CCI In an exclusive interaction with Charles Tilley (Chief Executive -CIMA)
Today we are here with Charles Tilley FCMA, CGMA (Chief Executive - Chartered Institute of Management Accountants), earlier Charles was appointed Chairman
of the International Federation of Accountant's Public Accountants in Business Committee
Hi, Charles!! We welcome you on CAclubindia!!
He is a member of the International Integrated Reporting Council and chaired their
Technical Task Force, which led to the development of the Integrated Reporting Framework.
Charles is a prominent advocate for global reform of corporate reporting and a
commentator on a wide range of business and management accounting issues.
It’s good to be here.
My first question to you is how would integrated reporting insure that businesses will achieve long term business success?
If I could start by just going back in the history, around 30 years ago about 80% of the market capital value of the business started on a balance sheet. Today, that figures has gone down to under 20% and is reducing and so business is changing very dramatically in terms of the assets based typically if we measured things financially and today we are more and more into the brand and the intellectual property being the value and it’s a consequence. And as a consequence, Financial Accounting element of the reporting is now not telling anyone the whole story about the business. So, therefore the integrated reporting is all about telling the organization or not telling the organization to tell each story effectively of where it is today and how it is creating value in the future and you mentioned long-term and it is very much about the focus on how it is creating value over times. So, what it is doing in a short term, medium and the long term and in terms of setting out each story, it will be talking about its strategy, how about fixing the external environment, its business model and the opportunities & risks it faces in creating the long term value. So, the investors and other stakeholders which could include the customers, employees, regulators and the society at large can generally have a very good understanding of what that business is all about, what it is doing and how it is creating value. And that creation of values is not just for the investors who will always see the primary purpose but it’s also ultimately is the business acting as a good scope for citizens.
Thank you very much!! My next question to you is how can integrated reporting help to augment the percentage of current corporate reporting which is just 20% at present for the information needs of the investors and external stakeholders.
Well, I have already explained that integrated reporting is about companies both in the public sector and organizations in the public sector, being able to tell that story more effectively, how they are creating value and I think that as I have already explained that basically if you have just the financial information, then the investors and other stakeholders really do have the full story so it is very important that they are able to get a complete view and a concise view of how a value is creating and we are seeing considerable success in terms of the take-up of integrated reporting- In the UK, for instance, this is introduced under law of statutory report which regulated and said it is consistent with integrated reporting as it is a joint pursuit with the Integrated Reporting Council. To that fact, we have been seeing in South Africa and ee have seen developments all around the world including here in India where Tata Steel is one of the pioneer companies for integrated reporting and another company is involved as well and I think integrated reporting is not just nice to have, it is a must have and we have heard about its preference from the Confederation of Indian industry only this week. So, I think it is a movement which is moving forward and I think what we all see from both the investors and stakeholder’s perspective is an increasing demand for the full story and the Integrated Report because without that, they are taking decisions about where to allocate their resources without all the evidence, about how to take their decisions – the Integrated Reporting is aimed being fair bounced and covering all the material information that an organization should provide; on every single day it’s doing in terms of value creation and so if you have a limited amount of information, you are obviously taking your decisions on a less satisfactory basis, this is for that reason that I think that we are going to see the investors and stakeholders to mount this top of the reporting more and more.
Ok, so the percentage will increase eventually!!
I think it’s on-going. We are seeing more and more companies doing it and more and more companies on a journey to do it. So, it’s not just eventually, it’s now, it’s going, it’s moving.
What does the integrated reporting white paper aim to achieve? What will be the impact within the organizations?
Well, I think it has now moved actually from a white paper to actually being Integrated Reporting Framework, which went through a consultation process and is now in effect to the standard for Integrated Reporting- it’s what the good reporting looks like. And one of the things that we have done at CIMA (Chartered Institute of Management Accountants) together with Tomorrow’s Company which is a UK based think tank, I am working with the International Integrated Reporting Council is, produce a tool-kit about the issues that an organization should be addressing in terms of thinking about how it develops the Integrated Reports but also what it needs to do to envision to develop the Integrated Report which is the real value to business, I think, come, unless the tool-kit is within a report that we have produced called ‘tomorrow’s business success’. And for a company to be able to tell its story, it really does need to tell its story in an integrated way; it has to operate in an integrated way and that is one of the things which is a very challenging issue for any business. The bigger you get, the more difficult it is to operate as a single organization. You tend to have silos because of all your different working departments and if you are unable to have a common goal to set out and have understanding across the organization of a common goal with a common set of matrix and a complete interlocking of how all those departments and divisions / business will work together then you are not maximizing the effectiveness of your organization and this report therefore, a Tool-kit very much set out certain questions of business issues that you would be thinking about.
Charles Tilley FCMA, CGMA
Chartered Institute of Management Accountants
So, those issues are, for instance- of how well are we....are we a trusted organization? Business trust is a very big issue, how complete is the information on which we base our decisions and access our performance. So, those are really big issues and I think one of the most challenging ones and certainly with our tool-kit companies, the one they found most challenging is- how well our business models will stand up to changes in our operating environment. These are the sort of issues that we need to discuss at the board level including also how value is created. And the reason why we are saying so, we are so involved with the Integrated Reporting why it is so important to ask is because actually to develop the strategies, to have the right matrix to understand the dynamics of the business model. These are all issues which are very much in the purview of the management accounting, in fact we have produced a set of Global Management Accounting Principles too to allow our companies to benchmark the effectiveness of their own management accounting functions so that they can improve them as accounting functions are their weaknesses to better help them, navigate the journey of business success and be able to tell their story more effectively.
What are the requirements for full integration of financial and non-financial information for the purpose of decision making?
This is really a very important decision and in fact with CIMA in the round table, in Bangalore, very recently, one of the issues that came out was the challenges of data overload and in particular, the lack of connectivity between the different types of data, a lot of that would be there around, the connectivity between financial and non-financial data. So to give you an example: if you are buying from a range of suppliers, you typically have the information how much money you are spending with all the different suppliers and say you know that purchase level and what you would may find much more difficult is how effective is that supplier and what is the quality of those supplies and deliverables on a timely basis and so forth and on linking that data to either side to decide who are the best people, who are not just about the financials and the money is very important. So this is again bringing together all the integrated information and it is really challenging and so one of the other issues that came around at the round table was actually making sure that finance and business generally can talk together and there is a common language so they can effectively communicate to talk about the financial and non-financial and maximize the values of the data, the huge amount of data that is growing all the time and maximize the quality of the data to help them, try their business better in terms of focus on the customer, how they are maximizing the use of their assets and the ones sharpening their assets they need to continue for long-term success and have their increasing efficiency.
Over the increase in volumes, there is definitely going to be an increase in degradation.
Do you feel whether Indian organizations are adaptive to global reporting requirements at present?
I think wherever we are in the world, we are subject to the global trends and when I come here to India, it is a very huge country, a very vibrant country, you have a huge range of international companies, just take one - The TATA, is actually now owns and runs more manufacturing in the UK than any other company including British companies. So the idea that you have operations in India, operations in China and operations in US – they all stand alone; just doesn’t exist anymore, everybody is impacted by international and global trends and so of course its important that Indian companies embrace those trends. And all evidences that I see is very much about that The Made in India campaign is very much about making sure that India actually is competitive on the world stage, it’s not about protection, it’s actually about ensuring that your companies are sustainable and meet they the customer’s needs and they are efficient and they therefore can effectively compete with companies from all around rest of the world. So, I am very clear and as I said earlier that I got adapted with Integrated Reporting as I was thinking from the round table all over from Bangalore, all I saw was that people were very clear on the journey of integrated thinking, in the same way as it is not easy to do and then secondly they are adopting Integrated Reporting and certainly the Confederation in the Indian Industry is fully behind that and number of companies are piloting it in the present time.
So it’s certainly, very much adoptive at the present moment.
Ya, every company in the world today has to be willing to embrace the change and if you can’t embrace the change, I am afraid you are on the road to ruin, a very good going, what I see in general is people are embracing change.
Thank you very much Mr.Charles for taking your time out and speaking to us!!
Well, It’s been a great pleasure and I will look forward to opportunity again.
Same here!! Thank you very much!!