Why are you so controlling?

“I can’t move. These things that they call controls make my life miserable. I feel like I’m being heavily guarded. Don’t they trust me? A process with three steps becomes four, and four steps become three. I don’t think there’s a difference at all. This just consumes my time and effort.”

-Typical reaction of process owners, protesting in silence

No one likes to be controlled. Autonomy and freedom are sought for by individuals especially when it comes to performing their work. However, controls are indispensable to the success of organizations. According to the Internal Control – Integrated Framework, a report on internal control prepared by the Committee of Sponsoring Organizations of the Treadway Commission, internal control is in place to provide reasonable assurance on the achievement of objectives in the following categories: effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

In order for companies to attain their goals and spur growth, they have to manage risks through robust internal controls. But while executive management appreciates and understands the need to have these controls in place, this appreciation is not necessarily shared by process owners who have to deal with these controls on a daily basis.

When the value of controls is not fully understood, process owners may perceive them as unnecessary and counterproductive. They may also feel that controls are there so that management can nitpick on their errors and mistakes. At times, process owners feel offended by the imposition of safeguards especially when this leads to a more stringent review and approval of their work, the addition of performance metrics, access revocation, divestment of incompatible duties, and other changes in the normal operating procedures. In worst cases, hostility may arise causing process owners to disregard the controls and impede operations.

In a simpler and similar context, this initial resistance may be likened to the rebellion of teens when parents impose curfews, regulate allowances, limit the use of gadgets, or require target grades. But as teens mature and grow in a family that fosters open dialogue, they eventually understand that rules are meant for their safety and well-being.

In the same manner, in order to effectively handle adverse reactions towards controls, management should properly communicate and demonstrate the benefits of implementing controls. With open and consistent communication, management can inculcate in its employees the overall control objectives.  According to Nitin Nohria, Dean of Harvard Business School, “Communication is the real work of leadership.” When effective communication is in place, process owners can better appreciate controls and work towards helping management implement them successfully.

The following are some ways by which the value of controls can be communicated:

• Mission and values statements

• Standards or codes of conduct

• Policies and practices

• Operating principles

• Directives, guidelines and other supporting communications

• Actions and decisions of the board of directors and of management at various levels

• Attitudes and responses to deviations from expected standards of conduct

• Informal and routine actions and communication of leaders at all levels of the entity

Regardless of the forms of communication that you use, the tone must be consistent — from executive management down to the front-liners — to ensure that values, business drivers, and resulting behaviors are shared among all employees and partners of the organization. Management should make sure process owners understand that controls are designed to help accomplish specific goals and objectives, and that they are essential in preventing and detecting minor problems before they become catastrophes. Having a unified direction helps process owners grasp that the minutest control is an important piece in the armor of organizations against risks.

In the quest for effective risk management and growth, companies will always face the challenge of dealing with different levels of maturity and comprehension amongst process owners when organizational changes are made to accommodate controls. But while birthing pains and initial resistance are inevitable, they can be mitigated through dynamic dialogue and clear communication. If the message is effectively packaged, everyone in the organization will appreciate that controls are there to aid, not suffocate.

Irish Ching CPA is a Lead Consultant with the Advisory Services Division of Punongbayan & Araullo.

Executive Brief – October 2012

Punongbayan and Araullo