It’s a time of great change in the corporate reporting world. Much of it is about making corporate disclosure more comparable on a global basis – witness the switch toward international financial reporting standards (IFRS) in Europe in recent years and the ongoing debate about convergence between IFRS and US Gaap.
XBRL is an extension of this trend, portending an almost seamless world of cross-border reporting and informationhandling. It’s promising, but it hasn’t really arrived yet for everyday usage in terms of corporate reporting and putting reports together.
There is, however, a move toward electronic reporting that is much more real and already having an impact. Several major markets – the US and UK among them – are removing the obligation to send shareholders printed proxy materials. The UK is set to introduce the legislation in January 2007, and many European markets will likely follow suit. The US is in the throes of an SEC consultation on the subject.
So what of the past year’s bunch of annual reports? In the US, an awful lot of companies are doing 10K wraps – and an awful lot of them are awful. It’s a means of fulfilling reporting obligations with a little bit of communication thrown in at the last minute for good measure. 10K wrap fans tend to be small and mid-caps, with larger companies continuing to recognize the need for better communication and producing proper books. Good examples of the latter over the last year include perennial favorites such as GE, Harley-Davidson and PepsiCo.
Communications challenge
What makes these companies stand out? They understand communication. They still tell you who they are, even though they are among the best-known brands in the world. And there’s a fair smattering of openness and honesty in their disclosure, too. Content is by no means perfect, but you remain in little doubt as to what key messages they are trying to convey. Compare that to trying to sort the wheat from the chaff in your average 10K. Of course, good communication doesn’t have to be about lots of pretty pictures. Messages can often be communicated just as effectively using high-quality typography as they can by loading a document or web site with lots of customers’ smiling faces.
Many large European companies are now splitting their reports, producing a more userfriendly, engaging document for the retail shareholder and a more serious, typographical version for the institutional investor. Others have simply given their annual more of a typographical edge, interspersed with a few designer flourishes. Good examples of these over the past year have included Cadbury Schweppes, TNT and AstraZeneca. Vivendi Universal has given it a good shot, too, although its content and approach are not quite as engaging. Dutch bank Insinger de Beaufort’s report is also worth a look for its excellent typography.
In the mix
Some UK companies have become fairly adept in recent years at mixing high-quality, innovative design with impressive narrative content. Four examples from the current batch have been making waves on an international scale: PartyGaming (produced by the author’s own agency but widely acknowledged as best practice), WPP, Land Securities and Associated British Ports. All of these manage to tackle particularly difficult content issues in a bright, informative fashion and provide a fair amount of forward-looking information. It’s the sort of thing that investors lap up, but few companies do well.
Canada has more than its fair share of good reports. Telus, Alcan, RBC and Canadian Tire all do an excellent job of communicating clear, strategic information in well-designed, easy-toaccess documents. Telus is notable for its incredibly clear investment proposition,and if you want to know how to talk about strategy and objectives, flick through RBC’s report.
Other US large caps worth a look are Wachovia, for some good, clear insights into its marketplace and value creation, and Berkshire Hathaway, for its ongoing tell-it-how-it-is style under chairman Warren Buffett. Berkshire’s effort will never win any design prizes, but if the company put as much effort into typography as it does into plain English, it would sweep the board at many annual report awards.
Crystal ball
What will 2007 bring? There will be some tough decisions on balancing communications between print and online, and on balancing the needs of different audiences through one or several documents/approaches – again, online and offline.
There will be an even greater gap between those companies that ‘get’ communication and those that simply see corporate reporting as an obligation. Those that get it understand that highquality reporting is a proxy for high-quality management, which just happens to be one of the main things that investors consistently look for when picking their stocks.
Richard Carpenter is development director at Radley Yeldar in London and the former international editor of IR magazine.
