The Annual Audit Committee conference on the 17th April 2013 will focus on the Common grounds that provide uncommon insight and the Challenges and changes for the Audit Committee
The audit committee is faced with fresh challenges and changes each year. If they continue to view the issues at hand as business as usual, the same responsibilities tend to move in different directions. The moving target syndrome especially applies to the perspectives on the significant financial, risk, reporting, auditing, and governance matters facing boards today.
At the conference 16 speakers will provide guidance how leading audit committees and members address these issues and identify new strategies for improving governance.
In this newsletter we focus on a uncommon insights for the audit committee based on scenario planning a subject that will be discussed by one of the foremost authorities on the subject Mr. Matthew Spaniol.
Auditing the Future
While strategy is a vision of how to win the future, much of the audit committee’s work deals with monitoring past performance against pre-existing standards and expectations. This focused effort gives an important edge for behavior monitoring, but does it give us control over plans or intentions for the future? What if we could foresee and audit future events before they happen? How can we pass judgment on something that is still only a sparkle in someone's mind?
If strategy represents a plan for the future, then scenarios can be used to test the viability of that strategic plan in a range of possible and plausible future contexts. Decisions are made in accordance to situational context. Not too long ago, you looked out the window before you headed out the door and reacted by grabbing your umbrella or rain slicker. It probably doesn’t even qualify as a decision, but it would qualify as scenario planning in a rudimentary form.
Looming uncertainties of the future
We test our tactics and strategies against hypothetical scenarios all the time. However, when most of us make an effort to really look into the future, we do not get much past the window. The looming uncertainties of the future are difficult to explore because most of us lack a comprehensive and systematic approach, as well as the structured discipline necessary to undertake an adequate exploration of complexity.
Yet it deserves a better effort: Google has found a positive correlation between societies that take more time to search about the future and wealth in that society. Perhaps, then, better capabilities of exploring the future with our mind's eye would result in the extraction of more value: By understanding the deeper consequences of our actions through future exploration, we set ourselves up for increased opportunities of success.
Taking time to build strategy brings one closer to the future: We build best upon what we know from our experiences, fill in the gaps of what we don't know, and make our best attempt to configure resources, networks, and initiatives to optimize our position. Strategic scenario planning enables us to remain in contact with the future longer and more effectively, and the better we practice future foresight, more often we will get it right.
If CEO's are accountable to the board for their performance, and boards are accountable to the owners to ensure the organization's ongoing success, then strategies for the future should be considered carefully. Through scenario planning, the audit committee can add a future-oriented stress-test to uncover risks and define measures to protect against the pitfalls that will be inherent in different operating contexts. Scenario planning helps organizations to collaborate in developing agile, robust, and resilient strategies and achieving success in the short-, medium-, and long-term.
We are in an era of uncertainty and desperate times call for drastic measures. As the pressure mounts in tough times, the average CEO tenure gets shorter. Scenario analysis--backed by the audit committee- can provide a safe space for a more comprehensive vetting of ideas and constructively help executives be better at what they are paid to do: Think.