‘I am pleased to report that my inability to write a decent letter to shareholders in the annual report should have little bearing upon my ability to run your business successfully.’
It is an unlikely opening paragraph from a chairman or CEO but at least it exhibits a bit of honesty. And that is something which is sadly missing in most missives. There is also a lack of well-crafted text which might just persuade the shareholder to venture further than the first few lines, or even further into the report. This is the opportunity for business leaders to communicate directly with the owners – and potential owners – of the company through the main corporate document. Few seize the opportunity; many forget that their powers of communication helped them into the position in the first place.
Try this for starters. Flick through a random sample of letters in the annual reports of leading US and UK companies – supposedly among the global leaders in the investor relations game. Count up how many refer to either an ‘excellent year’ or a ‘record year’ in the first few sentences. Take a note of the tally – it grows if you include another few paragraphs.
You will be surprised at just how many executives think this is the only way to begin the letter. Eyebrows are raised even further if you look back at samples from previous years to find similar expressions of corporate joy. And, in many cases, incredulity sets in when you take the time to compare the text with what the financials are saying at the back of the report. Records and excellence, you will find, can be created with just about any set of figures. It says little about where the company has actually been; substantially less about where it is going.
Even those letters which generally do a good job, often fall foul of extravagant claims in the process. ‘Your company had a terrific 1995 – a record year by any measure,’ boast the top dogs at General Electric. Fair comment in many ways. But by ‘any measure’? Lou Gerstner at IBM is slightly more cautious, although he seems to be working from the same template: ‘Could IBM grow? By just about any measure, the answer in 1995 was that IBM could indeed grow,’ he writes.
Of course, there is nothing wrong with being proud of the achievements of the company and wishing to convey that. It’s just that listing out growth in profit before tax, earnings per share, dividends and the like in the body of the text does not seem the best way of going about it. Those letters which draw the reader into the text invariably cover these areas in bullet points alongside. Easier to see, easier to appreciate, and making for a less turgid read.
Most people who pay serious attention to annual reports get to see a lot of them each year. When the letter to shareholders follows a badly-worded ‘template’ approach there is nothing to make it stand out from the crowd. The ones that do make a mark are those which dare to break the mould, those which answer real shareholder questions, those which point to what the future holds.
Take two examples. Agricultural processor Archer Daniels Midland’s letter uses the example of the efficient American farmer to flesh out its story and points to where it might be going. It is just two pages but it draws you into the company story and makes you want to find out more.
Sir Richard Greenbury, chairman of UK retail chain Marks & Spencer, begins his statement with: ‘I am pleased to report continued sales and profit growth with considerable physical expansion and development of the business both within the UK and overseas.’ It could be the chairman’s statement from one of a thousand other companies. It fails to excite and grab the reader which means the information contained within is wasted. Yet Marks & Spencer is widely respected in the UK; ADM is at the bottom of the corporate governance pile in the US.
As mentioned earlier, a little bit of honesty does not go amiss either. Perhaps the most famous in this regard is Warren Buffet, chairman of Berkshire Hathaway, who goes to great lengths to be honest with the company’s owners. ‘Great lengths’ are the operative words here, with an 18-page letter in the 1995 report. Still it is a good read which pulls no punches.
‘There’s no reason to do handsprings over 1995’s gains,’ notes Buffet. ‘It was a year in which any fool could make a bundle in the stock market. And we did.’ This is ‘talking’ to shareholders at its best and the exceptional interest in Berkshire Hathaway may well be a reflection of that. The reader gets the feeling that Buffet is holding nothing back from his ‘fellow shareholders’.
Not many chairmen or chief executives will want to go to the forthright extremes that Buffet exhibits in his report to shareholders. But well-crafted text from executive level, with a little bit more honesty thrown in for good measure, goes a long way to drawing an annual report out from a pile. You never know, it might just result in some investment interest too.
