How will you build sustainable stakeholder alliances in 2024?

Are stakeholder relationships a win-or-lose game for internal auditors? The question has intrigued me ever since I started working in the profession. When you deal with so many different people, from so many corners of the business world, across all hierarchies, with a huge variety of backgrounds, from different cultures, with their personal objectives in mind, and all with special ideas about what to expect from the internal auditor, conflicts are inevitable. Adding the perception of our role which does not always fit with what we like to believe we are doing all day long, and you may start wondering how to survive in the stakeholder jungle. Whether you are new in the profession or an old hand, handling stakeholders is a constant challenge.

At the same time, complexity is rising – but so are expectations. We are expected to assure, advise, consult, still tick one or another box (although no one likes to say so anymore), have a clear internal audit strategy, be the eyes and ears of the audit committee, act with courage and honesty by telling the truth when facing dilemmas, and all that obviously without compromising on our independence and objectivity.

For internal auditors, 2024 is certainly not a year to stay complacent – nor a year for a me-against-the-world approach. Without developing sound, supportive, and sustainable stakeholder relationships we won´t cross the finish line. We need alliances to survive the stakeholder jungle. Alliances aren´t built alone out of the corner office. They require collaboration. By acting strategically and staying true to themselves, internal auditors have a chance to develop business relationships built on trust – in other words, authentic sustainable stakeholder alliances.

Endless touchpoints: the stakeholder landscape

Why does it sometimes feel so complex to handle – in an appropriate manner! – all those many business relationships we have in internal audit? It´s due to two main reasons: our stakeholders come in large numbers, and the variety of touchpoints with all of them is massive, providing ample opportunity for challenges. It´s that octopus feeling – you are juggling in all directions, but you easily could do with another set of eight arms.

When trying to list all possible stakeholders for internal audit, it helps to have a simple definition. ChatGPT did a nice job when asked to define a stakeholder in less than eight words: “interested party in a project or an organization”.

Internal stakeholders galore: Start at the top! Your board, audit committee, or whatever is your set-up, is one of the most important stakeholders you may ever have. Be it through reporting lines, one-to-ones, committee meetings, interview partners for your quality assessment, or your client in a culture audit – there are lots of important touchpoints with the governing body. Look further around in your organization. Virtually everyone at some point could become an “interested party” during one of your audits, regardless of hierarchy or role.

On the first line of defense, next to your possible reporting line to someone in the C-suite, the entire management team, central or local, in fact, all the “do´ers”, be it executives or operations, typically could be your client. Also, the entire second line – for example, Legal, Compliance, Risk, Controlling, or IT – might get “interested party” status in providing you with information, could become your client, might work with you on some project or other, or interact with you on Board reporting, to name but a few possibilities.

But don´t forget all the other people in your organization! You might work with them during an audit at some point, but even if that´s never happening, these are still people whom you see day-in, day-out, with whom you may have conversations around the water cooler or go running during lunch time, who are interested in what internal audit does, and who are often great sources of valuable information. And last, but certainly not least, is the audit team. Be it through hierarchy or as an audit colleague, no one is a closer stakeholder than your team.

External stakeholders: From regulators to external auditors, from investors to analysts, from customers to suppliers – all of them at some point may become your stakeholder. This might be through direct touchpoints (reporting to a regulator, regular meetings with external auditors, supporting operations when a client exercises audit rights…), or indirectly: for example, investors will be interested in understanding internal audit´s role in the company´s governance when analyzing the annual report. Add to the list insurers and banks, external counsel and investigators, or anyone else you will start interacting with where the situation requires so (think cyber experts in case of a data breach or a court where you are called for witness), and you may find yourself facing new communication fronts from one day to the next.

Endless room for conflict potential: stakeholder relationship challenges

Putting it simply, there are as many options for stakeholder conflicts as there are combinations of people to interact with and touchpoints to work on. Be it expectation gaps, perception misalignments, cultural mishaps, or “just” communication or behavioral traps – internal auditors walk a very fine line to keep their stakeholder interactions flowing.

Perception gap: While the role of internal audit has been changing over the past few decades, individual perception has not always kept pace. “Policing” or “just tick-the-box” remain common answers to the question “What does internal audit do?”. That might partly be a matter of an individual stakeholder´s attitude, or even of an organization´s culture – but it´s too easy to just throw the blame on the other side. Chances are that internal audit doesn´t explain sufficiently well what’s their purpose, isn´t adding real value, isn´t transparent, or simply doesn´t communicate effectively with the stakeholders to get to the roots of the seemingly incorrect perception. Once trapped in such a gap, it can be very difficult to find common ground for aligning expectations.

Communication mismatch: “We just don´t speak the same language”: who hasn´t yet felt this when interacting with an internal auditor – and vice versa? “Language” in internal audit can take infinite manifestations: foreign language barriers that aren´t overcome; no adaptation to different professional backgrounds that each have a different way of thinking and speaking; audit jargon or client-specific terminology that both keep “untranslated” for the other side; ignored hierarchy and formality requirements; cultural misunderstandings; lack of alignment about the necessary level of detail or the way of stakeholder reporting more generally; or just no real sensor for different personalities and communication styles between auditor and stakeholder.

Absence trap: Is your preferred working style to stay alone at your desk, door closed, phone silenced, meetings cut to a minimum, just doing your job – and not just today, because you need to finish that one urgent report? In other words: are you a silo auditor? If you are one, you might miss out on informal information flow, business “sensing”, risk awareness, or even efficiencies, due to the limited personal interaction. That form of absence vis-à-vis clients or colleagues is unlikely to enhance internal audit´s reputation as an advisor or sparring partner – regardless of how competent the auditor is. The absence trap tends to spiral downwards because due to the lack of stakeholder relationship in the first place, there´s not much room to improve the situation.

Trust lost: Finally, a classic all-stakeholder risk: how easy is it to lose your stakeholder´s trust? The sad answer: it´s extremely easy, and the ensuing, and likely lasting, conflict is evident. It´s sufficient to once do something not so smart: provide a nasty surprise to your CEO at the audit committee, get caught in indiscretion about a client´s information, be unreliable in delivering a report, be incompetent or inefficient, show blatant lack of objectivity, communicate inconsistently… the list of potential trust traps is endless. In addition, most internal stakeholder relationships have more than one side: client, colleague, hierarchical relationship, source of information…. This provides additional room for conflict if trust is lost in one dimension.

Emerging issues don´t help make it any better

If the classics of stakeholder challenges weren´t enough for internal auditors, a working environment that is constantly changing doesn´t make it any easier. Be it risks and related topics that each come with new stakeholder interactions and changing expectations about the auditor´s role, new working methods, and even new professional standards – what all those factors have in common is that they require an internal auditor to adapt constantly.

Risks on the rise: Thinking back a few years, topics such as digital disruption or ESG-related matters such as climate change, human rights, or governance risks might have appeared in a company´s risk register – but chances that internal audit would be expected to spend considerable time on such topics were limited. This has changed entirely. To stay with the examples, according to the IIA Global´s 2024 Risk in Focus report¹https://www.theiia.org/en/internal-audit-foundation/latest-research-and-products/risk-in-focus/, digital disruption and climate change have risen dramatically in their expected relevance for internal auditors´ activities three years from now. New topics for internal audit to cover next to their already broad scope of activities often come with new stakeholder interactions (certain departments not in-scope until recently? First-time interaction with suppliers for sustainability due diligence? Working with IT and legal on a changing control set-up for a cloud-based ERP?). Challenges for an already difficult relationship may be on the rise.

New topics, new challenges, new methods: With a widening range of topics to cover, internal auditors need to familiarize themselves with fields of expertise entirely new to them, often driven by changing regulations and fast-moving technology which pose a challenge to the entire organization. Change may be desirable per se, but often pushes the organization on the edge of its capacities and creates additional friction. Add expectations on everyone to work hybrid, agile, entirely digital, and with less resources, and one can easily see how working relationships are reshuffled.

New standards, new expectations: There´s no way around: our profession is undergoing a clear shift in expectations. While just ticking-off checklists might have been the way to proceed until the turn of the century, the early 2000s showed a shift towards more assurance and improvement. Today, more and more are internal auditors expected to advise – on risks, controls, compliance, processes, projects, governance, culture… our scope seems to be endless. Along with the shift came a sense of “upskilling” of expected competencies: away from pure technical know-how towards more focus on personal and relational skills. That makes plenty of sense: why would anyone want to be advised by an internal auditor who isn´t able to build a solid interpersonal relationship with the client?

The new Global Internal Audit Standards, published in early 2024²https://www.theiia.org/globalassets/site/standards/globalinternalauditstandards_2024january9_printable.pdf, have explicitly embraced the shift: we are expected to “communicate effectively” (Principle 11), have an “approach…to build relationships and trust with key stakeholders…” (Standard 11.1), document our “plan for managing stakeholder relationships” (example for evidence of conformance of Standard 11.1) and must be “respectful in all professional relationships and communications (Standard 1.1). In short: the new standards have given our behavioral norms a new twist: relationship-building is key.

With this mix of new and emerging challenges for internal auditors to navigate the stakeholder landscape, what can we do to succeed?

Master plan for building sustainable stakeholder alliances

“All business is personal… make your friends before you need them”: Robert L. Johnson has a point³https://www.blackenterprise.com/bob-johnson-bet-quotes-black-history/. While I don´t suggest that internal auditors should make it their overall objective to become best friends with their many business acquaintances, there´s a lot of truth in that stakeholder management is nothing but a people business – it´s the quality of relationships with their stakeholders that make or break an internal auditor´s success story. The good news: it all starts with us.

Start with yourself

Staying true to oneself – authentic leadership as a starting point: Successful business relationships are grounded in knowing oneself and acting accordingly and appropriately. Without self-awareness we won´t understand how we influence – and how we are influenced by others – and we won´t be able to act authentically. The concept of authentic leadership, brought up in 2003 by Bill George, professor at Harvard Business School, doesn´t build on leadership in a purely hierarchical sense. Instead, it builds on authenticity in the meaning of being genuine and true to one´s own beliefs⁴https://hbr.org/podcast/2007/05/harvard-business-ideacast-43-a. Next to the need for self-awareness, it builds on a clear purpose, on empathy, on strong relationships, and it requires self-discipline to set ourselves high standards and stay accountable. But first and foremost, authentic leadership is based on living one´s core values. The basis of these values, however personal they may be, is integrity. Without a clear sense of integrity – doing the right thing and telling the truth even if it´s uncomfortable – it´s impossible in the long term to establish working relationships based on trust and transparency. Putting it to the extreme: without authenticity and integrity, everything else is fake. Nowadays, fake leaders will be punished by being unfollowed – be it on social media, or by resigning.

Having in mind the stakeholder challenges of internal auditors, how can the concept of authentic leadership be brought to use for our profession?

Codeword integrity: First, it helps to remind ourselves about Principle 1 of the new internal audit standards: “Demonstrate integrity.” Integrity is the core of our profession and the foundation for all other core principles, and it´s the connecting link to authentic leadership – the “True North” of the profession, to stay with Bill George´s terminology. Internal audit provides ample opportunity for grey zones where we must demonstrate integrity – this is where our values are tested under pressure and where we must demonstrate leadership by example.

Self-awareness: Integrity alone, unfortunately, is only a start for helping us navigate stakeholder conflicts. Here, it´s all about understanding why we lead how we lead – or rather, how we influence. As John Maxwell puts it: “Leadership is influence – nothing more, nothing less”.⁵https://www.businessnewsdaily.com/7481-leadership-quotes.html As an example, why do we have a hard time accepting critical client reactions to our audit report? Why do we shy away from conflicts with some colleagues? Why do we get impatient with certain behaviors but not with others?

Self-awareness means accepting one´s weak spots and working on them. It makes us vulnerable – and if handled appropriately, it makes us behave authentically.

Empathy: Being genuinely interested in others, i.e. not just having audit touchpoints in mind, but also the person we work with, is essential to building trust. “Tough empathy” is a more robust form of empathy. Often defined as giving people what they need and not what they want, it´s typically applied in challenging situations, where it is sought to foster understanding when striking a balance between the issue at hand and the individual´s concern. Appropriately yet respectfully handling situations of under-performance of a team member or being sympathetic but transparent in reporting internal audit findings of a friend´s area of responsibility are examples of tough empathy in internal audit. It demonstrates honesty and the courage to make tough decisions by staying true to oneself.

Other characteristics of authentic business relationships: having a long-term, non-transactional focus that puts mutual benefits first helps to create better acceptance for inherently conflicting stakeholder touchpoints. Being approachable, acting in a consistently reliable manner, and not hiding behind a façade supports an environment of safety and trust that helps to build more sustainable relationships within the complex stakeholder landscape. Authentic leadership requires investment – first and foremost in one´s personal development.

Get strategic

Next to starting with one´s authentic self, internal auditors need to get strategic about their way of interacting with their innumerable stakeholders – we shouldn´t leave it to chance how our business relationships evolve.

Assess your stakeholder environment: Start by mapping out your stakeholder landscape: who are you primarily and secondarily working with? Were there issues in the past? If yes, why? How did you handle them? Are there loose ends that require mending, and what´s your strategy to tackle them? This is a tough assessment where one needs to be honest with oneself. While we must develop a clear understanding of the key touchpoints with our stakeholders, it won´t help to start by throwing the blame on others when assessing where a relationship derailed. Next to the known touchpoints, think about emerging topics – who has only recently appeared on your stakeholder radar, and whom can you expect to get more involved with in the future? Based on what you learned from your assessment, how can you start connecting, and where could it potentially get challenging?

Don´t play stakeholder roulette: One-and-done stakeholder interactions in internal audit were yesterday. Think long-term and have the mutual benefits of your stakeholder relationships in mind – where is common ground in your interaction? As an example, when starting to work with a new client, or when you work with colleagues of another department on a joint project, it helps to have a conversation about how both of you see the long-term benefits of the collaboration. Openly communicating on potential challenges in the working relationship and an honest search for common ground feels disarming and proves your good intentions.

Network with a common purpose: Do you have your personal advantage in mind when you expand your network, or when reaching out to your stakeholders? Or are you defining networking as building and maintaining authentic connections for mutual support and opportunities? Or, third, is “just reaching out to someone” to keep business relationships alive not your thing? Try considering the idea that networking should have a mutually beneficial purpose. Showing genuine interest in the other person is a good start and will always be better received than “fakeworking” – nobody can be fooled by fakes in the long term. Remember: leading is all about influencing – but influencing shouldn´t be confounded with manipulation.

Ask for feedback: While self-awareness is an essential element of successfully navigating stakeholder challenges, it´s equally important to get honest feedback on how others perceive you – there´s always another side of the coin. Be it 360° feedback loops, an external quality assessment with stakeholder interviews, a candid conversation with your key business relationships, or simply an open discussion with a close friend or your partner: it all helps put things in perspective. Honesty is your friend: a humble approach goes a long way when asking for feedback.

Get relevant training: Feedback loops are not a closed system. If receiving feedback makes you realize that there is room for improvement at your end, go for it. Be it professional skills or personal skills – maybe you find it indeed hard to communicate at ease with your board, or you wonder how you can build better rapport with your clients without getting defensive, or be a more inspiring, empathic leader for your team – training options are endless, and better self-awareness through honest feedback is a great starting point. Remember: “The hardest person you will ever have to lead is yourself.”⁶Source: Bill George (2022): True North – Emerging Leader Edition

Takeaways

• Building sustainable stakeholder alliances for internal auditors is a must. Silos were yesterday – we won´t succeed without a collaborative, trustful approach that genuinely builds on mutual benefits.
• Successful relationship development in an ever-increasing, complex stakeholder landscape starts by leading ourselves – without self-awareness we won´t be able to authentically interact with others.
• Integrity is the common ground between our professional standards and our personal core values if we strive for authentic, lasting stakeholder relationships.
• Understanding the stakeholder landscape and the challenges, thinking long-term, asking for feedback, and working on our personal missing links is a strategic approach for internal auditors to develop sustainable alliances built on what is entirely under our control – our authenticity.