Where are individual
we need them?
shareholder Why storytelling
notice and access
the annual report Elements of a
10K wrap or
A n e d u cAt I O n A l S u p p l e m e n t tO I R m AgA z I n e
loyalty counts s anyone who owns a shareholders, investors, employees,
BlackBerry, laptop or cell suppliers, analysts, buy-side portfolio
One catchphrase spawned by the phone knows, the opportu- managers and the media.
internet age is ‘sticky eyeballs’, nities for communicating
referring to users who spend 24/7 have exploded. Even Notice and access
a long time on a website and so, for public companies eager to tell On July 1, 2007 the SEC gave public
repeatedly return. Just as internet their stories to investors, the range of companies a new alternative for
content providers want to cultivate communications media doesn’t always delivering annual reports and proxy
sticky eyeballs, public companies feel like particularly good news. materials when it enacted its notice
should woo their equivalent: That’s because everyone – from and access rules. Traditionally,
long-term investors. financial consultants, Wall Street companies have delivered annuals
analysts and bankers to the financial and proxy documents 25-30 days prior
For decades now, the investment media and bloggers – is vying for to the shareholder meeting. Under
world has understood the value investors’ attention. In such a highly the new rules, public companies have
of shareholders who aren’t fragmented environment, it’s easy the option to post proxy materials on
scared off by short-term volatility for investors to become overwhelmed a website after sending a notice of
and who take a long view in their and your message to get lost. internet availability of proxy materials
investments. It’s these share- Many IROs realize the annual report to shareholders at least 40 days prior
holders that bolster your stock remains a tremendous opportunity to the annual meeting.
price when the hedge funds to cut through the noise. As the SEC A stated goal of the SEC’s notice and
short you or Wall Street analysts and other regulators demand greater access rule is to lower costs for public
downgrade your stock. transparency, the annual report companies that send printed annual
remains the only mandatory document reports and proxies to shareholders.
Although internet penetration is in which companies have the latitude The extent of the cost saving remains
high in the US, your shareholders to editorialize and shape their to be seen, however. Companies are
may not fall within the tech-sav- message for their key audiences: still obliged to mail a paper annual,
viest of demographics. Companies
with a high percentage of older Companies need the retail vote
investors know paper remains the
Without notice With notice
preferred way of researching a 100% and access and access
company, as do companies with 80% 80%
a large international base. Also,
Retail shares voted (%)
online annuals may be lost on
Average quorum (%)
overseas investors, which don’t 40% and access
always have access to sufficiently 20%
and access 20%
high-speed connections to read 90.17% 87.79% 34.29% 15.83%
lengthy documents online. Beneficial shares processed by Broadridge. As a percentage of total retail shares.
Includes the broker vote. Averages are Excludes e-delivery and broker votes.
calculated on the basis of each meeting.
5.ii IR guide Cultivating shareholder loyalty: the annual report
A cover can say it all think votes
the slot machine imagery immediately grabs Nowadays investors are more
the reader’s attention; the tagline ‘building on
empowered than ever to
growth and success’ sets the tone for the story
WmS tells inside. register their displeasure with
management, so almost every
public company is interested in
free of charge, to anyone who requests bolstering shareholder support.
a copy. What’s more, once a shareholder compelling investment case in an If management fails to get a
indicates a preference for paper, that eye-catching format. majority on a controversial
preference must be honored until Curran & Connors, an annual shareholder proposal, it might
further notice is given. report designer, studied the behavior find itself having to make some
In addition, Broadridge Financial of the 100 largest public companies unwelcome changes.
Solutions, formerly ADP, holds a with fiscal years ending in December
virtual monopoly over the proxy and 2007. These were among the first to be Companies facing a controversial
annual report delivery business; its given the option of using notice and shareholder proposal or a difficult
fees remain an expense companies access. Of the 100, 36 percent did proxy fight should think twice
simply can’t get around. traditional annual reports, 17 percent before embracing e-delivery.
If cost saving is the goal, meaningful produced summary annuals, 41 There are signs that notice and
reductions are most likely to be percent chose 10K wraps and only 6 access dampens voter turnout:
achieved by large companies with percent produced a 10K exclusively, analyzing results from the first
diverse shareholder bases that eliminating any and all narrative. In year of operation, Broadridge found
previously printed astronomical other words, the vast majority of large the retail vote from beneficial
numbers of annuals. Middle-market public companies continued to write, shareholders was 16.44 percent
companies – with more modest design and publish annual reports. for companies once notice and
distribution in the first place – will Regulators have never required a access was used, compared with
likely see far less dramatic savings, large, glossy annual report per se, but 34.3 percent the year before.
if any savings at all. the annual report has been, and still
As of May 31, 2008, 634 corporate is, a necessary piece of investor Even companies without a critical
issuers out of an investment universe communication. In 2005 Rivel Research vote on the proxy should consider
of more than 10,000 public companies Group found 64 percent of buy-side how to treat shareholders to
had chosen notice and access, but analysts and portfolio managers garner necessary support when
many major companies with enormous identified the annual report as one of they need it. Companies that don’t
shareholder bases have shied away the most helpful sources of information build goodwill with shareholders
from e-delivery. Apparently they have around. Notice and access hasn’t today may find shareholders
decided the potential savings on print changed that. Today, most public aren’t receptive when the com-
and postage are outweighed by the companies produce an impressive pany finally needs their backing.
opportunity cost of failing to commu- annual report for the simple reason
nicate with shareholders that desire a that it’s the right thing to do.
Cultivating shareholder loyalty: the annual report IR guide 5.iii
the big picture uring the 1980s and 1990s, What questions do IROs repeatedly get
annual reports functioned asked? And are there any misconcep-
Companies that interpreted the as grand tours: lengthy tions we could potentially clear up by
SEC’s new notice and access rules and sometimes tedious using this very public platform?
as a chance to simply provide a accountings of all the Savvy IROs know the annual report
10K and forego the traditional assets and impressive aspects of a is far more than a regulatory obligation.
annual report weren’t necessarily company. Those days are gone. First It’s a chance to advance their standing
tuning in to SEC chairman and foremost, today’s annual report with shareholders now and in the
Christopher Cox’s full message. tells a story, making a compelling future. The best annual reports
case for why investors should choose communicate value drivers, explaining
In an October 12, 2007 speech at to invest in one company over another. where a company has been, what it’s
the Center for Plain Language For IROs who want to create an doing today and where it hopes to be
symposium, Cox said: ‘The visual outstanding annual report, the central within the next three to five years.
presentation of quantitative question is: what’s our strategy? In
information is also enormously 2006 NIRI found that 86 percent of Project management
important in getting the compen- companies publishing a traditional Establishing a rough timeline for the
sation message across to investors annual report and 83 percent publishing annual is one of the very first steps to
clearly and understandably. By a 10K wrap described communicating take. All materials need to be complete
organizing data in tables, graphs the company’s corporate strategy as and in the hands of shareholders
and pictures, companies can help their main objective. 25–30 days before your annual
the reader to grasp more easily the Candidly answering a few questions meeting. If you’re using e-delivery, add
key aspects of what might other- is an excellent starting point. What do an extra 15–20 days to the process so
wise be just a jumble of numbers.’ we hope to accomplish with the annual everything’s wrapped up at least 40
report? What things don’t investors days before the meeting. Generally
Some companies are using notice know about us that they should know? speaking, a good annual report takes
and access to send print annuals
to only their largest shareholders, Charts can be fun
but this leaves out significant
by placing its trademark hot dog atop each bar of its financial charts, nathan’s
shareholders with hundreds of
demonstrates its strong results in a lighthearted way in its annual report.
thousands of dollars’ worth of
shares. Many savvy IROs think
these are the very shareholders
they most want to reach: loyal
investors with holdings large
enough to make a difference.
5.iv IR guide Cultivating shareholder loyalty: the annual report
Let your personality shine can you be too creative?
capital city bank group updated the standard,
The most creative designs send a
stodgy director photos by showing the entire board
without a single necktie in sight. the informal pose message or emphasize a particular
was consistent with the annual report’s emphasis point. Creativity for creativity’s
on people: from clients to associates, shareholders sake alone can be a turn-off.
and the community at large.
The best annual report designers
four months to produce, so count back beyond mere legal boilerplate. A good know it’s important to be practi-
five to five and a half months from the MD&A is candid and honestly assesses cal. Creating a book that’s
annual meeting date to calculate a the business environment, potential oversized might get your annual
kick-off date. risks and rewards. Here are some report noticed in the wrong way.
Next, select a project leader who other considerations: Studies have shown institutional
will solicit feedback from many Think brand. The annual report investors and retail shareholders
different individuals and assume should be an extension of your like to store annual reports in
ultimate responsibility for the final corporate identity. Maintaining the filing cabinets. A document that
product. Some companies write the same colors, themes and images won’t fit anywhere might get
annual report internally; others hire a throughout all publications will help thrown away.
professional writer. Lining up this key strengthen your message.
individual early makes sense. Tell the bad with the good. ‘And On the other hand, creativity that
Finally, you should select a now it’s confession time,’ writes underscores your identity makes
designer and printer well before the Warren Buffett in his 2007 letter to a strong impression. American
project gets underway. Increasingly, Berkshire Hathaway shareholders. Vanguard, an agricultural company,
companies prefer to hire designers This remarkably candid sentence included a card embedded with
who can produce annuals for both leads into a detailed discussion of the seeds in its 2007 annual report.
print and online audiences. Your good acquisitions he almost flubbed Shareholders were instructed to
annual report team will work closely and the poor ones he made. place the card in the earth and
with a designer, so be sure to trust Make the shareholder letter then watch a plant grow. This
your gut and hire someone who will compelling. Your CEO may not be able novel giveaway was perfectly
make a stressful time a little less to approximate Buffett’s folksy charm attuned to the strategy and
angst-inducing. and plain-spoken wisdom, but his or vision of the firm; it also gave
her personality should come through. shareholders a lasting reminder
Details count Make it scannable. Few if any of American Vanguard’s message.
The SEC requires that annual reports shareholders read the annual cover
include a corporate profile, financial to cover. Make sure there’s plenty of
data and a management discussion white space, pull quotes and other
and analysis (MD&A). Over the past reader-friendly details so investors
five years, regulators have pushed can get the gist of your message by
public companies to move the MD&A scanning the annual.
Cultivating shareholder loyalty: the annual report IR guide 5.v
XbRl approaches ar too much time has been What’s new online?
wasted arguing whether 10K Denny’s, the restaurant chain, has
XBRL, an interactive data-tagging wraps spell the demise of captured attention with its online
system for financial information, the traditional annual. Some annual, which has a remarkably
could soon be mandatory for of the best 10K wraps have consistent look and feel in print
all public companies in the US. narrative and editorial sections that are and on a computer screen.
On May 14 the SEC approved a every bit as hard-hitting, provocative For most companies, the online
proposed rule that would require and detailed as traditional annual annual report hasn’t been a budget-
the 500 largest US-listed compa- reports. In fact, annual reports and buster. A few years ago, in fact, NIRI
nies to begin filing data in the 10K wraps are really the same animal. found that 86 percent of all online
XBRL format in early 2009 and The only difference is how the company annuals cost under $20,000 to
all public companies to follow in question chooses to present its produce. Although a handful of
suit within three years. financial information. companies have clearly innovated
Portfolio Recovery Associates is online, most are spending modestly.
Interactive data tags uniquely a case in point. In 2007 this Norfolk, But while the online annual hasn’t
identify individual items in a firm’s Virginia-based portfolio management proven terribly expensive, its critics
financial statement, allowing the company chose to do a 10K wrap. would say it’s not particularly effective,
information to be easily searched Before reaching the 10K, however, the either. Too often, the printed annual is
for on the internet and downloaded readers see 16 pages of glossy photos
into electronic spreadsheets. and narrative, including a shareholder Think flexibility
letter, a colorful depiction of some
Although the benefits of XBRL financial results – such as total
are impressive, companies have revenue and net income – and a
been slow to adopt the system detailed description of the business.
on a purely voluntary basis. As Another approach is to provide the
encouragement, the SEC is giving 10K within a folder, giving it a longer
public companies a 30-day grace shelf life as a corporate brochure
period for initial filings so they or business summary. That’s what
can ‘tag’ data after the traditional the Medicines Company did in 2007 –
reports are filed. it, too, provided several pages of
commentary up front.
At its open meeting, the SEC noted Some companies that set out to
that the average price for XBRL save money by avoiding traditional
conversion in a pilot program was annual reports are unpleasantly
approximately $30,000 and that surprised by the printing and mailing
by placing the 10K within a folder,
such conversions required roughly costs for the 10K. Because the typical a company can use the outside
40 hours of work. 10K has far more pages than most photos and copy as a kind of
typeset financials, fulfillment can corporate brochure.
prove more expensive, not less.
5.vi IR guide Cultivating shareholder loyalty: the annual report
Be creative Walking the talk
diversified energy company delek put its 10K on a flash drive that it distributed to Companies are looking for ways
investors and other interested parties along with its summary annual report. this
to talk about the environment
attention-getting giveaway underscores the company’s forward-looking strategy.
and sustainability in language
that doesn’t sound hopelessly
fluffy. One way to do this is
through the paper you select
for your annual report.
The Forest Stewardship Council
(FSC), an independent, non-profit
organization, certifies sources
of pulp or paper to say whether
they’ve been produced in an
manner. Using FSC-certified
paper in your annual report is
one way to demonstrate that
your actions match your words.
designed and produced first and then of companies providing a full HTML Some annual reports even say
converted into an online version. The version has increased to 46 percent how many trees have been saved
problem is that this process doesn’t from 32 percent, but even then the through using environmentally
exploit the enormous possibilities of features are rarely cutting edge, sound paper. Mohawk Fine
the internet. It would be far better to Radley Yeldar found. In fact, just 11 Papers has estimated that if
develop the print and online versions percent of FTSE 100 firms include 100,000 copies of a typical 10K
in tandem so that interactive capabili- multimedia content such as video are printed on FSC-certified
ties could be considered from the very statements or audio files in their papers, the environmental
beginning. Whether you do a full-blown online annuals, while only 5 percent benefits are the same as
HTML version or a straightforward provide interactive charts or diagrams. cutting down 170 fewer trees.
PDF, the internet version should be What investors really want online –
in your thoughts from day one. as well as off-line – is to learn Safeway, Medtronic, Regency
Many experts believe online management’s vision for the future. Centers and Pulte Homes
annuals have yet to come into their Above all, it’s important to consider are all firms that have printed
own. In 2008 London-based Radley the online annual strategically. Make their annual reports on FSC-
Yeldar found 19 percent of companies sure that whatever you want to certified paper.
in the FTSE 100 still provide their communicate is as apparent online
online report only in PDF. The number as it is on the page.
Cultivating shareholder loyalty: the annual report IR guide 5.vii
Sponsor’s statement ne way to make an GRI found that readers appreciate a
impression with today’s balanced story. ‘Openness in disclosing
Curran & Connors is an award- shareholders is by economic, environmental and social
winning graphic design firm demonstrating a commit- impacts can give companies a
specializing in the design and ment to the environment, competitive edge, but people aren’t
production of annual reports, the community in which you operate fools,’ says Ernst Ligteringen, GRI’s
corporate literature and interactive and the global marketplace. chief executive. ‘They read these
media. Our four state-of-the-art To achieve this, some major reports with a purpose and they
electronic studios and 16 regional companies have published independent want the truth, particularly the whole
offices allow us to serve our sustainability reports; others are truth – not just selective reporting
clientele in the US and beyond in all dedicating pages in their regular where their performance is good.’
their shareholder communication annual reports to discussing climate The bottom line? Whenever
needs. With over 40 years’ experi- change, international labor practices possible, try to make the sustainability
ence, we serve clients ranging in and other topical issues. conversation as concrete as possible.
size from developmental-stage Annual reports that place an Investors are wary of platitudes and
organizations to the Fortune 500. emphasis on the greener or more eager to see real initiatives.
Call us or visit our website and socially responsible side of corporate FEMSA, the Mexico-based beverage
find out why we are chosen to life are generally well received. giant, devoted six pages of its 112-page
produce more annual reports than ‘Count me in – the readers’ take 2007 annual report to sustainable
any other design firm in the US. on sustainability reporting’, a May development. Through photos and
2008 report by the Global Reporting narrative, FEMSA discussed its
Offices: Atlanta, GA; Boston, MA; Initiative (GRI), found that 90 percent environmental stewardship and the
Brentwood, CA; Charlotte, NC; of readers of sustainability reports fact that 10.8 mn individuals benefit
Chicago, IL; Cleveland, OH; Dallas, say their opinion of a company from its quality of life and community
TX; Denver, CO; Ft Lauderdale, FL; changed because of the report. Of development programs.
Hauppauge, NY; Houston, TX; those whose perceptions changed, Sustainability represents another
Los Angeles, CA; New York, NY; 85 percent say they had a more facet of storytelling. Companies can
Princeton, NJ; San Francisco, CA; positive perception after reading – and should – use their annual
Washington, DC a company’s sustainability report. reports to present a well-rounded
picture of who they are. The annual
report can be an ideal platform for
For more information putting a stake in the ground and
explaining your strategy to the world.
K Denis Connors
For many public companies, the
) +1 631 435 0400 Fax: +1 631 435 0422 annual report remains the best
opportunity out there for telling a
nuanced story that shareholders
8 www.curran-connors.com will find meaningful, relevant and
perhaps even inspiring.
5.viii IR guide Cultivating shareholder loyalty: the annual report