As the International Integrated Reporting Council revises its widely used integrated reporting framework, its Chief Executive Officer Charles Tilley talks to Nicky Burridge about how he steers the organization’s strategy, and why its multi-capital agenda has never been more relevant
Photography by Matthew Joseph
Businesses should be a force for good in society – that’s what Charles Tilley, Chief Executive Officer of the International Integrated Reporting Council (IIRC), believes. He points out that businesses provide goods and services that people need, they help to fund public services through the tax they pay, and they create wealth for society, particularly through pensions due to the investments they make in listed companies.
But many businesses, he adds, are not getting their story across particularly well and, as a result, people do not view them positively.
For their own part, businesses need to see value creation not just as how much money they make, but in terms of meeting the needs of their customers, employees, and supply chains, protecting the environment, and being a trusted organization within their communities.
Tilley concedes connecting all of these different pieces together can be challenging. It is here that the IIRC comes in with its mission to help establish integrated thinking and integrated reporting (<IR>) as a mainstream business practice.
“Integrated thinking is about understanding your business model more deeply, how you create value for all these different constituents and how you manage present and future opportunities and risks,” he explains. “<IR> is how you tell this story. Saying to your investors, ‘This is how we make money. We are confident we can continue to make money because we have looked after all of our stakeholders in an appropriate way, and we are addressing the obvious risks as well.’”
“Integrated thinking is about understanding your business model more deeply, how you create value for all these different constituents and how you manage present and future opportunities and risks.”
A multi-capital focus
The IIRC produced the International <IR> Framework to help companies adopt integrated thinking and reporting into their business models. “One thing that is unique about it is that it is multi-capital,” Tilley says. He points out that a business is much wider than just financial capital, and also has intellectual property and manufactured capital, human capital, natural capital, and social and relationship capital. “If you are really thinking about value creation, you need a multi-capital focus.”
As well as helping companies understand value creation, opportunities and risks, they can also use the framework to understand what metrics they need to identify to measure their progress and ensure that all of their key performance indicators and incentives are aligned.
Tilley points out that putting the right metrics and incentives in place can be challenging. When he was CEO of the Chartered Institute of Management Accountants (CIMA), he used to spend two weeks every year working with the finance director to create the key metrics and link them to financial incentives for staff. “We were really proud of ourselves. We had it all on a connected and integrated basis, but even so, we always made some mistake and put something in place that did precisely the opposite of what we wanted,” he says. He notes that targets often have unintended consequences. “For example, when the medical profession started measuring the death rate from operations, some consultants started avoiding the more challenging cases – which was clearly not the intended consequence. We learned at CIMA that we had to study the impacts of the metrics we were putting in place.”
Despite the challenges, Tilley thinks looking at all of their drivers for value creation and having the right metrics in place creates considerable advantages for companies. “It is really powerful. This current pandemic shows how important it is to understand how the organization creates value and why it exists, and that is very much a part of what we are advocating.”
He adds that the framework, which has been adopted by around 2,000 companies worldwide and is referenced or endorsed by 20 regulators, also moves the finance function towards what is required for 21st century reporting. “It is also relevant to auditors in terms of the assurance of reports, and advisory practices in terms of how they advise businesses on these issues. It is a huge opportunity for the firms,” he says.
Tilley was chair of the IIRC’s technical task force when the <IR> framework was first developed. “It was a very robust process. It was akin to the best standard setting processes.”
He says an important part of the process was really listening to the different needs of stakeholders, and making sure these were well understood, as well as finding a way to address apparently conflicting issues between what investors wanted and what regulators or companies themselves wanted. “That was a very big challenge. The way I dealt with that was, ultimately, going back to the idea of businesses being a force for good. If you focus on long-term value creation, all the things that are important to a company are equally important to investors and are equally important to society more widely,” he says.
During the creation of the framework, Tilley remembers there being a lot of detail that he needed to work through and understand, which involved having multiple conversations with different stakeholders. “The conversations were great fun,” he remembers.
Charles Tilley, former chief executive officer of CIMA, spearheaded the joint venture with the American Institute of CPAs, and was fundamental in creating the Association of International Certified Professional Accountants.
“It is also relevant to auditors in terms of the assurance of reports, and advisory practices in terms of how they advise businesses on these issues. It is a huge opportunity for the firms.”
Changing with the times
The IIRC is currently revising the framework to ensure it remains relevant to the changing business environment. Last month, it called on stakeholders globally to share their thoughts on a new consultation draft, proposing revisions to the framework. “We were set up to provide a framework and way of thinking that was relevant to the 21st century, so we need to continually be looking to see if we need to evolve,” Tilley says.
He adds that while the feedback the IIRC received to the consultation in 2017 concluded that the framework was still fit for purpose, the organization decided minor modifications are still needed, particularly based on insights stemming from practical use and wider market developments. It is currently doing a consultation on proposed changes to two key areas. One of these is the governance process for signing off internal reports. “It is incredibly easy just to get your pen out and sign, but you should explain what processes you have been through, how you have got to your business model and checked it, that you are describing everything fairly and that the board takes responsibility for that.” The proposed changes that are being consulted on now cover how organizations communicate reporting processes and give further clarity as to how an integrated report should be signed off and by who – highlighting the intent of the <IR> framework, which is to promote the integrity of an integrated report through the commitment of the highest oversight or decision-making body.
Another key area of change relates to business model considerations and how a business communicates and understands its impacts – both positive and negative. This involves tightening the language around the difference between outputs and outcomes and clarifying that while an organization should communicate how it creates value – it also needs to be honest about how it preserves or erodes value.
The IIRC is also consulting on what reporting will look like in the future, including the role of technology, assurance and metrics.
The consultation period is open until 19 August and Tilley encourages all those with an interest in corporate reporting to share their thoughts – either via the IIRC website or through one of the 20 regional roundtables taking place globally, including in Hong Kong on 16 July which is co-hosted by the Hong Kong Institute of CPAs and the Business Environment Council.
Going forward, Tilley expects further revisions to the <IR> framework to be needed to address the growing role of technology on business reporting. “The way investors and others are thinking about reporting is rapidly changing. If you want to report in the United States, you have to use XBRL [eXtensible Business Reporting Language], so that all the data is tagged. These requirements are going to increase because people want to be able to grab the data they want, rather than have you give them a report in which you tell them what you want,” he says. Indeed, XBRL allows unique tags to be associated with facts in a financial statement, allowing reporting terms to be authoritatively defined. “Investors already have social media information that is more real-time than the information the board has.”
He points out that to deal with these demands, companies will have to create data warehouses for structured and assured data. “We believe our framework provides a structure for that data. It is really early days, but I envisage it being something we will be spending a lot of time on because that will be the next stage of what reporting looks like.”
As the IIRC celebrates its 10th anniversary, Tilley stresses the need for it to ensure that what it is advocating for is kept up to date. “Whether we are talking 10 years or 100 years, the concepts will need to develop as the world develops,” he says. Staying up to date is also a key part of how he measures the success of the organization, which he sees not just in terms of the adoption rate of integrated thinking and reporting, but also whether the corporate reporting system is meeting the needs of investors, companies, regulators and the wider society.
Tilley heads up a relatively small team of just over 20 people at the IIRC and manages its budget of around £2 million. The main focus of his role is leading the organization’s strategy, which he says has two key parts. The first is to encourage the convergence of reporting standards, so that there is a consistent set of standards that companies can reference in their own reporting and metrics to make everything easier to understand.
“We are working with the standard setters, including the International Accounting Standards Board, the Sustainability Accounting Standards Board, and the Global Reporting Initiative, and with regulators around the world, as well as global organizations such as the World Bank and the International Organization of Securities Commissions.” As part of this work, the IIRC has set up with the major standard setters the Corporate Reporting Dialogue, which was designed to achieve greater coherence, consistency and comparability between corporate reporting frameworks, standards and related requirements.
The second element of his work involves encouraging the adoption of integrated thinking and reporting around the world, and providing companies with resources, including the <IR> framework itself, as well as guidance, networks through which businesses can collaborate and case studies of best practice. “The job is very much around having a clear, focused strategy, and making sure we are using our resources in the best way. Not just our own internal resources of people and money, but also our relationships.”
Tilley sees maintaining these relationships and communicating what the IIRC is doing and why its work is important as being a key part of his job. “Relationships are absolutely critical. They provide us with fantastic opportunities in terms of influence and opening doors and giving <IR> legitimacy. But if we don’t look after those relationships well, they fall away, and I lose all of them.”
Tilley was chairman of the International Federation of Accountants’ Professional Accountants In Business Committee. He previously chaired the IIRC’s technical task force, the group responsible for developing the integrated reporting framework.
“Accounting is the language of business and if you want to be in business, it is a very useful starting point.”
The language of business
Tilley left school at 18 and decided to train as an accountant with a view to working in business. “Accounting is the language of business and if you want to be in business, it is a very useful starting point,” he says.
He became a Chartered Accountant in 1973, while working at a medium-sized practice in Moorgate, London. “It was terrific training. It was a general business training at the time, and included financial accounting, management accounting, company law, economics and tax. It helped me understand how businesses operate. It makes a great base,” he says.
The first phase of his career saw him working for 14 years at KPMG, including a stint in Hong Kong in 1978 to 1979. During this time, he was involved in a lot of high-profile audits, and what he describes as “some really interesting businesses,” ranging from companies making silicon chips through to those in retail, manufacturing, technology and banking. “I saw a lot of different organizations and interfaced with chairmen and chief executives at a very young age. I cringe at some of the things I said because, like many people, I was so naive when I was in my early 20s. Now I think, ‘Oh my goodness how could I have said that.’ I still get nightmares.”
When he became a partner at KPMG, Tilley was put in charge of their graduate recruitment programme for the United Kingdom, which he describes as being one of the most memorable experiences of his career. “It was an amazing job. We were recruiting thousands of people who were the future of the firm. It was just a brilliant thing to meet them all. We were interviewing 6,000 people a year.”
Tilley left the firm to become group finance director at Hambros, which at the time was the second biggest investment bank in the U.K. “Hambros was just such an extraordinary organization. You could pick up the phone to anybody and they would speak to you because it had such a high profile,” he says.
He then moved to independent investment bank Granville, where he oversaw its sale to U.S. bank Robert W. Baird to become Granville Baird. “It was an incredibly complicated deal. It was on-off, on-off, but we eventually sold it at top dollar, so we were very pleased.”
Following the sale of Granville, Tilley was approached about becoming CEO of CIMA. “My career had been all about driving businesses forward and learning what drove success and why things failed. I looked at CIMA and I thought, this is about better business,” he remembers.
He points out that as a professional body, CIMA is focused on training individuals, keeping them up to date and having a code of ethics that means they act professionally and responsibly. “To be part of an organization working for the public interest was very appealing at that point in my career and remains so today,” he says.
Tilley was CEO of CIMA for 15 years, and during that time he helped initiate a joint venture with the American Institute of CPAs, leading to the creation of the Association of International Certified Professional Accountants in 2017. “We had about 200,000 members and students around the world and our biggest challenge, in an increasingly global and complex world, was having influence in all of our markets. We also struggled to get into North America,” he recalls. Meanwhile, the association, which had around 400,000 members, wanted to have greater international reach. Its Chief Executive, Barry Melancon, approached Tilley in 2010 about the two organizations joining forces.
The two management teams were holding initial talks in New York when the eruption of a volcano in Iceland grounded air travel to Europe. “We were stuck in New York for a lot longer than we thought we would be, which was great because it helped us really work through the issues.”
He became involved in the IIRC when it was first formed in 2010. “I have done a lot of work around the accounting profession, including with the International Federation of Accountants, chairing their Professional Accountants in Business Committee, and also being on the board. I regard all of this as the third part of my career,” he says.
When he is not working, Tilley loves to spend time with his wife, children and five grandchildren, whose ages range from seven months to six years. “My son lives a 20-minute walk away and my daughter is a 30-minute drive away, so that is all good,” he says.
He is a keen sailor and did a lot of sailing when he was in Hong Kong, while he also enjoys playing tennis and cycling. “Cycling around London during COVID-19 has been extraordinary. When it first started, it was almost apocalyptic seeing all the deserted streets.”
Travel is another passion, particularly if it incorporates cycling or trekking, and he has cycled in Sri Lanka and France, and trekked in Nepal, Argentina, Chile and Ethiopia. “I have always been a great believer in having lots of holidays,” he says, “and I hope to continue to do so.”
The Institute and the Business Environment Council are co-hosting a roundtable on 16 July to collect feedback on the International Integrated Reporting Council’s (IIRC) new consultation draft, proposing revisions to the International Integrated Reporting Framework. The feedback received will be used to inform a revised framework, which will be published in December. For more information about the consultation, visit www. integratedreporting.org/2020revision