Constructing annual reports should be as easy as baking a cake. Get the trusty ingredients of accounting detail, a chairman’s statement, some blurb about strategy. Mix together and add some flavor via a glossy cover, a smile-inducing strap-line and metaphor-laden photos of speeding trains and mountaineers. Then serve it up. Easy.
Things get trickier, though, when other parties want cake. Sure, big companies can afford to produce individual gateaux for different audiences – prospectuses for potential employees, marketing literature to promote key products and the like. But what if your company can’t or won’t fork out on a larder large enough to cope with all that baking?
Companies are realizing that the annual report itself can be made to satisfy many functions and pique the craving taste buds of even the fussiest reader. But is it possible to throw in as many disparate ingredients as you see fit and still end up with something that appeals?
‘When you’re preparing an annual report, think about how to communicate with multiple audiences,’ says Nina Eisenman, of Eisenman Associates, a New York design agency. ‘So rather than focus all your energies on communicating with shareholders, think about analysts, employees and potential employees.’
‘Companies are using the report as a recruitment tool,’ says Sandy Dempsey of Corporate Report in Atlanta, ‘and to introduce new products. It’s a good idea to over-print it so you have spare copies and can respond to the media and general queries very quickly.’
Jonathan Hynes, managing director of GA Design, a London design agency, agrees that annual reports have assumed a wider profile. ‘Increasingly, reporting and accounting is being used as more than just an investor relations tool,’ he comments. ‘The idea now is to communicate the full scope of the company to as many people as possible. The onus of the report is on performing an operational review while getting across the brand and the personality of the company. Communicating personality is crucial.’
Dumb down danger
Personality, of course, makes for a jolly entertaining read. But we’re talking about annual reports, not Cosmopolitan-style glossies. Isn’t there a danger that widening the target-audience dilutes the message? Or, that a report targeted at the public might be (whisper it) dumbed-down, without the detail or weightiness to impress the investment community?
‘That’s based on a premise I actually don’t subscribe to,’ says Hynes. ‘That investors have a higher level of intelligence or a different need-to-know than normal people. I don’t think they do. Often the issues that concern investors are the same issues that concern other audiences. They want to know about the management, the company’s strategy, its growth prospects and whether it’s a sound business.’ In Hynes’ view, ‘You can’t compartmentalize your audience. Because if you try to separate reporting, and tell different groups different things, they’ll all find out anyway.’
In fact, Hynes places this egalitarian stance at the very crux of reporting strategy. ‘You have to remember that we are all human beings,’ he says. ‘We all respond to communication. So you should use the report to communicate your purpose.’
But isn’t that a bit simplistic? Surely people want more than sweeping statements about direction? Titillating the public with bold assertions and emotive pictures is one thing. But don’t analysts want a ready-reference tool they can scour for financial minutiae?
Actually, no. For a start, analyst research isn’t confined to figures. ‘Analysts might have ten companies that meet their model,’ says Demsey. ‘So the report has to go beyond figures and position the company and tell the story. It needs to show the company’s strategic objective.’
Anyway, the figures will have been available elsewhere for some time so reports shouldn’t be about the past, says Dempsey. ‘They should be about what’s going to happen.’
But surely the financial clout of the report has to remain. ‘I don’t think there’s a danger of losing the message,’ says Hynes. ‘Investors don’t use the report as their first research tool. They flick through it. It’s not their primary source of information. They can go elsewhere for that.’
Does that mean printed reports are just an efficient way of throwing resources down the drain? ‘There’s a strong argument that print is no longer a good idea, on a cost-benefit analysis,’ concedes Hynes. Printing, designing and mailing reports isn’t cheap, especially for a large shareholder base. And the best way to reduce the cost is to stop printing and mailing. An extreme measure but Eisenman suggests a compromise. ‘One suggestion, because of the online trend, is to produce very scaled back reports,’ she says. ‘And that could mean having something like just the10k and the cover.’
Guess what?
So, yet again, the internet pokes it’s nose into IR. ‘Companies are putting more and more money into the web,’ notes Eisenman. ‘You get so much more bang for your buck with online reports and it’s easy to reach a wider audience.’
‘I believe that web sites will become more important as an IR tool,’ agrees Hynes. Nor should the move toward online reporting be seen as the corner-cutting preserve of small caps. ‘It certainly isn’t just small caps that are doing this,’ says Eisenman. ‘Of course, it really helps them but we’re seeing companies like Intel focusing on web-based reports as well.’
However, technology isn’t quite beating paper reporting into a pulp yet. ‘I don’t think people want to read reports online,’ says Dempey. ‘They want to feel it, and touch it. It’s really difficult to read a report on the internet.’
Even Eisenman and Hynes accept that the rampant march of the internet won’t mean an end to printed reports. ‘We recommend using the print version to funnel people to the web,’ says Eisenman. ‘Use the cover to explain why it has been scaled back and then say For the full story, see…’
But what about costs? Doesn’t this mean producing two annual reports? ‘Well, there isn’t a big difference between the two versions,’ says Hynes. ‘There are some design differences such as the fact that big pictures should be avoided on the web because of the time they take to load.’ But paying now to lead people web-wards will reap dividends in future. ‘Online reports save money on photography and editing,’ agrees Eisenman.
PepsiCo is one of the not-so-small caps that Eisenman cites as a proponent of this. ‘PepsiCo put money into print but it’s also spending money on the web. So it really does both – that way no-one is left out.’
