Reflections on 2008 annual report season

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THE online annual reporting period in Europe and North America is drawing to a close — and except for an elite group of forward-thinking companies it has been a disappointing season.

This was the first year where many companies had the option of delivering their reports on the web as the default option. This was also the first year that all large US companies were required to post their annual reports and proxy statements online in formats “convenient” for both onscreen reading and for printing.

Consequently, we expected that many more companies would make long-overdue investments to improve the usability and interactivity of their reports. But that did not happen. Not by a long shot.

Despite the US Securities and Exchange Commission (SEC) explicitly requiring usable documents, our reviews have found that almost 90% of companies chose formats that do not live up to the spirit of the rules.

Ironically, in the United Kingdom where the Companies Act is silent on the usability of online annual reports, more big companies provided full HTML reports this year compared to last year — 46% versus 32%, according to a survey by design firm Radley Yeldar.

Image-based documents back with a vengeance in US

There appears to be widespread ignorance about what constitutes an effective format for online annual reports and proxy statements. Most US firms that took advantage of default electronic delivery posted their online reports in large, poorly-formatted PDFs and hard-to-use image-based formats purchased from big vendors who obviously know little about effective online communications.

Image-based annual reports like this one from Broadridge’s supplier EZ Online Documents have poor usability and should not be permitted by regulators.

That image-based documents should be so dominant this year is surprising given that the usability problems with these formats have been well-documented since 2003 when IR Web Report and Jakob Nielsen, the world’s leading web usability expert, first started explaining why companies should avoid using these document formats for their annual reports.

The problems with image-based documents include:

• Hard-to-use navigation;
• Fuzzy text;
• Inability for analysts, investors and journalists to reuse content: and,
• Inconsistent usability conventions across vendors.

In many ways, image-based reports are less usable even that bulky PDF files. Companies are being grossly overcharged for these unusable online documents because they are unaware that the conversion process is largely automated. The fact is, similar or better conversions are available free of charge in as little as 5 minutes to anyone who knows how to open a file on a computer and copy and paste a snippet of code into a webpage.

Vendor-fueled confusion around SEC’s requirements

The main culprit for the resurgence of image-based documents is confusion about the SEC’s requirements for online formats and websites hosting proxy materials. The SEC’s ambiguous language in the e-proxy adopting release about the use of cookies has created an opportunity for vendors to scare companies into buying image-based documents from them.

This is an example of an image-based annual report from Computershare. It is perhaps the least usable of the lot.

In some cases, companies that provide usable HTML reports on their own websites have paid to have duplicate, less usable image-based documents created on a vendor’s website because they have been told by vendors that they must provide their materials on a “cookie-free” website, even though that term is not used anywhere in the SEC’s rules. Ironically, the websites on which the duplicate reports are hosted are using cookies themselves.

The SEC needs to clarify its rules around cookies and what constitutes a convenient format because the current language has resulted in proxy materials being less usable than before the rules came into effect. The confusion around cookies and formats also has resulted in few companies having access to good web analytics on which to base future improvements to their reports.

Corporate reporting leaders continue to innovate

But it’s not all bad news. This year we saw some important innovations for online annual reports among an elite group of companies.

European companies comprise the bulk of this forward-thinking class. The elite North American companies can be counted on one hand, and are mostly companies that have long histories of best practice online communications.

Among the leaders, several new and interesting trends have emerged. Online annual reports are becoming more interactive and more customizable.

The quality of the design and coding is also improving, with some reports meeting all of the standards of the World Wide Web Consortium (W3C), the standard-setting body for the web.

Although they can be a significant expense, we continue to recommend high-end online annual reports and proxy statements as highly effective communications, disclosure and relationship-building tools. They engage, inform and educate investors, make it easier for people to quickly look up key facts throughout the year, and they demonstrate management’s accountability to shareholders and commitment to open and effective communications.

Our current issue of Online IR Trends has an 18-page feature detailing the online annual report innovations we’ve seen this year.

For the vendor reps in the audience, we will be running our Great Online Annual Report Designers list again in the next few weeks. We’ve been getting inquiries from developers we didn’t hear from last year and have been impressed with their work.

That’s a good sign for IROs and corporate secretaries as it means they’ll have more vendors to choose from for what is already shaping up to be an interesting 2009 annual reporting season.

Dominic Jones

Dominic (bio & disclosures) is IR Web Report‘s founder and an online investor relations consultant. He advises leading public companies and investor relations service providers worldwide on using the web for disclosure, engagement and profile building. You can contact him via the contacts page.