We seem to have been talking about the demise of the annual report for years, but reports of its death have so far been greatly exaggerated. Though to be fair, that’s more down to the fact that there’s no agreed alternative than because the annual report is doing a great job. In fact it’s hard to think of a format that’s less fit for purpose than the traditional annual report. These days it resembles nothing so much as a kitchen sink, crammed with everything from basic financial data, to complex risk assessments, to remuneration reports and sustainability commentary. And the standard structure allows little if any space to pull together any coherent connections between these disparate items, and in many cases the whole thing has become such a box-ticking exercise that companies don’t even bother to try.
The result? A huge amount of time, effort and expense is wasted producing something no-one really wants, and almost the same amount of time, effort and expense goes into producing a lot of other items that perform some or all of the functions that the annual report was originally designed to fulfil.
But it doesn’t have to be that way. Here’s our view of what the corporate reporting landscape looks like now, and how the cleverer companies are bucking the trend and setting new standards for coherent, compelling corporate reporting.
The triple repeat of the heading is rather the point here: it’s not just that the regulatory tail is wagging the reporting dog, but the sheer quantity of regulations that now apply. Accounting standards across the world are becoming ever more complex, and ever more convergent, which puts a huge burden on the small numbers of staff that typically pull together an annual report. Even more seriously, all this regulation is doing precisely the opposite of what its originators intended. The aim, clearly, is clearly has been to achieve greater accuracy, comprehensiveness and transparency, but the result is greater length, complexity and opacity. And as the pace of regulatory change quickens it’s becoming more and more difficult for even financial experts to understand how one year’s performance stacks up with the next.
The other complicating factor here arises from the new sustainability agenda. A whole raft of new sustainability regulation now has to be taken into account, and companies have to understand, and report on, a much broader concept of risk and performance. There are new metrics, new business practices, and new concerns, from scarcity of resources, to security of supply, human rights, and an ethical supply chain.
What people have always wanted from companies is concise, useful, relevant information. But what exactly that information is will vary widely depending on who they are, what sort of company it is, and whether they’re looking for something specific, or a more general understanding of the big picture. The traditional annual report can deliver certain kinds of specific information well – like financial data for City analysts – but it all too often it fails to provide the coherent overview that more general users need. There’s a real opportunity for companies to find new ways to meet this need, by developing formats tailored as much to the needs of the company, as to the needs of the user.
It’s an opportunity but it’s a challenge too. Presenting an objective and comprehensive picture of a company’s performance is a complex business, and raises a whole range of increasingly demanding questions: How do you value the sort of intangible assets that are increasingly driving corporate profits? What’s the most effective way to present the company’s strategy? How do you assess the risks a business might face, when these risks are no longer just financial and commercial, but social, environmental, and ethical? What’s the best way to represent the specific challenges, risks and opportunities of a particular sector?
The other important criterion here is, of course, the audience. The right information for investors won’t be the right information for employees, or governments, or business partners. Indeed most investors don’t use the annual report at all, having far better ongoing sources of information through face-to-face meetings, quarterly presentations, and Q&A sessions. The leading corporate players are already developing and using a whole fleet of new vehicles designed to cater for this audience, and are increasingly willing to share with them the specific KPIs and management data the business itself uses to manage, monitor and measure performance. The challenge is to cater for other audiences even half as well – audiences who will often have a very different idea of what ‘performance’ actually means. Their different interests and requirements may even translate – quite literally – into the need to use a different language, which is yet one more problem with the ‘one size fits all’ annual report.
Another insight from IR that could be usefully applied elsewhere is the need to manage the tension between what the company wants to say, and what the outside world wants to hear. The former is an opportunity to paint a compelling picture of its long-term strategic direction, but the latter can be a risk if not properly addressed, as it can look as if hard questions are being ducked, or answered less than openly.
Thankfully it’s easier now than it’s ever been to replicate the success of IR and cater for all sorts of disparate groups in a relatively cost-effective way. There are few audiences that can’t now be reached electronically, which allows for the development of any number of innovative and interesting new channels. The key is to understand what works best and why, and to develop an approach that exploits the separate strengths of digital and print. The advantage of paper is that you can use it to encourage the reader to work through the information in a structured sequence, making it easier to tell a coherent story. Digital, on the other hand, is ideally suited to users looking for specific information, and can offer different people different levels of detail, depending on their need.
As we just said, getting the language right for each is type of communication is crucial – ‘cut and paste’ across different audiences doesn’t just fail, it’s downright dangerous: using specialist jargon or business-speak in communications designed for more general audiences makes the company look at best pompous and unapproachable , and at worst downright evasive.
Design is just as important – both in print and online it creates mood, builds the brand, and supports the messaging. Online there’s another vital extra dimension and that’s navigation. Many companies use their internet site as a repository for all the data that’s too cumbersome to print and works better interactively, but making sure that this is organised and signposted well, and is readily searchable is really important.
This is all about immediacy – finding ways to report performance and progress in a continuous way, rather than in one huge and largely indigestible slab once or twice a year. The internet is an ideal vehicle for this, of course – it’s instantaneous, ‘real time’, easily updatable, and cheap to manage. It’s also rapidly becoming most people’s preferred way of accessing what they need, whether that’s information, entertainment, shopping, or social networking. The latter has of course been the big digital story of the last couple of years, but so far there’s remarkably little corporate presence on these sites. As yet there are very few businesses using social media effectively to sell their products and services, and even fewer think of it as a way to start a conversation with their stakeholders. It’s not clear yet how well social media might perform this role, but it’s a space worth watching – and exploring.
So with all this in mind, what might the next generation of reporting vehicles look like?
We see reporting evolving into a continuous process, in which a whole range of different vehicles will be used to reach different audiences. We also see the more clued-up companies exploiting all the resources of digital media to allow users to personalise these new vehicles to their own tastes and needs.
Some of these new vehicles will be online, and some in print; some will be highly specialised and targeted for particular groups (like City analysts), while others will start with the issues rather than the audience, and form a ‘part-work’ of materials covering everything from brands, to innovation, to sustainability. The key in each case will be to reverse the traditional reporting approach: instead of starting with a fixed and inflexible format and then endeavouring to force-fit it to every possible need, these new vehicles will start with each individual need and create the vehicle that will deliver it best.
In practical terms this will have also have many significant advantages, since it will better reflect the various different silos that have to come together to produce a conventional annual report. Breaking up the process allows each of these departments – IR, PR, HR, Environment – to address their own priorities and adapt what they produce to reflect them. There will still be a need for overall coherence – one unified ‘corporate story’ – but that story can be a strong scaffolding, rather than a suffocating straitjacket.
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