1. The Power of Politics New York Chapter of the IIA May 18, 2018
Patty Miller, CIA, QIAL, CPA, CRMA, CISA
PKMiller Risk Consulting, LLC

2. Discussion topics What is political power in an organization?
Why does it exist and what enables?
How frequently does it affect Internal Audit?
What are leading practices to manage?
Concluding thoughts

3. What is political pressure?
“Organizational politics refers to a variety of activities associated with the use of influence tactics to improve personal or organizational interests.”1
“Whatever else organizations may be …, they are political structures. This means that organizations operate by distributing authority and setting the stage for the exercise of power.” 2
1 The 4 Types of Organizational Politics, Michael Jarrett, Harvard Business Review, April 2017
2 Power and Politics in Organizational Life, Abraham Zaleznik, Harvard Business Review, May 1970

4. Dimensions of political power
Who applies pressure1
Quantity of formal authority vested in position relative to others
Authority vested in expertise and reputation
Attractiveness of personality to others
Where political activity takes place2
Individual level – start with individual player but can evolve to group- level behaviors
Organizational level – formal processes and rules, implicit norms
Source of political power2
Soft (informal) – influence, relationships, norms
Hard (formal) – authority, expertise, reward/control mechanisms
1 Power and Politics in Organizational Life, Abraham Zaleznik, Harvard Business Review, May 1970
2 The 4 Types of Organizational Politics, Michael Jarrett, Harvard Business Review, April 2017

5. Why does it exist?
“... Organizations also are political structures which provide opportunities for people to develop careers and, therefore, provide platforms for the expression of individual interests and motives. The development of careers, particularly at high managerial and professional levels, depends on accumulation of power as the vehicle for transforming individual interests into activities which influence other people.” 1
“Organizations demand … cooperative endeavor and commitment to common purposes. The realities of experience in organizations … show that conflicts of interest exist among people who ultimately share a common fate and are supposed to work together. What makes business more political ... is the overriding importance of conflicts of interest.”1
1 Power and Politics in Organizational Life, Abraham Zaleznik, Harvard Business Review, May 1970

6. What is it for Internal Audit?
“The situation in which individuals in leadership positions exercise their authority to achieve a personal benefit, or to protect an organization, by attempting to manipulate the internal audit activity or internal audit reports. Such manipulation may result in actions to restrict the scope of audit activities, suppress audit findings, or undermine the credibility of the chief audit executive or the internal audit activity.”1
1 The Politics of Internal Auditing, Miller, Rittenberg, The Institute of Internal Auditors Foundation, 2015

7. Could the events described happen to auditors, too?
What does it look like?
Threatened with loss of future job opportunities if audit continued
CAE who ignored executive and reported issue to board, subsequently excluded from key executive meetings
Executive shared their version of events with CEO and board before CAE could present results, swaying ultimate conclusion
CAE ostracized by executives and others within the organization
Scope and access to information restricted
1 The Politics of Internal Auditing, Miller, Rittenberg, The Institute of Internal Auditors Foundation, 2015

8. What does it look like?
Newly promoted officer with falsified expense reports – can he be salvaged? Will CAE go along?
Major kickback scheme identified at large government agency. Will CAE let Legal ‘take it from here’?
Officer with lavish personal expenses paid by the company. Will CAE agree to minimal repayment?
City government with conflicts of interest and no truly independent government body. Does the CAE report concerns publicly?
1 The Politics of Internal Auditing, Miller, Rittenberg, The Institute of Internal Auditors Foundation, 2015

9. What enables political pressure?
Lack of strong ethical culture from top down
Lack of strong, independent and supportive audit committee
Weak relationship between CAE and AC Chair, CAE and key executives
Culture that embraces risk and not control, or culture that wants to put positive ‘spin’ on issues
CAE who lacks objectivity, integrity, courage, or sound judgment
Internal audit function that lacks competence
Enculturation of employees – we see what we expect to see or accept what we have learned is acceptable

10. Enculturation of employees
Positive Influence Risks/Negative Behavior
Desire for professional recognition
Financial pressure
Commitment to ethical behavior
Emulate actions viewed as ‘successful’; rationalize
Personal Needs
Encourages ownership of results
Values short-term results
Publicly reinforces ‘do the right thing’
Performance metrics reward poor ethical behavior
Culture
Governance and Control
Reinforces ‘tone at the top’ and ethical commitment
Unwritten and dangerous risk appetite
Ethics and Pressure: Balancing the Internal Audit Profession, Exhibit 13, Rittenberg, CBOK, IIA Foundation, 2016

11. Pressure to change findings?
By Region
Ethics and Pressure: Balancing the Internal Audit Profession, Exhibit 13, Rittenberg, CBOK, IIA Foundation, 2016

12. Pressure to change findings?
By Level
Ethics and Pressure: Balancing the Internal Audit Profession, Exhibit 13, Rittenberg, CBOK, IIA Foundation, 2016

13. Suppress finding or not audit?
45% Never
51% Never
1 The Politics of Internal Auditing, Miller, Rittenberg, The Institute of Internal Auditors Foundation, 2015

14. Who pressures?
Ethics and Pressure: Balancing the Internal Audit Profession, Exhibit 13, Rittenberg, CBOK, IIA Foundation, 2016

15. Managing Pressure

16. CAE leading practices Know the organization and board you are joining
Ensure reporting structure enables and supports objectivity
Build relationships and understand motivations
Less Political Pressure Correlates with Strong Support
% of “Never” Respondents with Strong Support
Suppress Finding
Not Audit Higher Risk
Audit Committee
88%
92%
Executives
80%
78%
1 The Politics of Internal Auditing, Miller, Rittenberg, The Institute of Internal Auditors Foundation, 2015

17. CAE leading practices Proactively discuss protocols
Develop a decision framework
Role model integrity and courage
Know your ethical compass
Be objective AND fair, demonstrate business acumen
Demonstrate organizational alignment with management and in the board room
Build competent professional teams who deliver reliable results, recognized by management and the board
Remember AC members are also board members and think about more than IA issues
Prepare for sessions with AC including Exec Sessions
1 The Politics of Internal Auditing, Miller, Rittenberg, The Institute of Internal Auditors Foundation, 2015

18. Concluding Thoughts

19. Ongoing challenges
Political pressure can be managed and partially mitigated, but it is always present
Good corporate governance critical, but can be transient
Organization culture evolve over time
Defining moments can occur with little warning
Professional competence required, but not sufficient
Effective communication is not just accurate and complete, but proactive, objective and fair

20. Other information For more information on the topic, consider:
Ethics and Pressure: Balancing the Internal Audit Profession, Rittenberg, CBOK, IIA Foundation
The Politics of Internal Auditing, Miller and Rittenberg, IIA Foundation
Power and Politics in Organizational Life, Zaleznik, Harvard Business Review
The 4 Types of Organizational Pressure, Jarrett, Harvard Business Review