Among the many profound changes wrought by the Sarbanes-Oxley Act, one that has yet to win due recognition is the elevated status of internal auditors.
Historically, internal audit was hardly considered a launch pad for executive careers in finance. Rather, it was often a stagnant pool in which financial types got stuck. In recent years, though, after the spate of corporate scandals that led to Sarbox and its heightened financial-reporting mandates, internal audit has found itself in the corporate spotlight.
At many companies, in fact, the post is now a valuable rung on the leadership ladder — offering its practitioners thorough immersion in all aspects of a business, and frequent exposure to the board. Chief auditors are now considered senior finance executives, rather than being a half-step below that status.
In fact, the function is so important that a fair number of companies are bringing in seasoned executives from other areas (or companies) to run internal audit, rather than promoting lower-level people from the function. For those who move into the lead audit role, the experience and exposure gained may well help shape the remainder of their careers.
For Michael Fung, CFO of Wal-Mart’s North American stores division, a four-year seeming sidestep from head of global procurement into internal audit in 2003 proved just what he needed to graduate to a chief finance role. “You have a chance to really learn and help improve the business,” he said. “You build relationships with the board and the major business leaders. You can move internal audit to more value-added processes. And it builds your ability to manage people and work with cross-functional teams.”
Ken Hannah, who heads finance for wafer-maker MEMC, started his career in internal audit at McDonnell Douglas, and later worked for a series of companies — Boeing, General Electric, Home Depot — that were ahead of the curve in using internal audit to develop future leaders.
Hannah said his corporate audit experience “allowed me to see up-close a number of different businesses and processes that led to the development and implementation of best practices in various jobs I’ve had. The exposure to the many different ways businesses do things was enlightening.”
Ralph Nicoletti was at Kraft Foods in assorted finance roles for 26 years before taking on the CAE role. He did that for a year, from early 2006 to early 2007, before hitting pay dirt with an offer from Alberto-Culver to be CFO for the first time. His year in audit was especially significant because Kraft was setting up a new global audit department in conjunction with its spinoff from Altria Group.
“It was a great opportunity, because it brought a lot of global exposure to our operations in a fast, efficient way — in audit you see a lot quickly,” he said. “Virtually all of my experience had been on the North American side of the business.” He added, “If you want to move up to CFO, getting more rounded corporate governance exposure and regular interaction with the board is invaluable.”