Audit committees are responsible for wading through the gray area in every company with respect to the law, best practices and business ethics.
There are many ways to interpret strategies, and the audit committee is tasked with assessing solutions and bringing results back to the board. Clearly this can be a stressful place. Audit committees get bogged down in arguments and caught in negative interactional cycles.
This slows the process and prevents the committee and the board from reaching their full potential. The key to unlocking this potential lies in emotional connection. The problem is that most committee leaders and members don’t know how to address emotion in the boardroom, or worse, aren’t even aware of it.
Fortunately, there is a great deal of research dedicated to adult bonding and emotional connection that can be applied to just about every committee. The idea is to understand that connection is our strongest instinctual motivator—it is wired into our brains. It informs our decisions and can be disastrous when we lose it. When you approach your audit committee relationships with this idea, you can become a more effective and productive board member. Over the years, we’ve noticed nine habits that all effective audit committees have in common.
1. Effective audit committee members create safety. Emotional safety is key to so many important boardroom elements including transparency, communication, creativity and more. Emotional safety means that everyone feels comfortable sharing their opinions and concerns without judgement or shame. Effective committee members strive to make everyone feel welcome and appreciated by thanking people for sharing information and discussing difficult topics openly.
2. They take on a nonjudgmental stance. One of the main ways audit committees get disconnected is when they feel judged or blamed. Their brain goes into defense mode and they put up walls. When we put up walls it immediately becomes much more difficult to communicate, and that internalized frustration spreads through the entire board. The idea is to prevent these walls from going up by taking a nonjudgmental stance. Effective committee members keep an open mind to new ideas or ideas that they might not necessarily agree with. It is OK to have differences of opinions, but those differences must be respectful. By addressing each idea and perspective, you are more likely to get the best solution for the company that complies with the proper laws and regulations.
3. They stay accessible even in times of stress. When we are stressed, our brain goes into fight or flight mode. We want to defend ourselves by shutting everyone else out. This comes very naturally to us, but if we are aware of our emotions and turn to each other, we can calm our brains and face any challenge with strength. Effective members stay accessible to their committee during times of stress. They recognize their emotions and reach out to their fellow members. Successful audit committees lean on each other when times get rough. They call on each other and talk through the stress rather than shutting down and turning away. This self-awareness is difficult to develop, but it is not impossible.
4. They stay responsive to others through empathy. Effective audit committee members are empathetic. Human connection is wired into our brain—we just want to be heard. We want to know that people understand our pain and that we are not alone. Empathy is the best way to ensure that your fellow committee members feel connected and heard. Validate feelings and genuinely try to see other people’s perspectives. Yum Brands former CEO David Novak attributes his success to his ability to stay empathetic. Stress brings out the worst in people. Stress causes the brain to shut down. It slows cognitive thinking and our decisions become more erratic and less rational. This is an extremely important point because audit committees are under a great deal of stress. They are making the most important decisions for the company (hostile takeovers, mergers, acquisitions, etc.). This is why it is so crucial for committee members to show empathy for one another. Empathy helps reconnect the audit committee and calms the situation so they can perform under pressure.
5. They constantly monitor engagement. Engagement is key to any successful committee. What is the point of having industry experts and creative geniuses on a board if they don’t collaborate or engage? Effective members are aware of everyone’s input and make time to include everyone in the conversation. Engagement is important for several reasons. When everyone is engaged, the committee is less likely to miss regulatory indiscretions and careless mistakes. Engagement also has a bonding effect on relationships. The more you engage, the more conversations you have, and the better you understand each other. To increase engagement, leaders can make it a rule that everyone must share their opinion on the issue at hand. This encourages members to be more prepared and allows them the dialogue needed to improve relationships.
6. They are attuned to their own emotions. We’ve talked about self-awareness a little bit already, but this idea is so important, I wanted to give it its own habit. Being in tune with your emotions is critical to being an effective audit committee member. Understanding how your emotions are affecting your actions can not only improve your decision-making, but it can help you identify and empathize with other’s emotional reactions.
7. They track, reflect and question. Effective committee members track engagement during the meeting and make a point of seeking responses and participation from all members, providing each person with an opportunity to speak and be heard. They reflect back what is said so that everyone feels understood and clarity isn’t a problem.
8. They shape board interactions into positive cycles. Right now, most boards and audit committees are in a negative interactional cycle. This means they are emotionally disconnected, they have walls up, and they are not communicating effectively. It may not be obvious, but most committees could be performing at a much higher level. Effective members work to recognize this cycle and break it. They work with their committee to eliminate the “bad guy”—no one person is at fault for the cycle. The “bad guy” is the cycle itself. Understanding that is the first step to establishing a positive interactional cycle. Whenever the boardroom gets heated and the disagreements become less respectful and more personal, an effective audit committee member steps in and reminds everyone why they are all there: “Everyone cares about the company and wants to see it succeed. We are all on the same team. Let’s take a breath and reassess this situation.” Pausing to think often recalibrates people and allows them to get control over their emotions.
9. They form a secure base for other members to go to.Effective audit committee members are a safe place for their fellow directors to turn to in times of need. Mike Gallagher of Allergan is an excellent example of this. Mike was the lead independent director of Allergan when the company was going through a hostile takeover attempt. This was a huge, ugly, press-filled mess and the board members really felt it. His directors were getting personal and professional attacks throughout the entire event. Mike made sure everyone knew they were in this together and often fielded late-night phone calls from directors who just needed to vent and talk it out. His relentless presence as a secure base for his board led them to success as they fended off a hostile takeover and were able to merge with another company that brought much more value to their stockholders. Effective members know how to be there for their colleagues. They can provide a judgement-free zone where they validate feelings and bring everyone together under the same goals.
So there you have it: nine habits of an effective audit committee. Performance can be improved by simply addressing the emotional elephant in the room. It is difficult to start and the process takes a long time, but it is the only way to really reach the true heights that your board is capable of. When your committee is emotionally connected they are able to stay united and face any challenge that comes their way.