LESS than 10% of the world’s 100 largest public companies are meeting basic usability requirements for their online annual reports to shareholders — and standards have worsened over the past three years.
These are the main findings of an in-depth comparison of the online annual reports of the S&P Global 100 Index companies, the world’s highest profile listed companies. The study was conducted jointly by IR Web Report and Austrian web production firm GeBer Geschäftsberichte. IR Web Report provided the protocol and weighting for the criteria, GeBer inspected the reports and compiled the data, and then we independently verified the results.
At the end of the process, we found that the vast majority of these mega-cap companies are failing to meet an acceptable usability standard for their online annual reports.
Only eight companies meet recommended basic requirements
Out of the 100 large-cap companies in the study, only eight met all of the basic usability requirements for online annual reports, a shocking statistic considering the high profile of these companies.
The basic requirements we looked for are recommended by the likes of the UK Investor Relations Society and the London Stock Exchange, so we didn’t just make them up. Following these simple standards allows investors to either view information online or download all or parts of the report for offline use or printing.
The basic requirements for online annual reports that we looked for are:
- Providing the entire report in navigable HTML for rapid online viewing and reference;
- Offering full and segmented PDF files for printing and offline use; and,
- Giving investors downloadable spreadsheets of financial tables in the report for easier data importing and analysis.
Companies in the study that met these basic usability requirements are (in alphabetical order): BASF AG; Bayer AG, DaimlerChrysler; Deutsche Bank, Deutsche Telekom, IBM, Microsoft Corp., and Royal Dutch Shell.
Deutsche Bank had the highest scoring online annual report package among the 100 companies in the study. Since Deutsche Bank’s online report was produced by GeBer, I took extra care to independently verify this result. It is accurate, and yes GeBer does produce really good online annual reports.
The eight companies that met all the basic requirements deserve praise for making an effort to provide their online annual reports in formats that meet the varying needs of investors. Clearly, they are trying to communicate their financial information effectively on the Web.
Another three companies narrowly missed meeting all of the basic usability requirements. These companies Altria, General Electric and Repsol YPF met all of the basic requirements except that they did not provide spreadsheet downloads of their financial statement data, a key requirement for analysts and other experienced users.
|Top 5 Online Annual Reports|
|1. Deutsche Bank||79.1%|
|3. Royal Dutch Shell||75.6%|
|5. Deutsche Telekom||73.9%|
Only five companies meet advanced online viewing standards
In addition to the basic format requirements, we also analyzed the HTML reports of all companies against an advanced set of 28 attributes. Only five companies’ scores met a standard of 70% or higher on these more advanced requirements for viewing annual reports online.
Companies that met the advanced standard for their HTML reports are (in alphabetical order): Bayer AG, Deutsche Bank, IBM, General Electric, and Royal Dutch Shell.
Royal Dutch Shell scored the highest overall against the HTML report criteria. Its HTML annual report includes an advanced search engine that enhances the report’s value as an ongoing reference document while all financial tables are provided in HTML.
The companies that passed the advanced criteria are providing the very best reports for online viewing and use. Their reports put information in easy reach of investors and enable researchers to quickly and easily retrieve specific information or browse the report for general interest.
|Best Reports for Online Viewing|
|1. Royal Dutch Shell||79.0%|
|3. General Electric||76.0%|
|5. Deutsche Bank||70.0%|
43% meet requirements for downloading and printing
In addition to providing their annual reports in HTML for online browsing, companies should also provide their reports in a single PDF as well as in smaller PDF files of individual report sections. This makes it easier for investors to print or save a specific part of the report or to print out the entire report. It can also reduce the burden on investors when the report is not provided in HTML.
The survey found that 43% of the companies provided their reports in a single PDF as well as individual chapters in PDF. Another seven companies provided their reports only in sections in PDF but not in a single file, meaning that an investor wanting to print out or save the entire report must go through the time-consuming task of downloading several files.
It is important that companies not make the mistake of using PDF as a replacement for well-designed HTML reports. PDF is a printing format and while some companies try to improve the usability of PDF documents for online browsing by adding a bookmarks index, this does not improve usability sufficiently to replace HTML pages.
15% provide financial statement data in spreadsheets
Expert IR website users require financial information in annual reports to be provided in a spreadsheet format. This allows them to import the data into spreadsheet programs to be analyzed and compared.
Without spreadsheets, these users may be forced to re-enter information from the report manually or by copying and pasting it from HTML or PDF, a time-consuming and error-prone process.
Only 15 of the 100 companies in the study provided their financials in Excel or other spreadsheet formats.
Many companies snubbing shareholders’ usability needs
The study found that almost 40% of companies published their online annual reports in formats that create significant burdens on investors to be able to access and use them.
One of the most significant problems is when companies provide their annual reports only in a single PDF file, also known as PDF blobs. This practice makes it extremely difficult for many investors — particularly less web savvy ones — to navigate the report online and find information in it. PDF files require users to have a PDF reader installed, can take long to download, and may cause technical and usability problems for the user.
A recent traffic log study by academics Frank Hodge at the University of Washington department of accounting and Maarten Pronk at Tilburg University department of accounting and accountancy has found that most investors using online annual report information prefer to use HTML pages.
They analyzed data from the servers hosting annual report information of Netherlands-based Philips Electronics and found that 76.1% of users identifying themselves as non-professionals used the HTML version, with 61.4% using HTML exclusively and 14.7% using HTML in combination with PDF. Meanwhile, 59.2% of professionals used HTML pages, although they showed only slightly more preference for it than PDF.
Ironically, Philips was one of 24 study companies that published their most recent annual reports in one PDF file only. The Philips 2004 annual report is 219 pages. (I will have more to say about this in another article.)
PDF annual reports are principally useful only for printing, and sometimes for offline reference for experienced users. But they are not usable for online browsing, which is how most individual investors want to view online annual report information. Firms that post their reports only in PDF ignore the needs and preferences of most of their report users and put people off reading the report.
“Jpeg Shows” problematic
The study also found growing use of another document format that has poor usability. Image-based reports or “Jpeg Shows,” which convert annual report pages to large digital images that make the text blurry, have been widely criticized by usability experts for being hard to use and inaccessible to users with disabilities.
In guidelines issued by the UK IR Society last December, companies are urged to avoid so-called “quick reports” due to their poor usability. The IRS guidelines are endorsed by the Institute of Chartered Accountants in England and Wales, the UK Department of Trade and Industry, the Association of Private Client Investment Managers and Stockbrokers (APCIMS) and the National Association of Pension Funds (NAPF), among others.
Despite this, we found that two UK companies — Vodafone and HSBC — used image-based presentations for their annual reports. In total, 21 companies used the format. Of these, 13 also published PDF blobs.
French companies were the most likely to use image-based formats for their annual reports. Half of the 10 French companies used the format. In the U.S., nine of the 38 companies (24%) used image-based reports. Ironically, the main vendor of image-based reports to French companies is based in the UK, where image-based reports do not meet the requirements of laws barring the use of technologies that exclude access to people with disabilities.
Image-based reports are attractive to companies because they are quick, cheap to produce and perceived as a step up from PDF blobs. However, they are extremely cumbersome to use both online and offline as they cannot meet many basic usability requirements of investors.
In my view, companies should stop using image-based reports and vendors should stop selling them, especially because there are better options available that cost the same and can be produced in the same amount of time.
Companies emphasize wrong things
Twenty-two per cent of companies in the study provided only highlights or a summary of their annual reports in HTML. Typically, companies provided the annual report narrative in HTML but offered the financial report only in PDF or in images.
This has the effect of making the important financial statements, notes and management’s discussion harder to use than the less detailed information provided in the highlights or summary.
The study also found that US companies are becoming increasingly compliance focused in their annual report disclosures, with some providing their SEC 10-K annual reports in lieu of an annual report.
These filings, while comprehensive, are difficult to use because they are text-heavy, legalistic, lack basic information design attributes and follow a structure that most non-professional investors and employees are unfamiliar with.
Usability declines from prior years
Compared to surveys of a similar group of large-cap companies conducted by IR Web Report in prior years, there has been a sharp decline in the usability of online annual reports in the past three years.
For example, in 2002 just 12% of companies posted their annual reports in PDF blobs. In 2005, that number has doubled to 24%. Similarly, the number of companies using image-based reports has risen five-fold from 4% in 2002 to 21% in 2005.
So, instead of improving the usability of their reports, companies have gone backwards! Note that I am only talking about online annual reports here, I haven’t yet begun to address the many other disclosures and features on IR websites that may be even more important to investors.
The widespread neglect and poor usability of online annual reports and other IR website content should be a major concern for the investor relations community and regulators. Investors, particularly long-term individual shareholders, need companies to properly publish their reports online so that there are no burdens to access and use.
Yet as this survey shows, companies continue to ignore the basic usability needs of investors. Companies cannot plead ignorance because poor usability of IR websites has been raised as a major issue for investors in several surveys going back to 2000. They cannot claim cost as a factor because basic usability is cheap.
In truth, there is no excuse for making the usability of online financial reporting more difficult than it needs to be. Except, of course, if it is deliberate.