Human capital and talent – happy hive

The world may have gone digital, but it grinds to a halt when real people are absent. We saw this last year when a lack of lorry drivers caused international supply delays and soaring prices. As Covid restrictions ease, organisations across the world are realising that the people they need to grow and develop their businesses are simply not there.

A new report, produced jointly by the institutes of internal auditors in Austria, Belgium, France, Germany, Greece, Italy, Luxembourg, the Netherlands, Spain, Sweden, the UK and Ireland and the ECIIA, draws on roundtable debates and interviews with chief audit executives (CAEs) across Europe to explore the key issues for organisations and for internal audit teams and to suggest questions and actions that CAEs and their teams can use to raise awareness in their businesses.

The problem is partly a consequence of changes to working patterns and individual life choices during the pandemic, but it is also an acceleration of a longer trend. In this year’s “Risk in Focus” report, human capital, diversity and talent management rose to its highest position ever when it was cited by 40% of chief audit executives (CAEs) across Europe as one of their top five risks for 2022.

It is clear that organisations need to find new ways to attract and retain talented employees and invest in training and education. Done well, this could have long-term benefits for diversity and inclusion and for company culture.

Those organisations that have worked hard to improve their equality, diversity and inclusion will reap the benefits as they are able to reach out to larger pools of potential employees and to attract those who leave employers they perceive as unsupportive or unable to offer them opportunities. Those that have not will have more limited options and must scramble to catch up. Corporate reputations matter more than ever.

We also need to rethink job requirements and this should create new opportunities for people who previously felt excluded from jobs or sectors. This in turn should help organisations to develop stronger, more diverse management teams – which has been shown to improve corporate decision-making. However, a more diverse, remote and dispersed workforce also creates challenges for managers.

A global problem

One issue is an international shortage of skilled people – partly because the global pandemic has prompted older, wealthier people to reassess their priorities and move out of the full-time workforce and younger people to stay in education for longer.

Different regions have varying issues. For example, Dermot Byrne, head of the Internal and EU Audit Unit in the Department for Public Expenditure and Reform (DEPR) in Ireland, says that his country has experienced large-scale immigration over the past three decades, so integration and skills are important factors.

“Prior to the 1990s, in government departments we were accustomed to talking almost entirely to, and about, people born in Ireland. Now we are working hard to ensure our civil and public services are inclusive and diverse. Measuring how successful we are at bringing non-Irish-born people into senior and skilled roles will be a key indicator.”

Conversely, Maria Rontogianni, head of group internal audit in Alpha Bank in Greece, says the country suffered a huge “brain drain” in its financial crisis in the past decade and the bank is actively recruiting people back to their home country. “We hired over 40 people from overseas during the Covid period,” she says.

Other macro changes, such as climate change, are also affecting skills needs in specific regions. “We’re an energy company and dealing with the transition to renewable power sources, so we need to revitalise our processes as well as our business model and this includes our people. We need to change our brain – work out how to work in a new world,” says Isabel Moreno Salas, director of audit, control and risk at global energy company Repsol in Spain.

IT skills, which have been in short supply for many years, are particularly scarce and sought-after since more people are working remotely and opportunities for cyber crime have increased. Internal auditors are being asked to conduct remote audits and use more data analytics and artificial intelligence, but they are having to compete with every other department in their own business as well as with external organisations to find people with these skills.

Transferable, people or “soft” skills are also essential in the new workplace. Transferable skills enable people to cross functional boundaries and move to new roles. This increases their resilience and should open doors into internal audit as well as other functions, but internal audit leaders may need to change the way they identify the talents they require, asking “what do I really need to get the job done?”, rather than “how do I replace the person I have lost?”.

CAEs should also look to their management skills – and those of management in the business. Do they have the skills they need to manage a remote, flexible workforce with non-traditional backgrounds? How do you train new recruits who would traditionally learn skills such as how to “read” a room, how to behave in a meeting and ways to win people over to their preferred strategy from shadowing experienced managers in physical meetings?

While flexible working models may enable organisations to hire people in other countries or move existing staff to remote teams, this is a two-edged sword since it also means that their employees can be poached from further afield.

Hybrid working and flexible working styles are probably here to stay, but most CAEs were looking forward to returning to offices and having face-to-face contact with colleagues and customers.

What can internal audit do?

Sell the job: “Selling” the attractions of a career in internal audit and a healthy culture in the organisation is more important than ever. To widen the talent pool, internal audit leaders must look further afield and that means promoting the profession to people who have never considered it. If people don’t know what internal audit does, they are unlikely to apply for a job.

Ask what makes you stand out. Why would someone choose to work for you? Are you holding on to the people you need?

This applies equally to talent management across your organisation. Recruiters say that candidates are increasingly interested in organisations’ environmental, social and governance (ESG) reputations and whether they live up to their glossy mission statements in practice. If your organisation is doing good things, now is the time to shout about it.

Promote health and wellbeing: Health and wellbeing initiatives have never been more important to prevent burnout and these can also be used to attract new people to the workforce. If you’re offering remote working options to new staff, you need to consider how this affects existing teams and what you offer them.

Look for opportunities: Internal audit is well-placed to advise management on the opportunities, as well as warning them of the risks. Corporate reputation is key. Organisations that are perceived as good employers will find it easier to attract skilled people.

Be diverse: More flexible working patterns should expand the talent pool enabling imaginative organisations to pursue diversity goals more effectively. This, in turn, may prompt new ideas for products, customer service or employee welfare and may enhance an organisation’s reputation.

Organisations should therefore look for potential employees in new places – using social media, customer databases, family and friends networks, the local community, universities, colleges, schools and training providers to find people who may not know about them. They should also consider training apprentices.

“It amazes me that every company says it wants to be more diverse and then only wants to recruit from the places they’ve always recruited from,” warns Steve Ingham, CEO of Page Group. “There is a much broader way of accessing more diverse pools of talent now via social media. If you don’t have a diverse pool, you can’t have diverse employees. Your customers will almost certainly be more diverse than your employees.”

Train and develop: Organisations need to think not just about training staff for the job they currently do, but about developing them to work in other parts of the organisation in future. This requires joined-up thinking between functions and senior management and encouraging managers to see benefits beyond their own requirements.

They may also need to work with training providers and educators to source and develop people from the start of their careers.

“We need skills, but what I really need most is people with the attitude to learn and change the way we work,” says Devan De Paolis, vice-president of internal audit at Rome Airport. “We are facing another industrial revolution and in 20 years’ time we may face another. Things are changing fast and we need the attitude that will help us to keep up. I want auditors who think differently and can change the way we look at organisations and the way we audit.”

Collaborate: During the pandemic, CAEs developed formal and informal supportive networks to share experiences and discuss best practice. These could be developed further to discuss skills problems and share skills and experiences.

“We have been used to thinking that ‘this is my country’ or ‘my area of expertise’. We are now experimenting with cross-border centres of excellence to utilise skills across borders and encourage people to work and learn together on cross-border audits,” says Maria Rontogianni, head of group internal audit in Alpha Bank in Greece. “Most multinational companies have internal auditors around the world, so let’s start using the diversity we already have better and more imaginatively.”

Many organisations run programmes enabling operational employees to participate in audits and contribute expertise and knowledge of the business while learning about controls, risk management and governance structures. This helps to fill knowledge and skills gaps as well as promoting understanding of internal audit. Such schemes require careful management to avoid conflicts of interest, but the development possibilities are obvious.

Ulrich Weber, head of internal audit at paper and packaging manufacturer Mondi Group in Austria, says that his organisation has a ten-year roadmap to develop its people and talent. “We are examining our long-term training and skills development to help ensure people have long-term employment with us. We are working to build a more diverse and inclusive workplace and are aiming to create an environment with a stronger focus on health and mental wellbeing,” he says. “These ambitions will be monitored and measured.”

Use AI: Some skills gaps will be filled by machines in future and this will affect jobs. Artificial intelligence (AI) will be able to provide some of the skills currently in short supply, so the challenge for CAEs is to use it well, recognise the risks and identify the skills that the people using the AI will need to take internal audit to a new level.

Audit the risks: Human capital risk can be included in many audits and feasibility reviews. Some internal audit teams will also do specific audits of HR, culture, training and development or diversity.

Be prepared: Internal audit leaders should ensure they are aware of talent management and people risks in their own teams and that they are horizon-scanning for future needs and talent shortfalls.

Advise the business: CAEs (and the senior managers they speak to in their organisations) are generally well aware of the risks and take measures to mitigate these or to transform. More worryingly, several said that it can be hard to get management to put HR high on their risk agenda. It’s also important to advise management about opportunities for increasing diversity and focusing on corporate culture, wellbeing and reputation.

The “Human Capital” overview includes a list of questions that internal audit should ask, practical steps that CAEs can take now, and a list of key skills for the future. Ultimately, internal audit needs to be aware of, and pre-empt, talent shortage risks, seize the opportunities to develop what they do and what they tell management.

“Many of these skills are less about training and more to do with the kind of person you are,” David Bichler at Erste Group, points out. “Leaders need to ask what we can do to identify these people better than we have in the past.” 

This article was first published in May 2022.