Global Internal AuditThe Procter & Gamble CompanyManny RosenfeldVice President of Internal AuditCommercial Metals CompanyJulie ScammahornSenior Vice President and General AuditorAmerican Express CompanyJoe N. SteakleySenior Vice President Internal Audit andEnterprise Risk ServicesHospital Corporation of AmericaAlex StephanoukVice President, Internal Audit DirectorAflac, Inc.Brian ThelenVice President, Internal Audit ServicesDelphi AutomotiveCharlie WrightVice President, Internal AuditDevon Energy Corporation

4. 4the past in an organization as big as P&G has been an inconsistent approachto 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 chairMany CAEs report that the regular annual or quarterly meetings with theaudit committee chair are simply a starting point. CAEs and chairs whoestablish stronger bonds tend to reap the benefits.At American Express, forexample, CAE Julie Scamma-horn, a veteran with twenty-seven years of financialexperience, described how shecreated a strong relationshipwith one recent audit committee chairman. It was important for me toestablish a relationship outside of formal company time, she said. Once aquarter, we would spend a morning together to address concerns strategi-cally and to discuss any issues we see forthcoming for the company. Theaudit chair knows that if I reach out to him outside of our establishedmeeting, 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 topfifty executives. If one of the executives encounters problems that becomeconcerns for the audit committee, Scammahorn works side-by-side withthe executive and attends all meetings in search of a solution. She recentlyworked with a newly promoted business unit president in this mannerto resolve a challenging audit report. Because of this, we have a greatrelationship, 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 thecompany, someone with a unique perspective and the ability to influenceevery part of the organization. Dennis Beresford, audit committeechairman for Fannie Mae, among other boards, says the foundation ofan effective relationship is setting expectations and establishing linesof communication. And a confident tone is important. Historically, theCAE has been extremely deferential with comments like I hate to botheryou but, a stance that rankles Beresford. They should never feel thatway, he stated.For audit committee chairs, the CAE can be aninvaluable conduit into the company, someone witha unique perspective and the ability to influenceevery part of the organization.

5. 5Beresford worries about the lack of self-confidence among CAEs. Theymay feel that they dont have the necessary support, he said. The auditcommittee chair needs to spend extra time with the CAE because they arereally alone at the top. Another audit chair we spoke with concurred thattime with the CAE was well spent: They have to know you wont throwthem 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 BallyTechnologies, believes that CAEs need to be more prescient and diplomatic,and show more leadership in staking out their influence with the auditcommittee. CAEs have to generate new ideas in order to provide value,Guido said. They cant always show up on the doorstep of the businesswith bad news. Relationship acumen, Guido pointed out, is based on theidea that you build the relationship before you need it.Developing your own relationship acumenThe abilities that got you the CAEjobobserving, absorbing, probing,listeningshould also be applied toyour own development.Behavioral scientists have made strides overthe past decade in decoding the personalattributes that lead to strong professionalrelationships. Daniel Golemans seminal work,Emotional Intelligence, brought these types ofEQ skills into stark relief against the moretechnical skills prized within many corporatefunctions. Building on that, Korn/FerrysLominger research, which identified specificcompetences that correlate to high EQ,clarifies how leaders can develop these skillsover time.Experience is the best teacher, itturns out. Korn/Ferry refers to this asthe 70-20-10 rule:Key jobs (70 percent): It is essential thatbefore stepping into the CAEs role, theperson has worked in jobs or situations inwhich strong relationships are required inorder to succeed, and in which somethingimportant is at stake. These might include:change management roles, internationalassignments, staff leadership without formalauthority, or turnaround situations in whichroles are not clearly defined. The research isvery clear that there are no shortcuts: peoplelearn far more from situations in which theypersonally were stretched and challenged.However, these experiences alone dontteach. What makes the difference is stoppingto reflect on what has been, and still can be,learned. This extra step separates lifelonglearners from those who dont grow over time.CAEs, and aspiring ones, shouldnt hesitate tovolunteer for or accept opportunities thatstretch your boundaries. That special project,assignment, or transfer could be the fuel topropel your career faster forward.Mentors, coaches, and bosses (20 percent):The second most important way to deepenrelationship acumen is through directcoaching and feedback from others, both inand outside of the organization. For currentand aspiring CAEs, this might require activelyseeking out some tough love on their peopleskills. Cultivate relationships with mentorswho tell you not what you want to hear, butwhat you need to hear. In addition, objectivemeasures, such as 360 assessments (whichproffer feedback from supervisors, directreports, peers, and clients), can provideessential input.Courses, seminars, and books (10 percent):While they are valuable framing for ourdevelopmental journey, these should not besubstituted for the experience and coachingabove. In ideal situations, course, seminar,and book materials are integrated so as tosupplement the learning that occurs throughaction.

6. 6The CAE must reach out early and often to initiatenew relationships when personnel change.I put myself in theshoes of the operatingpeople. Ive been there;I understand theenvironment in whichthey operate. Intent isimportant to us, as isthe ability to adapt. Brian Thelen Vice President, Internal Audit Services Delphi AutomotiveExperience leads to empathyCAE Brian Thelen, considered a turnaround specialist, came to Delphiduring the transformation of the company. During his five years at Delphi,he has worked through multiple transitions in leadership, including theCEO and board members. He has found that empathy is a key ingredientto building effective relationships.I put myself in the shoes of the operating people, Thelen said. Ive beenthere; I understand the environment in which they operate. Intent isimportant to us, as is the ability to adapt. I dont have a textbook whereevery i has to be dotted and t crossed.Among his first moves leading Delphis internal audit function was tomake sure his staff understood the positive intent he wanted to project.Our aim is not to be punitive, Thelen declared. Were advocatingbehavior change. I dont want my managers to hammer the organization;I want them to coach it and help it become even better.Successful CAEs dont take anything for granted, especially relationships.At Aflac, CAE Alex Stephanouk created what he calls a relationshipindex to rate and measure how well internal audit is working with keystakeholders. Its easy to say, Ive got a good relationship with my auditcommittee chair, but we struggled with how to measure all the influencersto these key people, he said. The index is set up to rate internal auditagainst the goals it had set with stakeholders. How well, for example,are action plans being implemented? Are customer satisfaction scoresimproving along with management survey scores?Long-term careSuccessful CAEs understand that even in the best of circumstances, theprocess of building and sustaining relationships is never-ending: seniorexecutives come and go or change hats, and the audit committee rosterchanges. The CAE must reachout early and often to initiatenew relationships whenpersonnel change. Tending tolong-standing relationships isalso imperative. Picking up the phone, or extending a lunch invitation totalk through a touchy issue, pays enormous dividends to the CAE, and theentire internal audit staff.

7. 7Building trust and understanding requires an investment of the CAEs timeand energy. Its also a moving target. The needs and expectations of keystakeholders are constantly evolving. Successful CAEs recognize the signsof change and recalibrate.Establishing and maintaining important allegiances changes the entireCAE experience. Having the audit chair as an ally gains the CAE credibilitywith the whole committee and inspires respect from management.One measure of success in building long-term relationships is receiving aninvite from a new business unit leader to send in the team to evaluate thesituation, 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 WolfgangMuehlbauer, chief audit officer at adidas Group. CAEs report that theyknow a bond is solid when a senior executive solicits their input or adviceoutside of audit situations.In the long run, success depends on a balanced mix of strong technicalknowledge and relationship acumen. One without the other inevitably willresult in diminished results or failure. As Stephanouk said, No one willtell you the truth unless they trust and value you.

8. 8Richard F. Chambers, CIA, CCSA, CGAP, is the President and CEO of TheInstitute of Internal Auditors. He has more than 35 years of internal auditand related experience. Prior to leading the IIA, Chambers served as nationalpractice leader at PricewaterhouseCoopers and held various internal auditand inspector general positions with the federal government.Charles Eldridge is a Senior Client Partner in Korn/Ferry InternationalsFinancial Officers Center of Expertise, a specialized, global group of morethan forty professionals dedicated to recruiting Chief Financial Officersand their direct reports, as well as financial experts for board of directorpositions. He is based in Atlanta.Paula Park is a Senior Client Partner in Korn/Ferry InternationalsFinancial Officers Center of Expertise, based in San Francisco.Ellen P. Williams is a Senior Client Partner in Korn/Ferry InternationalsFinancial Officers Center of Expertise, based in Stamford.About The Institute of Internal AuditorsThe Institute of Internal Auditors is an international professional associationheadquartered in Altamonte Springs, Florida. It is the professions globalvoice, recognized authority, acknowledged leader, chief advocate, andprincipal educator. Members work in internal auditing, risk management,governance, internal control, information technology audit, education, andsecurity. For more information, visit www.theiia.org.About Korn/Ferry International and The Korn/Ferry InstituteKorn/Ferry International, with a presence throughout the Americas, AsiaPacific, Europe, the Middle East, and Africa, is a premier global provider oftalent management solutions. Based in Los Angeles, the firm delivers anarray of solutions that help clients to attract, deploy, develop, and rewardtheir talent. The Korn/Ferry Institute generates forward-thinking researchand viewpoints to illuminate how talent advances business strategy. Visitwww.kornferry.com for more information on the Korn/Ferry Internationalfamily of companies, and www.kornferryinstitute.com for thoughtleadership, intellectual property, and research. 2011 The Korn/Ferry Institute