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Lawyers’ vs Internal Auditors’: Why CEOs and other top executives value lawyers more than the auditors? Part 1

Have you ever wondered why most CEOs will make the first call to their lawyers when faced with a key decision and ignore the internal auditor and or the accountant altogether?

Wonder no more.

First, we need to understand the difference between a good lawyer and a bad lawyer. The key difference is the quality of their ‘first opinion’, the piece of advice you immediately get from your lawyer when you consult about a problem that you need immediate response there and then. A good lawyer’s first opinion rarely changes even after consultations. An average lawyer or a bad lawyer, always changes their ‘first opinion’ after researching about it in the law books or consulting colleagues.

A wrong first opinion could mean you will pay lots of money to change the decision made at the time the first opinion was given. There is a lot of value in making the right decision, first time all the time. Lawyers that do this are in short supply.

The fact is most lawyers are smart. They give good first opinion, unless they have conflicting interests on an issue. This article is therefore based on good lawyers. Everyone wants to be in a company of a good lawyer. It will save you lots of money.

An average lawyer will tell you something, and rush to the library when their minds are ‘picked’ about a problem. It is good to research. But many of the business situations we experience don’t allow us a enough time to research. And that is where the catch is.

An average lawyer may advise you hesitantly and request for some time to ‘update their faculties.’ Later, they will call you on phone and give you advice about the issue. In most cases, their advice will be different from the earlier ‘first opinion’ on the matter. And you will be left confused; as you took a decision based on their ‘first opinion.’ Now, after the call, you must change it and often at a price.

A great lawyer

Great lawyers, will listen tentatively to your problem ask a few questions to make sure they put your issue into context, and because they have invested a lot in their brains, will give advice there and then that will be accurate. They will later research, of course on the issue. After which, they will call this time to assure you that their first opinion was correct based on research and consultation with senior lawyers (often their law firm partner or a friend in another equally strong law firm) and give you some citations of case law that backs their position also referred to as precedence.

Great lawyers provide on-going briefs on case law, and the legal implications of the business decisions. This keeps the executives up to date. The lawyers also focus on proactive value – they review all contracts and make recommendations to protect the company from potential liabilities. Even where they fail to do this work well (based on increasing legal costs on the company and so many poorly written service level agreements (SLAs) that lead to revenue leakages and high costs on the company, there is usually high respect for the company lawyer compared to the company internal auditor.

Contrast this with Internal Auditors

Many an Internal Auditor don’t provide proactive measurable value in the opinion of the CEO and other top management. Internal auditors are viewed to always be pre-occupied with a lot of operational issues – audit cash, inventory, motor vehicles use, staff attendance, procedure adherence and internal controls – at the expense of providing value in the business key strategic areas like business model, investment appraisal, legal risk audit and advisory, and business strategy options, among others. IA is viewed as business interrupting as opposed to business enabling.

In the minds of the chief executive, lawyers are business savers and enablers because they counsel management on legal issues –contractual or otherwise, before management commits the company. They provide transaction assurance and question; “what is in it for the company?”

Most of the time, the Internal Auditor will come after the deal has been signed and say “you entered into a contract that has potential to occasion loss to a business to a tune of US $50,000.” Of course, the lawyer will interject and say, at the time of the transaction we did the right thing, considering the circumstances. The US $50,000 is the appropriate price considering that we could have lost US $500,000 if we had not signed that contract. We looked at the bigger picture, and considered the parties involved”. Everyone will see the lawyer as the most understanding professional – as s/he will be defending a management decision against the auditors trying to derail the business.

If you were the CEO, which professional would you like to keep close? The lawyer or the internal auditor. One hand, the lawyer is defending your position as CEO and showing that you did the right thing, given the facts at the time. He is also explaining that you looked at a bigger picture for future profitability and going concern of the business. The internal auditor on the other hand, is questioning your decisions after the fact trying to show that you did a wrong thing. In stead of listening, the CEO and all managers are wondering “why didn’t this person raise these issues before we made the decision.” This kind of historical outlook affects the perceived value of Internal auditor. The internal auditor has a lot of potential to deliver value and become an indispensable professional to any CEO and top management. All an Auditor needs to do is to focus on the modern role of internal auditing to be explained in part two of this article.

To be continued in part 2. Succeed with Mustapha B. Mugisa, CFE.

 

 

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