Directions for annual reports
Does it even need to be said? When it comes to annual reports, we’re talking about the internet. According to Broadridge, 60 percent of retail investor accounts in the US (that’s 90 mn accounts) now get either a notice by mail or an electronic delivery of proxy materials instead of a full package by mail. If they do get a document by mail, it’s far more likely to be a plain 10K filing or perhaps a 10K-wrap, which is the SEC filing bound together with some more narrative pages.
In tandem with the transition away from print, there is a measurable increase in better and more elaborate online reports. In her most recent online annual report (OAR) report, Nina Eisenman from Eisenman Associates, a New York design firm, compared 2008 and 2009 reports from Fortune 1000 companies and found a 62 percent jump in the number of companies posting web-centric reports instead of PDFs or ‘flipbook’ conversions.
That encompasses a 185 percent increase in companies producing HTML reports and a 50 percent rise in the use of video. Supplementing her OAR report, Eisenman is launching a new Twitter feed, @onlineannuals, to track the best and worst. ‘I’m going to be gentle, but I’m going to be honest,’ she says.
Shift to non-financial reports
The traditional annual report may have been all but killed off by the austere 10K-wrap, but the spirit of regularly publishing a big book lives on in sustainability reports. ‘A lot of the same companies doing 10K wraps are now producing sustainability reports because they feel like investors are more interested in reading them. That’s where they’re telling the story,’ says Eisenman.
Lorie Brière, principal of The Works Design Communications in Toronto, which specializes in CSR reports, calls the move to non-financial reporting an ‘extraordinary shift in emphasis.’ She believes the trend is toward a suite of documents: financial, business review and CSR. Agnico-Eagle Mines, a Works client, this year produced a 104-page CSR report that follows the Global Reporting Initiative (GRI) guidelines, in addition to a summary report, a print report and an online annual – a good example of the suite model.
Noah Butensky, chief operating officer at design firm Curran & Connors, says integrated reporting – the ‘triple bottom line’ approach familiar outside of North America and even mandatory in South Africa – is an emerging trend among North American companies. His firm worked on the fully integrated Southwest Airlines One Report the last two years in a row. The latest online version, which meets the B+ standard of the GRI, is housed on its own micro-site and supported by a six-panel summary report mailed with the 10K.
Michelle Marks, principal at Ideas On Purpose, the New York firm that designed Pfizer’s recent integrated report, which is its first ‘truly integrated’ report after last year’s transition toward a new model, says such a degree of integration, as promoted by the new International Integrated Reporting Committee, is still very rare in the US. Increasingly common, though still at an early stage, is what Marks calls a ‘combined report’, like Tyco International’s latest annual review and corporate responsibility report, which are united in both print and online versions.
When the financial crisis hit in 2008, many annual report budgets were cut or at least frozen. Designers say annual report budgets started loosening up for 2010 reports sent out this spring. ‘For the first time in two years, I saw ambition levels grow as projects evolved,’ Butensky says.
The increase in budgets also ties into the growth in sustainability communications. ‘Companies are responding to public interest by spending more money and more resources on non-financial reporting,’ Brière says.
Video beyond talking heads and b-roll
Last year Caterpillar’s online year in review had a ‘How we win’ video mixing a CEO message with b-roll of the company’s products and customers. This year it went a step further with ‘Listen to your customer’, a video of Caterpillar’s new CEO, Doug Oberhelman, talking to a customer.
Mattel may prove that a sequel is never as good as the original. The toymaker’s 2009 online annual set a playful tone with a cute video of two kids reading the safe harbor statement. Its 2010 online report consists entirely of a video eight minutes and 22 seconds long, whose cuteness starts to wear thin around minute two.
United Technologies and Xerox both made good narrative videos this year. Intel, continuing a theme from last year, has a funny introductory video that draws inspiration from its TV commercials. GE’s new online annual has a series of videos of Jeff Immelt talking about different topics. ‘That’s something investors at any level are going to want to watch,’ Eisenman says.
Johnson & Johnson ventured into video for its 2009 report but made a course reversal in 2010 and went without. The healthcare giant nevertheless impresses with links to Facebook, Twitter, YouTube and two in-house blogs plus a ‘share this page’ button. Such features have rapidly become widespread in online reports.
Tying it to proxy voting
For most companies, online proxy voting is but a footnote deep within the corporate website. IBM’s 2010 report puts it as one of the four major sections featured on the landing page.
Broadridge watched retail proxy voting decline in 2008 (the first year of notice and access), then recover some ground between 2009 and 2010. But voting levels still need to be improved. After doing six focus groups and an online survey in 2011, Broadridge has concluded that one of the most effective ways would be to create a direct connection to proxy voting (and issuer communications including the annual report) from online brokerage accounts. Such ‘enhanced brokers’ internet platforms’ are part of the SEC’s concept release on the US proxy system, issued in July 2010.
‘It’s an easier way to get into the annual report. Investors aren’t necessarily going to different companies’ websites regularly, but they are going to their broker websites,’ says Chuck Callan, Broadridge’s senior vice president of regulatory affairs.
The prevalence of smart phones and now tablets makes mobile versions of annual reports the next frontier. Take AFC Enterprises, for example. Eisenman Associates made a complete mobile version of its annual report and put a quick response code in the print version to take you straight to it.
Annual report apps for iPads have quickly popped up, mostly for European companies, with Citigroup and GE among the pioneers in North America. Most of these aren’t much more than simple flipbooks, though a handful, like Samsung Profile 2010, which doesn’t purport to be an actual annual report, show off cool new interactive features.