Andrzej Kubacki EN
12 questions to: Andrzej Kubacki, MBA, CFA Andrzej, thank you very much for participating in the ESG 12on12 project! You take investment decisions on a daily basis, you have been working on the capital markets for several years, achieving success as an equity analyst and portfolio manager. Today we will talk about diversity and its impact on decision making. Let’s start with explaining how the investment decision-making process in mutual funds (TFI) and pension funds (PTE) looks like? Each TFI has its own processes. At one end of the spectrum, we have investment committees that make all decisions collegially at periodic meetings. On the other – a very strong mandate for individual portfolio managers to undertake (virtually independently) all activities, from the generation of investment ideas to their implementation through the execution of relevant transactions. You are interested in the decision-making process itself. You wrote a great article about it on LinkedIn. Tell us how, from your perspective, the decision making process has changed and why? The ability to make efficient and correct decisions is a key competence in my profession. Hence, I’m naturally interested in this subject. In a nutshell: along with the growing complexity of organizations and problems they are facing, growing quality of the labor force and the increasing pace of economic activity, the tendency to decentralize decision-making processes is gaining strength. This being the case, practical aspects of managing a pivot towards decentralization are not bereft of their own challenges. In particular, there is a need to be mindful of the balance between centralization and coordination. Along with growing complexity of the systems in which firms operate, challenges faced by architects of organizational structures are systematically growing. What are the consequences from these changes for management and supervisory boards of companies? It is my belief, that there is less and less room for inflexible organizational structures. At the same time, I am not an orthodox opponent of the hierarchy. I just believe that one should always use the right tools for each task. From the perspective of the management and supervisory boards, it is good to be mindful of this aspect of organization management. The ability to shape motivations, dependencies and responsibilities within an organization is a major asset in the hands of senior management (especially in larger companies). The handling of this issue can make a tremendous positive or negative impact on the company’s business development trajectory. I strongly encourage managers to find time to take a birds-eye view of the organization and look for potential mismatches between goals and as-is methods for achieving them. How important is diversity in investment decision making? Above all, it’s the variety of perspectives that matters. I think good interlocutors are very important in the decision-making process. The very need to formulate thoughts in a logical sequence in order to efficiently convey them to an audience can shed some new light on the problem. Nevertheless, the main benefit of diversity is the ability to detect and eliminate cognitive biases. High levels of diversity guarantee that experiences (and hence, subconscious tendencies towards certain ways of approaching the problem in question) of individual team members have a chance to cancel each other out, leaving only objective facts and logical conclusions. Managing a diverse team with many voices and opinions is not easy. You have experience in it. In addition to running a team in Poland, you graduated with honors from the MBA at Chicago Booth! How did you achieve understanding and common conclusions to solve the projects? Yes, it was definitely a very interesting ‘proving ground’ to observe decision-making processes. Project groups that had problems with the process paid a high price in terms of efficiency. Lack of assigned responsibilities and a tendency towards collegial decisions often resulted in endless discussions. At the other end of the spectrum were some groups beaming with internal friction. Conflicting visions combined with strong personalities or the presence of „stowaways” waiting for the projects to be completed by someone else, were a source of serious conflicts. The problem is, in my opinion, two-dimensional. The compromise we are looking lies in being able to benefit from the knowledge and experience of all team members without losing the ability to make decisions swiftly. We found that a healthy compromise could be reached by assigning responsibility (and decision-making privileges) for each part of the project to one individual, in combination with an open discussion on the relevant decisions to be made. This way, each decision-maker had the opportunity to use the knowledge of all team members (acting as trusted advisors), but at the same time, as a 'subject matter expert’, they had the right to make the final call (and the responsibility that goes with it). 30% Club Poland „Diversity in supervisory boards 2021” report shows that 65% of the survey respondents do not believe that gender of supervisory board members has an impact on corporate results. Abundant international and domestic research shows that companies with more diverse boards obtain superior financial results and less risky. These are elements that institutional investors should take into consideration. How to persuade them? There is a sort of evolutionary mechanism at work in the capital market, that rewards correct decisions. Customers „vote” for institutions managing their assets by investing their funds with institutions that offer attractive returns and acceptable risk. Making investments in companies that take full advantage of the benefits of diversity is certainly beneficial from the perspective of reaching client goals. I believe that the investment performance and customer approval, as measured by the flow of assets, will have tremendous impact on the actions of institutional investors. At the same time, the survey showed that 50% of institutional investors’ representatives surveyed take into account the diversity of company boards in their investment decisions, and 33% of respondents take into account the board gender diversity indicator. How can institutional investors integrate diversity into their decisions? Data on the composition of corporate bodies is publicly available, there is no problem
Olga Petelczyc EN
12 questions to: Olgi Petelczyc Olga, thank you so much for accepting the invitation to ESG 12on12! You have more that ten years of experience in an internal audit. You are a holder of a certificate for internal auditors as well as the validator’s certificate, issued by The Institute of Internal Auditors (The IIA) , which entitles you to perform the assessment of the audit quality in an organization. So let us start from the basis and explanation what exactly is internal audit and what are its tasks. According to The IIA’s Definition of internal audit “Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.” Like the role of the statutory auditor (biegły rewident) is to issue an opinion on financial statement, the role of an internal auditor (IA) is issuing opinion about the process, that is being audited (e.g. purchases, IT, ethics maturity, vindication / debt collection). Also the role of an internal auditor is to issue a general opinion for the Board / Audit Committee on management systems in the organization. If we want to actually talk about the internal audit, its operation must be based on Code of Ethics and The IIA’s International Standards for the Professional Practice of Internal Auditing (Standards). The certificates confirming the knowledge of the Standards are CIA® (Certified Internal Auditor®) and CGAP® (Certified Government Auditing Professional®). The chief audit executive (CAE) should hold such a certificate, and it would be best if most of the audit team would hold such certificate. There is already over 200 thousand auditors in the world. In Poland The IIA is represented by the Institute of Internal Auditors IIA Poland. The Polish Institute associates both certified auditors as well as the sympathizers of the profession. How a day of an internal auditor looks like? Is it more like investigation of current problems in companies or planned going through key topics? Is it one person job or a whole team is needed? From an administrative point of view, an auditor’s day of work is not much different from any other employee in on organization. The same laws and rights apply to us and to other employees, but we have different tasks and different way of reporting the results. The auditor’s work is based on an orderly and methodical approach. Those are no the investigative actions. The most interesting element of IA work is diversity because each audit engagement refers to a different process. That said an IA in one month or quarter may audit distribution, production or financial area, and in next let’s say marketing. It is advisable that an internal audit function had a set working strategy, to which the annual audit plan is implemented. The audit plan is prepared based on an annual risk analysis. Areas selected in this process are agreed with the Management and the Board and then should be communicated to the organization. Three basic phases of an internal audit are: initial review with risk analysis for the specific task, realization of the task and reporting of the results. The report includes an audit opinion. Then if the recommendations were issued, the internal auditor also verifies the implementation of those recommendations. The COVID-19 pandemic showed that we have to react to new risks, that a change of plan or a task out of the plan is always possible. During the pandemic the demand for consulting assignments rose. The auditors should be agile in answering the organization’s demands although it is not the first thing that comes to mind while thinking about audit. Moving to an individual audit engagement the auditor first assess the adequacy of governance, the way of risk management and internal control. In second step their effectiveness, efficiency and compliance. So as we can see an IA is not a detective hired by the Management but a person who applies a structured approach to the audit of management systems. Based on its work the internal audit issues an annual opinion on the operation of management systems and communicates it to the Board / Audit Committee. A single person internal audit function is a big challenge. First of all none of us is a specialist in every field. Second, it significantly limits the advisory activities (lack of time, the risk of limiting the objectivism). Thirdly, a single person internal audit function may have an effect on efficiency and extend the audit cycle so the time that is needed to audit all processes in an organization. Fourthly, endangers the continuity of an audit function in an organization. Fifth, reduces regularity and effectiveness of monitoring of the corrective actions implemented by management. Working as a team gives a synergy effect; not only increase diversity of approach to the audited areas but also increase the effectiveness and efficiency of the activities carried out by the audit. How the structure of an internal audit department should look like? Is the 3 Line Model (of defense) the best practice? How does it work exactly? The purpose of the three lines is to create and protect value. The model clearly sets out the expectations of different groups within the organisation. Accountability – the governing body; typically, the board and its sub-committees ie audit committee is accountable to stakeholders for oversight. Actions – management; first and second line are responsible for managing risks. Assurance – internal audit – third line; independent function reporting directly to the highest point of authority in the organization board/audit committee – providing assurance and advice sevices, insight, and continuous improvement, but at the same time supporting management in their role The updated version of the 3 Line Model was published at the beginning of 2020. The update was preceded by a series of meetings, I had a privilege and pleasure to represent Poland during one of the stages of the work.
Agnieszka Oleksyn Wajda EN
Mistrzyni efektywności, założycielka biznesów o milionowych obrotach, a prywatnie spełniona mama. Z Dorotą Puchlew-Grzelak porozmawiam o tym jak ciągle się rozwijać, przekuć swój najgorszy dzień życia w sukces biznesowy i jak ważna jest innowacja w biznesie.
Ewa Radkowska-Swieton-PL
Mistrzyni efektywności, założycielka biznesów o milionowych obrotach, a prywatnie spełniona mama. Z Dorotą Puchlew-Grzelak porozmawiam o tym jak ciągle się rozwijać, przekuć swój najgorszy dzień życia w sukces biznesowy i jak ważna jest innowacja w biznesie.
Ewa Radkowska-Swieton-EN
Mistrzyni efektywności, założycielka biznesów o milionowych obrotach, a prywatnie spełniona mama. Z Dorotą Puchlew-Grzelak porozmawiam o tym jak ciągle się rozwijać, przekuć swój najgorszy dzień życia w sukces biznesowy i jak ważna jest innowacja w biznesie.
Dorota Puchlew-Grzelak-EN
Mistrzyni efektywności, założycielka biznesów o milionowych obrotach, a prywatnie spełniona mama. Z Dorotą Puchlew-Grzelak porozmawiam o tym jak ciągle się rozwijać, przekuć swój najgorszy dzień życia w sukces biznesowy i jak ważna jest innowacja w biznesie.