PEOPLE like me have been promoting online annual report best practices for almost a decade now, but the message mostly isn’t getting through.
According to the 2009 Nexxar online annual report survey, there has been a modest improvement in the number of companies that are providing at least some of their reports’ content in formats that meet the basic usability needs of investors.
The country with the most marked improvement in recent years is the UK. Changes to company law, a culture that strives for best practice, and strong encouragement from the UK IR Society and its partners deserve most of the credit for the improvement there.
As for the rest of the world, things have mostly improved modestly, stayed the same or gotten moderately worse. Even the US Securities and Exchange Commission (SEC), which introduced explicit standards for the usability of online annual reports and proxy statements in 2007, has had little impact. While its so-called e-Proxy rules offer clear guidance on how web-based annual reports and proxy statements should be formatted, in my view relatively few companies meet the requirements.
Printed reports and online counterparts have different strengths
A major problem is that companies don’t understand that annual reports in print and annual reports online are completely different beasts with their own unique strengths.
- Printed reports, if done well, are great marketing and story-telling tools, but they are weak when it comes to investors finding and analyzing key business information. For example, you can’t search a printed report and you can’t extract and analyze the information with a single click. But photographs, at-a-glance pullouts and 2-page spreads almost always look or work better in print than on a computer screen.
- Conversely, online reports are rarely if ever good marketing or story-telling documents, but they can be highly efficient documents for reference and analysis — but only if they’re done properly. Online reports can be easily searched, and the information in them should be easy for investors to extract and reuse, such as in a spreadsheet program.
Unfortunately, many companies pour a lot of time and money into trying to make their online annual reports marketing and story-telling documents, but expend very little effort optimizing them for the way investors use them.
The worst examples of this are when online reports are packed full of big photos, flash animations and videos, but the information investors actually want from the report – the financial disclosures – are made available in formats that are hard to read or reuse, such as image scans or PDF.
Such reports not only demonstrate that the company does not understand investors’ needs, but they also undermine the company’s credibility by making it seem like a pushy salesperson. Bad all round.
Finding the balance between bleeding-edge and uselessness
As I look at online annual report practices today, I see two extremes. On the one end of the spectrum are reports that have no value as online documents. These are the image-based and PDF documents that have come to dominate US online annual report publishing practices. These reports are simply offline reports transposed to the online environment with very little added utility.
On the other end of the spectrum are the bleeding-edge reports which offer all kinds of bells and whistles that hardly any investors need or will use. I dislike these reports almost as much as the low-rent image-based and PDF-only ones because they show that the developers are more interested in showing off than in serving their clients and their clients’ investors.
In the middle are the reports that just do their jobs. They provide the information investors want in the formats that are fit for purpose and with tools that help investors achieve their objectives. These reports don’t have to have video, flash animations or big photos to be successful, although there is nothing wrong with using visuals and multimedia if the objective is to impart the information investors want.
It really shouldn’t be that hard for every public company to provide its online annual report in formats that meet the basic needs of investors, especially when a major benefit is reduced costs and less impact on the environment.