Somewhere right now a group of IR/PR corporate staffers are sitting in a conference room vigorously debating how best to handle their company's annual report. This year, the conversation has a bit of different flavor as a Securities & Exchange Commission regulation takes effect that no longer requires companies to automatically send their annual reports to all shareholders. Instead, shareholders will now be asked whether they'd like one and then the company will send one free of charge to those who are interested.
That change, as well as an overall trend to downplay the role of the annual report, means that the format of annual reports will continue to evolve as more companies take the cheaper way and forgo a slick book for a simpler 10K wrap that sticks to the required financials and little else.
Critics of annual reports - and their numbers grow each year - contend that with today's steady stream of electronic information, annual reports are outmoded window dressing that chew up too much time, money, and people. They quickly add that too often annual reports have little more credibility than a brochure produced by a North Korean government ministry.
These arguments certainly have their merits, but they ignore the significant role that these books continue to play in investment decisions. Annual reports - when done right - provide a single document for companies to present their investment case to investors, offering a company's strategy and mission.
Sure, browsing through a company's Web site can offer an investor a similar glimpse, but an annual report can do so in a narrative form that has a beginning, middle, and end, and avoids the disjointedness of a Web page. A well-crafted annual report tells the human side of a company's story, which is also part of the investment equation. The annual report seeks to answer the two most basic questions: Why us and why now?
The need for a traditional annual report is especially critical for non-Fortune 500 companies that may not have broad analyst coverage and are eager to expand their investor base. Even in this electronic era, portfolio managers still request an annual report to review prior to meeting with a company's senior management. If nothing else, it can provide context and show how the company views itself within the competitive landscape.
A good annual report has other benefits, such as boosting employee morale and driving recruitment. This is especially true for companies who are in the service-related industries, where people are the key for success. These books create an opportunity to show your people at their best, and that extra attention and recognition is usually much appreciated.
The move away from the glossy annual report toward a bare bones document has gone too far. No one would think of leaving a hammer out of a tool box. Similarly, no company should ignore the benefits a solid annual report can play in communicating with and building an investor base.
Fred Bratman is president of Hyde Park Financial Communications.