Diversity in internal audit: Balanced agenda
Efforts to improve the gender balance in leadership teams have been ongoing for many years with varying degrees of success and the protests after the tragic death of George Floyd in the US last year made more companies realise that they also needed to change their approach to ethnic inclusiveness significantly. While many of the strategies used to improve gender balance can also be employed to increase ethnic diversity, we need to accelerate the pace of change. As one of the chief audit executives (CAEs) we interviewed put it: “We have a lifetime opportunity to make a difference and history will judge us on how much of a difference we have been able to make in 2020 and 2021.”
In addition, the rise of the sustainability agenda and associated environmental, social and corporate governance (ESG) goals have made progress a business imperative. However, change doesn’t happen by accident. The biggest differentiator driving the pace of change among the CAEs we surveyed was an intentional, positive and conscious effort to effect change by making purposeful decisions and sponsoring robust action plans informed by detailed analysis. This needs to be motivated by a strong belief that, not only is it the right thing to do, but it is also a game changer for improving their own team’s effectiveness.
We interviewed 20 global and regional CAEs – ten each in financial services and non-financial services organisations – and asked them for their insights on the situation in their own teams. On average, across all these companies, the top management team of the internal audit function comprised 35 per cent women and 25 per cent people who were black, Asian or other ethnic minority (BAME). However, within our sample, representation of both groups on the top team varied widely, ranging from 0 per cent to
83 per cent. We found there were usually more women and BAME people in the top internal audit teams in non-financial services firms.
All interviewees had plans to improve gender balance and ethnic diversity either at company level or specifically in the internal audit team. These were typically integrated into wider strategies to improve diversity in all areas (also including lesbian, gay, bi-sexual and transgender people (LGBT), disabled people and older workers). Most said their gender balance programmes were the most mature of these diversity initiatives.
Setting goals and securing buy-in
All the companies we interviewed had set (and some are publicly reporting on) company-wide targets for the percentage of women in senior leadership positions. These targets ranged from 30 per cent by 2025 to 50 per cent representation already achieved. Gender targets can be divisive and have the potential to drive unfair outcomes, however all respondents said that targets are necessary to focus minds and enable progress to be tracked. Most firms had also started to define ethnic-specific targets, although the ethnic mix and managers’ ability to track employee representation in this area varied strongly in different countries (and even cities), which made it more difficult to set and track effective targets.
Targets alone do not change much without strong buy-in from leaders who understand the business case for change. In our sample, 60 per cent of our respondents were men (80 per cent in financial services firms). While the top level internal audit teams can still improve their gender balance, it is vital that men and the majority ethnic group play an active “ally” role to promote change. The level of passion for, and involvement in, diversity initiatives from senior leaders at corporate or internal audit level differed strikingly across interviewees. This seemed to correlate with the levels of representation on senior teams.
One male respondent said: “If you were building a top level sports team, you would not ignore 50 per cent of the available talent as you would know you would lose out on performance. So why would you not do the same for your team?” Another man commented: “Ultimately, it is a leadership challenge and what has the most impact is changing the leadership narrative. I have experienced over the years that I get much better outcomes when I have a strong gender representation at my leadership table and this talent pool is still scarce. I therefore emphasise to my management team that they need to take responsibility for securing this talent to support performance and, given the still relative scarcity, take risks and assess potential beyond achievements.”
Several CEOs were personally involved in sponsoring change and actively communicated their ambitions in this area. Some included diversity targets in their executive team balanced scorecard, and in one company each head of department had to update the CEO regularly on their strategy and progress to hit their respective targets.
Understand where you are now
One woman we interviewed strongly cautioned against chasing a target without understanding the drivers of the current situation: “Improving balance is not a one-action-plan solution. You need to understand the underlying data and keep digging until you have sufficient information to build effective action plans. Look, in particular, at the pipeline. Where are the inflexion points where your target group is dropping? Have different cuts by countries or region and study experience at various points in the lifecycle (recruitment, promotion, leavers). For example, we realised that black colleagues were not even making it to the door, while our Asian and Latino colleagues were joining in high numbers, but rarely piercing the management ceiling. These groups therefore need different approaches.”
A large number of respondents had invested in detailed and recurring data analysis to investigate the biggest pain points and targeted their action plans accordingly. For many, securing diverse talent during recruitment was the biggest lever – some companies even had diversity targets for entry level staff. Many respondents commented on strategies to address relative scarcities of various groups in the recruitment pipeline. These frequently included school outreach projects or programmes for women returning after career breaks.
Less common practices included relying solely on artificial intelligence for scanning and selecting entry level staff; creating partnerships with the Association of Black Accountants and the Association of Latino Professionals in America and, in one instance, expanding offices in locations with greater numbers of black people in the local workforce.
Such pipeline-building strategies are clearly multi-year projects and need to be complemented by actively managing the composition of the top management teams. One company recently announced a dedicated target for women managers in the two levels below the company’s executive team. Another had a “+1” initiative that requires each management team to have one more woman each year in their management team until they reach the corporate balance target. One more asked an external party to assess all candidates for promotion at senior level. Our respondent in this organisation said: “It was very awkward at first, but it definitely helped us remove bias.”
Changes at this level are challenging and several audit executives referred to the lack of mobility at the most senior levels or shrinking operations leading to limited numbers of positions. It is therefore important to focus on challenging succession plans and building a pipeline for securing diverse talent when a role becomes available. One of our participants had decided not to wait until the target balance in her management team was reached and had started inviting two guests to each executive committee, so that the executive team could benefit from their feedback and the participants increased their confidence and understanding of the dynamics and focus at senior level.
Inclusion beyond diversity
Broader representation in senior roles is a simple indicator of progress, but six of our participants strongly emphasised that the target outcome must be inclusivity of diverse views and backgrounds. Five of these were from non-financial services firms that had already achieved a better gender balance. They stressed that inclusion – creating an environment where everyone’s voice matters – is a bigger challenge than diversity of representation. One said: “On this topic, we have to ask ourselves the auditor’s favourite question: ‘How do we know it works?’’’
Understanding the views of employees on an internal audit team’s inclusiveness is not straightforward, but has gained attention in the past year. Several respondents had engaged in dedicated discussion sessions aimed at understanding team dynamics and increasing awareness among staff and managers. Formats differed, one organised 17 “Let’s talk about race” sessions engaging a third of the internal audit team, while another arranged a series of sessions for managers with employees joining anonymously and sharing their views. Several respondents used employee surveys to monitor progress in the teams’ feelings about inclusiveness.
Holistic approaches
One respondent’s company had a stated ambition to “be the best employer in the world for women by 2030” from its current position in the top ten based on external measurement. Besides this bold aspirational target, what was most impressive here was that gender balance was a core pillar of its strategy, extending beyond employees to its customers and suppliers. The company’s services were seen to level opportunities for its customers, and it had targets for attracting women consumers in lower income countries. It also created solutions specifically for female customers, including a helpline and app to support those suffering domestic abuse, and had targets for women- and ethnic minority-owned suppliers.
A vantage point to drive impact
Change doesn’t happen by accident and leadership teams need to invest time and attention to make a difference. More needs to be done to share best practices across companies and industries, and companies need to deploy adequate resources to support their change agendas. Too many initiatives rely on particular staff contributing their own time and passion. However, one of our interviewees had a full-time member of staff to shape and lead the diversity agenda and was allocating ten per cent of time for staff running employee resource groups.
Beyond initiatives in their own function, internal auditors can also assess whether the framework to set goals and drive progress in the company is having its intended effect. Only one of our respondents was currently engaged in this at the request of their CEO and the company’s head of diversity and inclusion. His department was conducting audit advisory work investigating whether outcomes were in line with diversity and inclusion expectations.
We expect more demand for this type of work given the growing ESG agenda. This makes it even more vital that all internal audit leaders should become proficient with gender and ethnic balance dynamics and strategies to improve representation and inclusiveness.
Survey led by members of the Chartered IIA’s Women in Internal Audit Steering Group: Marie Lauri, Bonnie Dyson and Preeti Sadarangani, supported by Chioma Akpom.
Six focus areas for gender and ethnic balance strategies
1 Set your ambition, secure buy-in from leadership on the business case for change, monitor and communicate on strategy and progress.
2 Get and analyse detailed data to inform fit-for-purpose action plans.
3 Ensure you have a dedicated plan for the composition of your top management team and their direct reports.
4 Invest in the future – create a targeted pipeline.
5 Cherish and invest in your talent (identify and support potential leaders with sponsorship, development programmes,
and network groups).
6 Engage in brave open discussion to get insights on existing bias and feelings.
This article was first published in September 2021.