RARELY has an item on IR Web Report prompted such a strong reaction as our recent article 10 Reasons to Avoid Image-Based Annual Reports.
In the past week or so, three vendors who sell these image-based annual report packages to public companies have sent me long missives defending their use of these horribly unusable documents.
An image-based annual report is one where whole pages of your annual report are converted into inflexible image files and then put into a template that lets people view them in a rigid sort of online financial photo album.
One day after we published our dossier on the ills of image-based reports, giant Thomson Financial-PR Newswire announced that they would start offering the very thing we were condemning, an indication that vendors are not going to stop selling these bad products any time soon.
To bring an expert perspective to the debate, we decided to call on the world’s leading authority on website usability, Dr. Jakob Nielsen, author of 10 books and numerous reports on what people need from websites, and a man the New York Times has called “the guru of web page usability.”
Nielsen has a unique perspective on what does and does not work for Web users. He has conducted dozens of usability studies observing how people use Internet sites, and recently his firm completed a usability study on how potential investors use IR websites when considering whether to invest in a company.
Nielsen’s IR website study doesn’t address image-based reports directly, so we asked him in an interview last week to review the 2001 image-based annual report of Biogen and render an opinion about its usability. His first reaction was telling: “Yikes!”
Poor legibility for older users raises important questions
Nielsen says image-based reports will antagonize a key part of your audience because they don’t “allow users to fit the text to their screen size and preferred font size for easy reading.
Both old and not-so old users will have great difficulty using these reports.
“Our research with senior citizens found major problems with reading websites where the text could not be magnified. Even not-so-senior citizens often start experiencing difficulties reading small text around the age of 45 to 50,” he says.
[Note: January 2004 -- Some vendors subsequently added a zoom feature to their reports to address this criticism. But this patch still doesn't address the fact that the increased text doesn't fit in the user's window. It forces users to scroll horizontally, which simply makes a bad situation worse. Vendors are trying to salvage the unsalvageable for their own sake. The root problem is that text is in an image, and with that goes all manner of problems that cannot be fixed with minor modifications. The entire concept has to be thrown out.]
Nielsen’s point about image-based reports not being legible to older users and those with fading eyesight could have wider repercussions than simply making reports harder to use.
Since they are harder to read and even completely inaccessible to some people, the question occurs of whether companies are truly making good disclosure if they use formats that prevent part of the public from obtaining the information in an usable way.
In its recent rules shortening disclosure windows for annual and quarterly reports, the SEC encourages companies to post filings on their websites. However, the commission says the formats companies use “should not be so burdensome that the intended recipients cannot effectively access the information provided.”
So far, the SEC has not said anything about image-based formats. In fact, the commission hasn’t said much on the topic of usability, period. This is despite a long track record of trying to make financial disclosure more accessible to average investors through such initiatives as the plain English rule. Of course, the SEC has a lot on its collective mind right now, so perhaps some guidance on usability is still coming.
Image-based reports “clunky”
Nielsen is also critical of image-based reports’ navigation schemes, including the search function, page-by-page navigation, drop-down menus and print-based design.
“Bad navigation, difficult reading, clunky user experience. I don’t see this as a big improvement on PDF,” he says.
Commenting specifically on Biogen’s 2001 image-based report, Nielsen is critical of how the report opens up with a useless cover. “Great graphic design for a print document. But on the Web, you need to open with an overview of the document, with brief summaries of each section and direct links to each area of the report. The front page of the report is just another splash screen, which we know that users hate.”
Nielsen also has strong criticism of the image-based report’s search function. “Even though it’s good to have search, the search results clearly show the downside of the scanned pages,” he says. “This design is simply not a navigation interface, so it’s no big surprise that it fails miserably in supporting navigation.”
Making one concession, Nielsen says the drop down menu may make image-based reports “marginally better than a single PDF blob.” By PDF blob, he means putting your annual report in one big PDF file.
Segmented PDF and HTML better approaches
Nielsen thinks the approach we suggest for segmenting PDF annual reports into smaller files is better than a PDF blob or image-based report. Like us though, he thinks HTML is still the best approach for your online annual report despite the higher cost.
By planning better ahead of time and not treating the report as an afterthought, he believes companies can reduce the cost of converting documents to HTML. It may still be more costly than PDF, but “it is worth the extra money to convert information into a usable format.”
The fact is, there are other, better options than image-based reports for companies that want to move up from a PDF blob or down from a customized HTML annual report.
These can be made to fit any IR budget and provide information to people in ways that are easier to use, and which can make communication between companies and their increasingly restless investors clearer and more effective.
Bad formats are bad for industry and electronic delivery
Whether or not image-based formats provide effective access to investors, there is another incentive for companies to use more usable approaches. With almost five million North American investors signed up to receive annual reports and proxies electronically, making sure that online versions are legible and easy to use should be a priority.
If the text of your report is small, grainy, in serif type and set across two columns — as many reports are — why would any of these investors want to continue getting your reports electronically? Sure going to an HTML report might cost a couple thousand dollars more than a PDF and slightly more than an image-based report, but the cost will be far higher if investors turn back to print instead of electronic delivery.
Furthermore, nowhere in the notice which appears on the electronic consent form used by ADP does it say that companies may use image-based reports. In fact, the only caution is that “some” companies will use PDF. That’s not true either, of course, because it’s not some, it’s almost all companies that use PDF.
To me, this calls the validity of the consents themselves into question. Would people have agreed to electronic delivery knowing that in most instances companies would present their reports in huge PDF files that have no bookmarks or links to assist navigation? Would they agree if they knew they wouldn’t be able to read the report easily because it would be formatted in a almost unusable way.
Aside from this, you also have to question the logic of providing your online report in ways that are likely to frustrate and antagonize an important segment of investors.
Most high net-worth individual investors tend to be in the 45+ age group, and research by Nationwide Financial has shown that the Web is their top choice for financial research.