Even with the myriad ways to tell an investment story, the published annual report is still a company’s most important communications vehicle.
Why
Even with the myriad ways to tell an investment story, the published annual report is still a company’s most important communications vehicle. Most IROs are keen students of the genre, reading their competitors’ reports and borrowing ideas to improve their own.
To garner some idea of how their own publications come across, writers can enter any number of annual report competitions at the sector, regional, national or international level. Judged by IR professionals, graphic designers and financial professionals, these awards offer not just a trophy but also often a detailed written critique.
Where do I start?
Most annual report competitions maintain websites with specific entry requirements. Most also have entry fees, usually $200 to $350 per entry, though a few are free. Judges want to see the names and titles of all those involved in producing the report, and you can usually provide an optional covering letter describing the goals, target audience and development of the report.
On the other hand, the Triad Awards, organized by the Chicago branch of the National Investor Relations Institute (NIRI), don’t allow self-submissions; entrants are contacted from a database of Midwest public companies. What do judges look for? Readers of annual reports include employees, potential employees and competitors, but mainly they are investors looking to answer this question: should I buy, sell or hold this stock?
‘As it’s primarily an investorfocused document, we look at the investor-focused message: how the report projects the essence of the company, what makes it unique in its industry,’ says David Prichard, director of investor relations for Corn Products International in Chicago and a past judge of the Triad Awards. When investors are considering taking a stake in a company, they generally examine the whole sector, ranking a business in relation to its peers. ‘I like to see a company trying to position itself within its industry,’ Prichard says. ‘I also like to see its take on whether it is likely to do better or worse than the industry as a whole in the year ahead.’
What’s the most important element?
An annual report’s whole tone is often set by the CEO’s letter to shareholders, which should give investors a snapshot of results and the business outlook. ‘It’s the CEO’s billboard to the world,’ says Kathleen Land, senior VP at US agency BrandLogic. ‘It’s the one vehicle that gives the consumer that performance-based message.’
If you don’t nail the chief executive’s letter, the rest of the report suffers. ‘The CEO needs to set up his company’s strategy and performance against his peers and say, This is our vision for the short and long term,’ Land adds.
It’s tricky to give a thorough take on the big picture without getting bogged down in minutia. Land advises saving the detail for other parts of the report or the corporate website.
What does it take to produce an award-winning report?
‘It takes a lot of work,’ says Robert Grundy, a principal with nonfiction studios in Calgary, which has produced numerous award winners. ‘We have to understand not only our client but also its industry.’
Grundy’s design starts with research. ‘We do our homework extensively then apply what we have learned through speaking to our clients and analysts and going to where they operate or have their plants to get a feel for what they do,’ he says. ‘After that, we start several conceptual designs to determine how best to translate our client’s message from the boardroom to the Street.’
What do judges hate to see?
There are some pretty dismal books, says Prichard: ‘For those we say, Where’s the wastebasket?’ Judges always prefer content with specific examples rather than bromides or platitudes that could apply to any business. ‘We’re all going to have jargon and excessive use of meaningless adjectives sometimes,’ Prichard adds. ‘But you can make a distinction if the report is trying to go beyond the minimum in strategic and financial disclosure.’
When companies don’t want to say much, they mask it with pictures and empty phrases. ‘From an investor communications perspective, that doesn’t get them far,’ Prichard says.
How do you know you have a report worth entering?
‘When the paper company stock representative or mill representative sees your report and gets excited, you know you’ve done well,’ Land says. ‘They see so much of the competition.’
What competition should I enter?
Premier events include, in the US, the League of American Communications Professionals’ Vision Awards and Mercomm’s ARC Awards. But don’t overlook regional or sector-focused contests.
Stephanie Mishra, president of Sand Hill Investor Relations, says her client, Essex Properties Trust, is mulling an entry in the National Association of Real Estate Investment Trusts (NAREIT) competition. ‘We’re looking for an evaluation of our book against our peers’, something in our industry and market cap,’ she says.
For the same reason, Grundy likes the awards program run by Oilweek, which honors outstanding achievement in financial statements, editorial analysis and graphic design for Calgary-based energy and utility companies.
The Triad Awards are open only to companies headquartered in one of eight Midwestern US states. Nevertheless, winning is still a big deal, because it means your report beats 500-600 others. ‘When we win this award, it really means something to us and our clients,’ says Joan Link, a principal with Meta-4 Design.
How does this relate to everyday IR?
Excellence in an annual report usually means excellence in ongoing IR. ‘The book should be a reinforcement of the investor messaging the company does all year round. It might even break some new ground,’ Prichard says. ‘We see books that are excessive in generalities; that’s probably a reflection of weakness in their day-to-day IR disclosure.’
What’s the story with Berkshire Hathaway?
One report that’s always at the top of awards lists is Berkshire Hathaway’s. Indeed, in IR magazine’s Investor Perception Study, US 2007, a survey of 3,000 analysts and investors which identified the best practice IR, Berkshire Hathaway won the category for best annual report by a large-cap company. Yet many agree that it is the plainest report around, lacking illustration of any kind. In this instance, it clearly comes down to Warren Buffet’s chairman’s letter.
That said, some critics maintain that Berkshire is missing an opportunity because good design can make the message easier to absorb and remember.
‘Its report is one I always look forward to as a student of annual reports and as an IRO,’ comments Prichard. ‘It’s easy to read and relatively candid. It’s hard to debate a winning formula, but it could be packaged better. Design should not trump content but good design is an advantage.’
How do I earn bonus points?
The biggest plus may come from admitting openly that you’ve had a bad year, which investors certainly appreciate. Prichard favors this: ‘If bad things happen, you need to say what you are going to do about it.’ Judges are also simply looking for links with the messaging from previous years. Report writers should ask: has anything changed that we should note? Are we dealing with it or ignoring it?
What’s the reward?
Some people just like collecting trophies and, in the IR game, some are certainly memorable. The ‘Stevie’ given to winners of the American Business Awards, for example, was created by the designer of the Oscar statuette. Visibility is also a motivator. ‘I think companies and producers alike are very happy to be nominated for awards,’ Grundy says.
‘That’s not why we do it, of course, but if we do win, it represents the community at large as saying it is a job well done, which is always a good thing. We also welcome constructive criticism regardless of whether we win or lose so we can take that back to our clients and implement it into our design.’