It’s that time again. Year-end communications – which occur in the first quarter of each and every new year – present an ideal opportunity to shape and showcase your corporate story. This is the time to share your company’s accomplishments, illustrate execution against your stated strategy, talk through the challenges of the past year and lay out the go-forward plan for value creation.
That said, the process has become far more comprehensive and complex as companies are expected to tell their corporate story through a variety of reporting documents – from the annual letter to shareholders to the proxy – to a diverse set of stakeholders that have different perspectives, interests and information needs.
Today’s year-end communications must present a consistent strategy and narrative across documents, incorporate the IR story and value-creation messaging, and look like they came from the same company from a voice, design and branding perspective. Against this backdrop, many companies are struggling to determine which documents to produce, what content to include in each and – given that these documents are often created by different teams – who is responsible for co-ordinating the process.
Here is some advice for effective navigation of the 2021 year-end reporting process:
1. Conduct research and competitive analysis and create a plan of attack
At a time when communications requirements and best practices are evolving quickly, there is tremendous value in understanding standard industry practices as well as emerging best practices. Today, companies are often surprised to learn that competitors may be leapfrogging them in communications practices. Stay on top of the changing marketplace. If your peers aren’t inspiring, look to relevant large-cap leaders for ideas.
Next, identify the intended audiences for the documents you plan to produce. Remember, there is no one size fits all, so consider trends and best practices in determining how best to meet the needs of your stakeholders.
2. Align all year-end communications documents around one narrative
Start with a clear narrative around your company’s strategy, key message points, performance for the past year and outlook for the year ahead. This narrative starts with fourth quarter and year-end earnings communication and then flows through the rest of the documents. Once your team is aligned on content, determine the target audiences for each document and how the narrative should be adapted to meet their needs. Consistent messaging can be expanded upon or contracted depending on the audience.
3. Create a cross-functional team with one quarterback
With the expanded scope of year-end communications, there are many perspectives to synthesize, including finance, legal, investor relations, corporate communications, human resources and, of course, management and the board. Assign one point person to oversee the process and review all year-end communication for consistency of messaging, look and feel.
Think about year-end documents holistically as a set, not individual pieces. For example, consider cross-linking rather than repeating duplicative content within the annual shareholder letters and the proxy cover letter. This unified approach will drive consistent execution and ensure delivery of materials that effectively communicate your company’s full story.
4. Draft an annual shareholder letter
Annual report trends have continued to evolve over time. Today, practices range wildly. Some companies issue a 10K with no shareholder letter at all. Others produce elaborate integrated annual reports that combine the traditional annual report with the sustainability report and speak to all stakeholders: investors, workers, suppliers, communities and customers. There is no one-size fits all but, in our view, not publishing an annual shareholder letter is a missed opportunity – even for small and mid-cap companies.
A full-color, expensive, glossy annual report can be a beautiful marketing piece, but it isn’t essential to sharing your story with stakeholders. What is essential is a well-crafted annual shareholder letter that summarizes your company’s financial highlights, key accomplishments and initiatives for long-term value creation. While few CEOs will achieve the notoriety of Warren Buffett or Larry Fink for their letters, there’s a reason everyone reads them: they provide meaningful insight beyond the four walls of their company’s operations.
Annual shareholder letters should be posted to your company’s website shortly after reporting year-end results rather than waiting for the proxy mailing.
5. Evolve your proxy statement
A decade after companies initially focused on leveraging their proxies to win the vote of passive investors, a quick look at the ever-popular DFIN Guide to Effective Proxies provides plenty of evidence that proxy statements continue to rapidly evolve. Once strictly SEC compliance documents, proxy statements now look a lot more like marketing documents with a clear call to action for investors to vote in favor of the board’s recommendations.
Proxies are increasingly more engaging, with branded covers and themes now expected. Compelling infographics, charts and photographs that bring the story to life and humanize the board have replaced dense text. Board bios are expanding to make the case for each director’s background, and skill matrices tell a reader at a glance if the board collectively has the right mix of qualifications to govern the company effectively.
Proxy cover letters have become table stakes, and many companies include more than one letter. For example, there might be one letter from the lead independent director and one from the CEO, or a second letter that precedes the compensation discussion & analysis section from the chair of the compensation committee.
Expanded proxy summary sections enable investors to quickly understand and analyze key aspects of a company. Today’s best proxy summaries include business strategy, mission and values, key financial and operational metrics, ESG story, diversity, equity & inclusion initiatives, shareholder engagement practices and awards & recognition. They should also address hot topics that are in the news and on everyone’s mind, such as cyber-security.
Even if you produce a separate sustainability or ESG report, a summary of ESG goals, progress, challenges and recognitions should be included in your proxy. Adding a link to the sustainability report in your proxy is recommended, but not enough to satisfy the need for communicating your company’s commitment and progress on ESG issues in the proxy.
6. Start publishing a sustainability report
While there is currently no regulatory mandate driving widespread adoption or standardization of ESG reporting, institutional investors are demanding more detailed information. That includes passive funds like BlackRock, State Street and Vanguard as well as proxy voters at actively managed institutional investment firms such as Fidelity, Wellington or Capital Group. As a result, sustainability/ESG reports have quickly become a standard practice for public companies of all sizes. ESG is here to stay and companies that have not yet embarked on their ESG journey should get started immediately.
Many companies have come to realize that effective year-end communications drive stakeholder engagement, build corporate reputation and are a competitive advantage in vying for capital, customers and talent. While creating effective year-end communications is time-consuming, companies that take the time to do well should leverage them to the hilt. Rather than just posting your annual shareholder letter or sustainability report to your website, consider issuing a press release and social media post, and then sending the documents out to top holders and analysts with a note from your CEO.
Year-end reporting has become an overwhelming project and a team sport. It requires an all- hands-on deck approach and IR’s participation is critical to success because Wall Street investors – both active and passive – are on the receiving end of all this important communication.
Moira Conlon is president at Financial Profiles