Our Blog: The Podium

Is the Annual Report a Thing of the Past?

By Maureen Wolff, President and Partner

Annual reports are so 1997.

When the National Investor Relations Institute recently asked me for my thoughts on the public company practice of producing a glossy annual report, the premise of the question was not, “How can companies do this better?” or “Please provide some helpful tips for designing annual reports.” It wasn’t even as minimalist as “What’s the least expensive, most simplified way to produce an annual report?” No, the question was much more fundamental: Why, in this age of technology and pressured IR department budgets, should companies bother to create an annual report at all?

We have come a long way from the heady days of the late 1990s, when investor funds flowed more freely and companies put a premium on investor marketing. In those days before Notice and Access, investor relations websites were more a novelty than a necessity, which put the onus on IROs to communicate with investors using traditional print campaigns.

But two recessions and several more stringent regulations later, IROs are looking for ways to increase efficiency and control costs, and that means that for many companies, the traditional printed annual report, whether a full glossy spread or a more slimmed-down 10-K wrap, is destined for the chopping block.

It doesn’t have to end this way, though.

The Securities and Exchange Commission issued its Notice and Access rules governing Proxy dissemination back in 2007, phasing in implementation during a three-year period. Now, a majority of the time, companies make use of the rules to push stockholders to go and look at their website. Because of this, investors are spending a lot more time with the online annual report, which really gives companies some flexibility. Investors are able to read through other places on the website, enabling companies to convey a more cohesive message. It’s not just limited to what we used to call the “Operations” section decades ago, when we viewed the annual report as much more of a marketing document.

Even in the face of current trends, each year, several companies still produce glossy annual reports. For those companies that are willing to spend the money and invest the time, they are looking at the annual report as a true marketing document. Other companies are experimenting with video. Still others are using a combination of a printed book and a video, so that when investors go online, the CEO actually reads the shareholder letter. That can be a good thing, because investors are always looking to see the whites of the eyes of CEOs and get to know who’s really running the company.

A video is not the only way of doing that, of course. I think we could all probably take a page from Warren Buffett – not that we’re pushing for 20-page shareholder letters, but I think it’s good to look at the annual report as something that is very different from the other materials we produce in IR. For example, with quarterly earnings conference calls, the focus is on the quarter and they typically may look up to one year out. With the annual report, though, companies can look three to five years out and communicate their strategic vision. Where is the company going? What does it want to be when it grows up? What are new areas it might be getting into? Annual reports also provide management the opportunity to talk about corporate culture, which you don’t really get to do on the quarterly calls.

I remember back in 1998, when Ernst & Young published its “Measures that Matter” study that analyzed the importance of a company’s non-financial metrics to buy-side investment decisions. At that time, E&Y’s survey showed that 40% of a company’s investment appeal was not on the balance sheet. So, the annual report, shareholder letter and other accompanying information are a unique opportunity to focus on some of those non-financial measures, examining the company’s strategy, the quality of its management team and market trends. Annual reports let management talk about challenges and strengths – the way that Warren Buffett does in his annual letter to Berkshire Hathaway’s investors. He talks about what went on that was good, what went on that was bad, and in what areas the company may be lacking. Really, the annual report should be something that gives us a more strategic view, versus talking only about what went on during the past year.

This is probably the best the way to view the report’s value: How does it fit in with all of the other communications that we’re conducting?

In the end, we’re all trying to figure out the best methods to reach stockholders, and we have to remember that there are many different ways of getting to them. In the current environment of increased shareholder activism, shouldn’t we be communicating more actively with investors, rather than pulling back under the guise of cost control? No matter the medium, the annual report is a significant means to do just that.

Maureen Wolff is president and partner at Sharon Merrill. Maureen leads the implementation of the firm’s strategic vision and provides high-level strategic counsel to clients. She is a past chairman and board member of the National Investor Relations Institute (NIRI) and a current member of NIRI’s Senior IR Roundtable. She also is a past president and honorary director of NIRI’s Boston Chapter.

Subscribe to our weekly email: Investor Relations Around the Web

IR Program Planning, Board Communications, Annual Report, Strategic Messaging, IR Website, IR Budgets, Shareholder Communications, Investor Relations

Subscribe to The Podium!

Connect with your Investors

Establish a sincere connection with investors to communicate key messages during your Investor Day. Download our free e-book on effective presentation habits, and learn to deliver ideas with confidence and clarity.

Delivering Effective Presentations

When it's time for a change

Whether planned or sudden, it is crucial to communicate the succession of high-profile positions effectively. Download our three-part e-book and learn the best way to craft a plan for CEO, CFO and Board of Directors transitions.

Download Your Free eBook: Communicating Management Transitions 

Be Proactive, Not Reactive

With our new Proxy GamePlan, we create a year-round, data-driven strategic roadmap for effective shareholder engagement. Implement a best-in-class program rooted in a deep understanding of your company’s proxy practices, shareholder voting trends and peer landscape.

Learn More About Proxy GamePlan

Find Effective IR Counsel

Whether you’re seeking external IR counsel for the first time or evaluating your current provider, you need a firm that understands your strategy, adapts to your culture and tells your story. Download our free guide on how to assess the effectiveness of an investor relations firm.

How to Assess  an IR Firm

Activism Defense

No company is immune to shareholder activism. Sharon Merrill helps boards of directors and executive management teams identify the activist red flags lurking in your shareholder base, assess your governance risks and develop an action plan to prevent, detect and neutralize any threats. Download our free white paper, “Leveraging Institutional Shareholder Relationships to Reduce Activism Risk,” and learn how the best defense against activism is a strong offense.

Download Activist Defense White Paper

Captivate your Audience

Speaking persuasively is critical in today’s competitive business environment. Effective speakers use voice techniques and body language that project authority and credibility. Download our free e-book, “A Guide to Delivering Captivating Presentations,” for insight into good -and bad- presentation habits, and learn how to improve your skills.

Become a Persuasive Speaker 

Perceptions Matter

How do you ensure that investors clearly understand your strategy, growth drivers and market position? The most effective way is through a perception study. By periodically taking the investment community’s pulse you can avoid the knowledge gaps and misperceptions that hurt valuation. Download our free whitepaper, Why Perceptions Matter, to learn more.

Download your free copy of  'Why Perceptions Matter' 

Common Topics:

More topics