Tools for the job: Ethical decision-making for internal auditors
Internal auditors enjoy a reputation for being more ethical than other professions, however changing circumstances, especially the COVID-19 pandemic, mean that internal auditors mustn’t become complacent, especially when it comes to ethics. If we are to act in accordance with our commitments to continuous professional education and improvement, internal auditors must constantly strive to become more ethical. But how can we develop and improve these skills?
Studies show that the moral development of adults is no better than that of teenagers, and, for most of us, moral development stops when formal education ends. A famous moral development experiment (“Heinz’s dilemma”), developed by Lawrence Kohlberg, is often used to assess moral development and could be used with internal auditors. In this assessment, what internal auditors think the protagonist should do is less important than the justification they offer. Their moral development is then assessed on a scale from one to six.
Levels three and four indicate the norm – ie, abiding by the law – while stages five and six go further and show a focus on universal ethical principles and humanity. For example, if those in the test use the law to justify a decision, rather than universal human rights, then the chief audit executive (CAE) could implement a training plan to develop these skills further.
It’s important not to judge too harshly: most adults operate at levels three to four. It is rare, but not impossible, for people to move up the stages in adulthood. Internal auditors have an obligation to strive to become more ethical and there are tools that can help them to examine their ethical thought processes and development.
Learn from fiction
One positive outcome of the pandemic is that some people have had more time to read. Fictional literature is particularly useful for engaging readers with moral dilemmas. Novelists can offer a unique insight into human minds. In real life, internal auditors meet auditees infrequently and for a limited time. Auditees may offer “correct” answers they know the auditor wants to hear.
However, fiction can offer insights into other people’s mental and emotional worlds. Readers see the thoughts, emotions, hopes, motivations and regrets of characters and it can make them think more deeply about how circumstances and the inner world affect individuals’ ethical decision-making. It can help us to live through moral dilemmas, without suffering consequences in real life.
A classic example is the Greek tragedy of Antigone, in which the heroine chooses between legal and ethical obligations, and between human responsibilities and the state. She threatens the status-quo (as internal auditors may do) and invokes moral laws to justify overriding the state’s rules. The ruler, Creon, makes a fatal mistake when he condemns her to reinforce his own authority.
Other classics, such as Les Misérables by Victor Hugo and Crime and Punishment by Dostoyevsky, also provide examples of real-life situations that internal auditors and CAEs could use to develop ethical competencies and awareness. One idea could be to establish an internal audit reading club to discuss plots and character motivations as a group.
Practice mindfulness
The use of mindfulness as a management practice is increasing in the corporate world. Research shows that mindfulness techniques can improve managers’ stress levels and wellbeing. They may also increase individuals’ moral sensitivity and so raise the moral cognitive capabilities of decision-makers.
But what is mindfulness? There are as many definitions as practitioners. Mindfulness expert Dana Brownlee says it is a practice of focusing on the present moment and is often encouraged through meditation. For internal auditors, it means:
• Discouraging mental multitasking: Internal auditors and CAEs tend to have many tasks and thoughts in their minds during audits and the pandemic has made it even harder to escape multiple duties and responsibilities mentally and physically. Mindfulness can help to calm and focus the mind on the most important issues.
• Counteracting negative fantasies: All internal auditors should exercise professional scepticism, but this can lead to disillusionment and mistrust. Mindfulness can help people to see situations clearly and rationally and rid themselves of excessively negative thoughts.
• Promoting active listening and engagement: Active listening and being present in the moment are difficult. Active listening can help internal auditors to discover and understand auditees’ problems, and to develop trust between internal auditor and auditee.
• Helping prevent burnout: Cultivating a habit of mindfulness can help to prevent feelings of burnout, which have been reported more frequently because of COVID-19. Allowing yourself “quiet time”, focusing on yourself and on your thoughts, is an important way to recharge. People who are experiencing burnout will not make the best decisions or think rationally about the situations and people they meet.
This kind of mindfulness should be seen as work, not leisure. Excellence is not an act but a habit, and this is also true of mindfulness. People make the best decisions when they see decision-making not only as a rational process, but also use their emotions and instincts to assess what is often an uncertain situation. Mindfulness can help internal auditors to calm down, assess the whole situation and make ethical decisions with a clear mind.
It is a complex, multidirectional process that focuses on the future, but does not forget past experiences. It uses imagination, but also helps people to see their obligations and duties when making an ethical decision. It can help internal auditors to embrace insecurities, doubts, pressure, hopes and fears (their own and those of other stakeholders). As mindfulness helps people to accept complexity and chaos, it also helps them to find the optimal solution.
Reflective thinking
Reflective thinking involves analysing and assessing thoughts, assumptions, beliefs, theories and actions. It is an intellectual activity and asks internal auditors to review their own experiences to reach new understanding and conclusions. Teams that perform conscious reflective thinking have been found to achieve better results and this has neurobiological foundations because it helps people to activate parts of the brain that are important for cognitive development.
Reflective thinking is a combination of two elements: self-learning (emotional) and understanding of tasks (cognitive). When a person acquires experience, the benefits they gain are less than if they also apply reflective thinking to it. Combining both emotional and cognitive aspects helps people to become more effective, which aids ethical decision-making.
Reflective thinking also means getting to know oneself. Only by knowing themselves can internal auditors change their practices and influence other people to think and act more ethically. This is important as internal audit’s mission is to motivate people to change, as well as to inform.
This is notoriously difficult to achieve, especially when managers see themselves as decision-making machines for profit maximisation and do not recognise the multiple potential angles of their decisions. Internal auditors may have to challenge this way of thinking and the status quo, and they may do this better if they first practise reflective thinking.
Reflective thinking helps people to understand the essence of what is really going on and to decide what to do and how to communicate, while acknowledging there are no easy fixes for complex problems. It helps people to see that no principle is absolute and that multiple principles may be applied to solve the problem. This is especially true in high stakes situations.
Some problems cannot be solved purely rationally. Reflective thinking is not about finding the ultimate truth and applying it, but about knowing what and how to think. It can help internal auditors to step out of current intense circumstances and talk with someone (sometimes themselves) to see the other side and reach deeper thinking and better decisions.
Emotions can play a crucial role in reflective thinking. If they are too strong, they can prevent reflection, while lack of emotion can be equally dangerous. The right mixture of emotion and intellect creates the potential for internal auditors to assess complex circumstances and make ethical decisions.
Internal auditors are expected to engage in deep and serious reflective thinking in their work, but they are also under huge pressure to achieve goals, do more with less and make faster decisions. Their work becomes ever more complex, regulations pile up, technology develops at the speed of light, organisations are more intertwined, and stakeholders’ demands increase. To deal with all these pressures successfully, they need to develop the tools to tackle these challenges and reflective thinking can help.
Do not be alone
Reflection and mindfulness both involve a dialogue between the heart and mind. Internal auditors should look at what goes on around them, think about what influences them, monitor how they feel and respond, and what their instincts say, and then make a decision. The tools listed here should also be used within teams. It is lonely at the top and CAEs, in particular, should encourage open dialogue. Decisions with long-term effects should not be made in solitude.
Dialogue creates a chance to get different perspectives and insights into ethical dilemmas, and to increase the moral sensitivity of internal auditors, CAEs and internal audit teams. The greatest risk to ethical decision-making is that internal auditors see only one ethically correct reality and are unwilling to listen or think differently. So take your time, think, listen to others, and then act. It is less difficult than it appears.
Matej Drašček is head of internal audit for LON Bank and president of IIA Slovenia.
This article was published in May 2021.