ANNUAL reporting season has finally and mercifully come to an end for most companies.
The cost of this exercise? Just for Form 10-K, the SEC estimated that companies chalk up 4 million hours of staff time and 12 million hours of outside advisor time, which, at $300 per hour, amounts to $3.6 billion. And that doesn’t begin to account for the cost of preparing, printing and shipping traditional annual reports.
Despite this vast amount of work, or perhaps because of it, the annual report isn’t the star player it once was. The majority are too complicated, too long, too late and too retrospective to be the sole source of information for investors. Still, they play a valuable role filling in the details of earnings releases, introducing a company and providing a window on management.
Short of starting from scratch, we’re stuck with the beast. But that doesn’t mean annual reports can’t be improved, especially the narrative sections. With trust and transparency now as important to stakeholders as products and services, the quality of that narrative has never been more important. Here then are five ways to improve the narrative quality of your next annual report.
1. Speak with one voice
Annual reports are a collaborative effort that draws on contributions from a people with a broad range of operating and reporting focuses. It nevertheless tends to be a compartmentalized process. Challenge yourself to find ways to stitch together these disparate contributions into a document that speaks with one voice, integrating management and the information that it reports, to deliver coherent, consistent messaging.
2. Make it shorter
Repetition may be effective in advertising, but that’s not the case with corporate reporting. Once is enough. Don’t duplicate when you can cross reference. And find ways to eliminate boilerplate. At the same time, give investors more of the things that are important to them, such as strategy, cash flow, acquisitions, debt and market conditions.
3. Make it real and relevant
The look and feel of your report should reflect the culture of your organization, its purpose and the values that drive it. Set the tone from the top. Is your company straight to the point? A bit quirky? Don’t be afraid to show your true personality. And tell your audience what you’re thinking, not what you think they want to hear. And provide relevant information—the same that management uses—so your audience can assess the performance of the business and its various segments.
4. Connect the dots
Make it easier for your audience to see the big picture by putting performance in context. Explain what drives success by explaining what your goals are and how you plan to achieve them. What is your business model? Show how your governance is effective in creating sustainable value and not just a box-checking exercise. Don’t just pay lip service to environmental and social reporting—integrate genuine, meaningful reporting on matters that are important to stakeholders and society.
5. Give it backbone
Half or more of annual report content is non-financial information and narrative. Unfortunately, much of this material lacks substance, with the worst reports offering little more than marketing copy or tired good news stories. Give your report a backbone by structuring it around of four narrative elements: market overview, strategy, value drivers and performance.
Even though not much is new in the world of annual reporting, don’t let tradition stop you from being creative. Dare to walk the narrow line between consistency and change. It’s okay to improvise or adapt narrative techniques or elements used by others so long as they fit your messaging platform and provide meaningful content.
The goal is to tell a credible and memorable story. With thousands of public companies and millions of investors, you simply can’t afford weak, confusing or complex messaging. What you need is a compelling story that clearly links business strategy and key performance drivers. And builds investor confidence with its credibility.