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Agile, adaptive, serendipitous or out of control?

Source: Agile, adaptive, serendipitous or out of control?

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The People’s Audit – from https://chiefauditexecutive.wordpress.com/

I wrote some time ago – and it is my most popular blog post – about Why internal audit is important. In this post I stated that organisations are simply not able to control and govern themselves with what Erica Schoenberger calls ‘strong objectivity’. This is the ability to be ultimately independent of one’s self in the corporate interest. In it I said ‘the executive turkeys are not willing, ultimately, to vote for Christmas, no matter how objective, strong or compelling are the reasons to do so.’

This was prescient. As we hear today about two scandals, first the peoples’ car – Volkswagen, appears not to be so people-oriented after all. BBC News – Volkswagen Second we hear about BBC News – Charities Regulation where even nice ‘fluffy’ charities cannot be trusted to behave as corporate entities, responsibly.

Now I am going to ask the usual question we auditors do – where was internal audit in Volkswagen? I ask this not to say that such a small bit of coding, in a chip in one car engine, could not be missed by internal audit – of course it could. I ask this because did internal audit not pick up the cultural controls that allowed such actions to be deemed acceptable? For let’s be clear, such actions would not be the actions of one rogue individual, they would not be signed off by one local manager in one small business unit, they are intentional fraud. So how far up the organisation, or from the top of the organisation, was the approval to commit, knowingly, fraud, approved? This says something much more about organisational governance, culture and control. Surely internal audit would pick this up across the business?

For charities, for the ones that are implicated in the UK review published today, fundraising is not a minor, marginal, activity. It is a major, business related, activity. It is core. So should internal audit have some understanding of the right or wrong ways to do fundraising and should it have reviewed the ethics of doing so? In my view, yes.

What does this tell us about internal audit as a profession more widely? First I think it reaffirms the importance of internal audit. Organisations cannot self govern. They need strong independent governance, audit and regulatory structures to ensure that they do not act in their own personal or even organisational interest. Of course we do not know the details or extent of the Volkswagen’s wrong doing – simply that there was wrong doing and that it could be very, very big – £4.6bn big according to today’s news. This could, of course, not just be Volkswagen, it could be other car manufacturers as well.

Second I think it reconfirms my view that internal audit is not some small rarefied  bubble in the organisation, testing the controls theory of organisations. It is a needed and core part of most organisations. It needs to see more, do more, interfere and intervene more. I have been having a debate on this blog with James Paterson and others who think my view of internal audit risks taking internal audit beyond its third line of defence position and, being more expansive and pervasive in an organisation, inherently weaken the second line of management control. I disagree and consider internal audit’s third line position does not mean it has to be small, weak, and review the theory of organisations. I see the third line position as one of objectivity and independence, not a prescription of reviewing just systems in theory or necessarily being small, marginalised and organisationally weak.

If Volkswagen had a well resourced internal audit, and had a stronger third line, with an interventionist position, then I think it could have spotted the £4.7bn disaster. That would pay for many years of very good internal audit even in an expanded third line form in my view.

I know those who hold to the established internal audit wisdom that organisations are run by first and second line management controls, by rational and organised organisational machines, and that internal audit’s role is to validate the correct and appropriate working of that machine, from a organisationally moral Mount Olympus will disagree with me. For me, however, organisations are not run like machines. People are not all rational. They are selfish, complex, self oriented and prone to moral relativism (I should say they can be amazing, honourable, giving and special too).

I believe internal audit’s unique proposition is objectivity, independence and its organisational position (between management and governance elements of the organisation). These can, and should, be applied at greater scale in most organisations. Why? because organisations cannot self govern. Layers of management are not independent of each other, they are one command chain. We learn time and time again that the lines of defence model, whilst a helpful typology, is not real – management cannot control or help themselves, even where it is organisationally rationale to do so – otherwise someone would have calculated the fines per vehicle and decided whether to risk it in Volkswagen and decided no.

So I come back to my core point. Internal audit matters. Internal audit must be bigger, better, braver, and be seen as a normal functioning part of any organisation that is serious about wanting to be run properly. It must look deeper and more into its clients, this takes money and resource, but the payback (if only in fines avoided) must surely justify this leap of faith?  Are you ready to leap?

Online gambling review should not ignore the problems in our own backyard – Charles Livingstone

As those who watch sport will attest, online gambling is seemingly ubiquitous. Certainly advertising for it is.

In Australia, the regulation of gambling services is a matter for state governments. However, the federal government has responsibility for telecommunications, which includes the internet. So, there is some division of responsibility for online gambling. This has arguably left the area less well regulated than it might be.

This is one ostensible reason the federal government has announced a review of the online gambling industry.

Background

The current federal legislation is the Interactive Gambling Act. It allows Australian operators to offer online betting. It also seeks to prohibit the provision of casino-style gambling – roulette, slot machines – to Australian residents, but doesn’t prohibit Australians from using such services.

This means that Australian-registered services are not allowed to offer some gambling services, but are permitted to take online bets.

The most recent review of the act reported in 2012. It concluded that it would be useful to consider a trial of some online gambling – suggesting online poker, which is thought to be a less harmful form of gambling than slots or other casino-style gambling.

The review also recommended a host of harm-minimisation measures be introduced into the online gambling arena. These included a pre-commitment system, an effective self-exclusion system and much-improved practices among bookies. The review recommended that better enforcement of offshore providers be implemented, although effective regulation of extra-jurisdictional gambling providers is likely to be futile.

Nonetheless, the review suggested that banking institutions should be rewarded for blocking transactions between Australians and nominated unlawful gambling providers. This may have some effect, although mainstream banking institutions provide only some of the plethora of ways of moving money around the world.

A recent Financial Counselling Australia report highlighted a number of what can only be regarded as very dubious practices among prominent bookmakers operating under Australian regulation. These include extending unsolicited lines of credit, failure to pay winnings on request and repeated inducements to gamble.

These practices are not caught by current consumer protections under credit law or gambling regulation. Bookies also appear to regularly share data on their customers, which is likely to breach privacy legislation.

What this review will focus on

Media reports early this month – when Social Services Minister Scott Morrison confirmed that a review would be held – appeared to focus on a range of the issues highlighted by the 2013 review, including consumer protection.

However, the terms of reference headlined this new review as being into the:

Impact of Illegal Offshore Wagering.

In fairness, one of the terms of reference of the review is concerned with increasing consumer protection.

It will be a quick review. The final report must be with Morrison by late December. Submissions will be sought from industry and the public.

Those concerned with the growing harms of online gambling – and particularly sports betting – will be disappointed with the terms of this review. There are a number of pressing concerns that, from a consumer protection perspective, might have ranked higher in both the terms of reference and Morrison’s messaging.

Online bookies are competing for market share in Australia, where the operators now include global giants such as the British bookies Ladbrokes and William Hill. Their practices have attracted considerable criticism as the scramble for revenue escalates.

Troubling practices include the continuing provision of credit, the pushing of boundaries on such issues as the prohibition of online in-play betting, and blanket advertising of their wares – including to children during sporting events – and the aggressive branding of sporting teams with gambling providers.

What is Australia’s real gambling problem?

Sports betting in Australia is likely to generate revenue – that is, player losses – of around A$750 million in 2015-16. It is the fastest-growing gambling sector and is likely to produce a new wave of gambling problems among the young men to whom these products are marketed.

Although modest in comparison to poker machines – which generated around $11 billion in losses in 2014-15 – it needs to be effectively regulated if Australia is to avoid adding to the already significant burden of gambling harm. The good news is that preventing this harm is actually quite straightforward.

Unfortunately, substantial and powerful segments of the Australian body politic are now closely affected by the fortunes of the bookies. These include Packer interests via CrownBet, the AFL’s official wagering partner. State and territory treasuries are also abundantly interested in maintaining the flow of money.

It is worth asking if the offshore online gambling sector is Australia’s most pressing gambling problem. Undoubtedly, some Australians get into a lot of trouble gambling online. Most of them will fall prey to bookies already licensed in Australia and offering services lawfully. Some will end up in trouble because of offshore sites offering unobtainable services such as online slots or roulette.

Overall, the market going to such offshore providers is estimated at around $1 billion, although there is no way of verifying this under current circumstances.

But, at least 75% of those with a gambling problem have it because of poker machines in clubs or pubs. We see little concern from the government about this group.

And, even in the online gambling environment, there appears to be little concern about first cleaning up our own backyard. The 2013 review made some very sensible recommendations about harm minimisation, including restricting or prohibiting credit betting. This is clearly a source of considerable harm to many. And prohibiting credit betting is in fact current federal government policy.

The Financial Counselling Australia report provided ample evidence of the excesses of the Australian online gambling industry. A recent whistleblower article from within the industry confirmed these concerns. These need to be a major focus of any review of the Interactive Gambling Act and other relevant federal legislation, including the regulation of advertising and banking services.

But if the renewed urgency behind this review is to highlight the “dangers” of offshore online gambling providers, then the bookies will be arguing as hard as they can that the solution is to allow them to offer the same services from Australia. After all, the internet is notoriously difficult to regulate and service providers licensed in Australia would be expected to observe Australian regulation.

It is important to ensure gambling is properly regulated. But it is probably better to address the main game first, or at least simultaneously. That involves making sure that current providers are adhering to the best possible harm-minimisation practice.

The 2013 review set up a clear set of goals for that. We don’t need another review to know what needs to be done, or to do it.

One step toward letting yourself lead: Let go! – Renee Charney, Ph.D. Candidate

One step toward letting yourself lead: Let go!

I asked her a question that encouraged her to step back and reflect a bit:  “What do you want?” She thought about it for a minute and then answered: “I want my team to do what I want them to do!”

Now we really had something to explore.

Many times new leaders (and, at times, seasoned leaders, as well) get securely attached to their own ways of performing a job; their way is the right way because, as their personal experience demonstrates, it’s been those very skills and techniques that got them into the position they now hold; it’s because they did a great job.

But here’s where leaders might get derailed. If they hold fast to what they know best, their expertise, they squander the opportunity to truly lead.

Rooke and Torbert (2005) suggest that great leaders are not differentiated by their personality or management style, but rather their “action logics”—how they react (or act) when they step (or are pulled) out of their comfort zone. People, according to the model, fall into one of seven of these action logics, which include such groupings as achievers, experts, diplomats, strategists, and individualists.When we allow ourselves to step back, reflect, consider others’ perspectives or ways of doing a task, we ourselves grow to be more inclusive and relational in our leadership capacity. And, by doing so, we can also transform how our organization develops across teams by modeling the same behaviors and, by extension, enriching the environment for others to also develop.

Rooke and Torbert (2005) further suggest that most of our working population rests within the action logic stage of “expert”—actually 38% of the working population—someone who may be well-suited as an individual contributor due to his or her technical expertise and, possibly, less suited to be the developmental leader needed to grow others.

Here’s the opportunity.

When leaders are willing to practice new habits of letting go, and allow their team members to try new things (and, perhaps, perform tasks that might not map directly to what they would have done), amazing and wonderful things happen – for both the leader and the team.  In Rooke and Torbert’s (2005) “action logic” language, this behavior demonstrates a later stage of development called the “achiever” stage (30% of the population), which occurs when a leader expands her capacity to focus on team development and team goals, rather than on personal expertise and personal goals. As you might imagine, as adults expand their capacity to let go, step back, and enable others to take more responsibility, make more independent decisions, and deepen their capacity to “lead in place” (Wergin, 2007), this leadership growing pattern becomes more challenging; leaders must be able to enter into the unknown and trust others’ capacity to lead. This leadership development process enables teams the opportunity to step up and take the lead on projects, and to learn from both their successes and mistakes. The leader, in turn, gets to learn new ways of doing tasks and, by extension of the willingness to let go, deepens the loyalty and trust across the team.

My client decided to give it a try to let go and see what would happen. She decided to let herself lead. What she noticed was enlightening!  Her relationships with her team members became richer, their creativity soared, and they began to make decisions independently. She then gained more time to work on her own tasks, thinking and planning strategically (and was able to answer her emails in time to get home to her family at a reasonable hour). She grew as a leader and gained the respect of upper management as her team achieved results that exceeded expectations.

A simple shift of thinking can make all the difference as we commit to growing ourselves as leaders and to growing our teams. Letting go of what we know andletting ourselves lead can be that simple shift. What possibilities to let go might you see within your leadership life?

New Managers Need a Philosophy About How They’ll Lead – Carol A. Walker 

Being promoted to manager is a good sign you’ve been successful to date — however,  the road from this point forward gets trickier to navigate. Your job is no longer just about getting the work done. You’re more likely now to find yourself juggling conflicting demands, delivering difficult messages, and addressing performance problems. While there is no guidebook of straightforward answers to your new challenges, having a clear philosophy can provide a firm foundation from which to.

With respect to your career, a philosophy is simply a cohesive way of thinking about your role. Very few people take the time to establish one. Most managers live in a reactive mode, responding to issues based on gut feelings, past experiences, and examples set by others. The success or failure of this approach is often determined by your temperament (some people are naturally more gifted managers than others) and the caliber of your role models—two factors largely out of your control. Whether you’ve been lucky in these areas or not, having a core philosophy can help guide you through the day-to-day and the job’s tougher moments.

The idea of “servant leadership” is a great place for new managers to start. Robert Greenleaf coined the term 35 years ago, but the concept is still vital and empowering. Granted, “servant” doesn’t sound nearly as powerful as “boss,” but it has the potential to deliver far more of what most of us are really after: influence.  The reason is simple. When you have a servant mentality, it’s not about you. Removing self-interest and personal glory from your motivation on the job is the single most important thing you can do to inspire trust. When you focus first on the success of your organization and your team, it comes through clearly. You ask more questions, listen more carefully, and actively value others’ needs and contributions. The result is more thoughtful, balanced decisions. People who become known for inclusiveness and smart decisions tend to develop influence far more consistently than those who believe they have all the answers.

Servant leadership is most powerful when applied to managing employees. The first step in embracing this mindset is to stop thinking that your employees work for you. Instead, hold onto the idea that they work for the organization and for themselves. Your role as servant is to facilitate the relationship between each employee and the organization. Ask yourself, “What will it take for this employee to be successful in this relationship?” And, “What does the organization need to provide in order to hold up its end of the bargain?” When these questions drive your thinking, you advance both parties’ interests. (The same principles apply to managing products, supply chains, and customer relationships, but we’ll keep our focus on employees here.)

Does servant leadership prohibit telling people what to do or correcting their behavior? On the contrary, it means that you must do these things to facilitate an individual’s success within the organization. The key is that your mind is in “servant mode” when you perform the daily tasks of management.

For instance, assigning work should be a thoughtful process that balances business goals with an individual’s interest, skills, and development needs. Not every routine task has to be so thoroughly considered. But whenever significant assignments are made, putting them into context maximizes their impact. An employee who understands why she has been asked to do something is far more likely to assume true ownership for the assignment. When she owns it, you become more guide than director. You ask how you can support her and how she would like to report progress rather than tell her these things. An employee who believes her boss understands her strengths, values her input, and encourages her growth is likely to stick around for the long-term.

Clearly, the servant approach to assigning tasks requires more thought and preparation than simply dishing them out. It takes time. But remember that you are actually multitasking—you are making sure the work gets done while simultaneously strengthening the individual’s relationship with the organization.

Adopting the servant philosophy should also make it easier to provide corrective feedback. You are merely a facilitator, and facilitators aren’t angry, frustrated, or resentful when they deliver feedback, because it isn’t about them—it’s about the relationship between the two other parties. For that reason, exercising the servant frame of mind makes development conversations feel less personal. You aren’t disappointed in your employee’s actions; you are simply explaining how they get in the way of what he’s trying to accomplish for himself and the organization. When your only agenda is setting someone else up for success, your words tend to be received more openly. True upset happens when either party’s interests are allowed to suffer over time without intervention. It must be the manager’s primary concern to balance those interests.

By definition, developing a reputation takes time. However, when you are consistent with the servant approach, people know what to expect from you and trust ensues. Trust, combined with the smart, inclusive decision-making discussed earlier is a surefire way of gaining influence.

We’ve just scratched the surface of the many challenges that you will confront as a first-time manager. There is simply no way to anticipate them all. But a core servant leadership philosophy will provide critical guideposts to help you manage in real time. Whatever your temperament, a serving mindset will keep you out of the reactive and self-protective patterns that can impede your success. Servant leadership may not appeal to those who are attracted to a more traditional idea of power, but it should be the choice of those interested in influence and results.