Anne Kiem on the need for high standards amid global uncertainty
The political world is shifting dramatically. After a long period of enhanced protections and increased regulations in many global jurisdictions, President Trump is slashing regulations in the US, and UK politicians are also promising simplifications in the name of encouraging growth.
It is true, that over-regulation impedes growth and judicious regulatory pruning may help to boost it. However, this creates a dilemma for organisations and, specifically, for internal auditors. Just because regulations driving action in complex areas such as environmental, social and governance (ESG) and diversity, equality and inclusion (DEI) are reduced in some countries, this doesn’t mean that organisations should consider cancelling their initiatives in these areas, even if they now feel they can. But it does necessitate new conversations about why they are doing them and how they enhance long-term growth potential. The research shows that, for example, diverse workforces are more productive in the longer-term.
Organisations that operate in multiple jurisdictions have always had to decide whether to vary their policies in different regions or aim to meet the most demanding regulations in every region where they operate. As regulatory demands diverge, these decisions will increase. Those working in just one region will also need to decide whether to adhere to the bare minimum or to do what is in the best interests of the organisation not just now, but into the future. Several large companies have already announced that they are cutting back on their DEI and ESG initiatives; that doesn’t make it right.
Ask practical questions
Internal auditors can help to frame these discussions in terms of the practicalities of risk. They can ask important questions, such as: Why were these things important in the first place? Is there a risk to not doing them? Is there an economic advantage to being ambitious about, for example, DEI and ESG goals? What are the reputational risks of abandoning policies that were previously touted as important? What do staff and customers want? Could a failure to pursue ESG ambitions cause your organisation to fall behind global competitors or fail to take advantage of new opportunities? Could increasing focus on supply chains lead to more expense and complexity in future if your organisation operates to lower regulatory standards in one area than in others?
The point is that regulations can be complex to implement, but, once in place, they may be good for business because they demonstrate high ethical standards. More choice and opposing political winds are a chance to re-examine regulations and business practices to see if they are also good for mitigating risks and for maintaining high-quality governance.
Change is important and few would argue against removing onerous regulations that create no benefits. However, where regulations have improved standards and raised behaviour, organisations should not enter a race to the bottom. The expectations of stakeholders have increased and a cynical move away from high ethical standards will inevitably lead to future scandals – we have seen this happen in the past.
Focus on integrity
At times of great uncertainty and mixed political messages, coupled with misinformation and disinformation, integrity and veracity are more important than ever. This is another reason why the work internal auditors do is critical. Stakeholders and management need verifiable facts and a clear view on what is really happening, along with well-grounded opinions on risks. Professional internal audit work is essential to gain assurance amid so much complexity.
Reduced consensus on what “good” business looks like increases the challenges for internal audit. The Chartered IIA recently updated its Internal Audit Code of Practice to help members in private and third-sector organisations in the UK and Ireland steer their courses, before the waters became so choppy. The principles still stand.
As part of a global network of institutes, we enjoy a level of consistency via our Global Internal Audit Standards, which also facilitates collaboration. For this reason, I’m delighted that the Chartered IIA has recently been re-admitted as a full member of the European Confederation of Institutes of Internal Auditing (ECIIA). After Brexit, we remained engaged with the ECIIA, but we now have full voting rights and a place on the board. This will enhance our conversations with internal auditors across Europe, just as a united Europe is entering a new phase.
We have also moved to new premises in Victoria, which puts us closer to the heart of UK government and the conversations that matter when future policies are made. We’ve sold one unit of our offices in Clapham and the other is on the market. These are positive steps forward and will enable us to build our influence and develop the ways in which we support members as you navigate global changes.
Celebrate best practice
At times like these it is essential that we increase recognition of the value of internal audit work and how it helps organisations maintain high standards, while also seizing opportunities for growth. This is why we must also celebrate internal audit best practice – as we will do at our Audit & Risk Awards event on 19 June. Booking is now open, so why not take a table?
As global politics, the regulatory landscape and technology develop – creating new threats and ethical dilemmas – the internal audit profession must keep up. Our membership is our strength, and we can all learn from global thought-leaders and from each other. The speakers at our flagship Internal Audit Conference on 8-9 October will address the most challenging issues that we face today. You can attend in-person or online, and access material online afterwards.
We are continuing to update our technical guidance and publish reports and articles on the issues that matter most in our new content hub, so check to see what’s new. And our communities and forums can help you to form new connections and find out what members in your sector and beyond are doing to overcome common challenges. A key topic for the year ahead will be the future of the profession, combined with Global’s Vision 2035. Keep an eye out for opportunities to discuss this important topic.
Change is unsettling and creates challenges, but internal audit is more necessary than ever – if it remains relevant and acts ethically and with integrity. There are great opportunities for the profession, which is why the Chartered IIA is positioning itself to ensure you are in the best position to take them.