The Value of a Polished Annual Report
We are near the end of annual report season. If you own many individual stocks, by now you have received a flood of reports and proxy statements. Some people get excited about spring because of baseball and flowers; I look forward to reading about different companies.
It is interesting to see how firms approach this annual task. Some companies produce polished documents with a letter from the CEO and a review of the overall strategy. There are photos, charts and sometimes even coupons.
Other companies save the money and send the required financial documents as inexpensively as possible. They assume, I suspect, that people just don’t care. Why spend the funds? A fancy annual report will have little impact on sales; people don’t rush out to buy a product or service because the annual report looked slick.
Should a company invest in producing a quality annual report?
Absolutely. An annual report is an important brand building tool for several audiences.
Investors
Most important, an annual report is an opportunity for a company to explain its strategy to investors, the people who own the company. Index funds don’t care about the annual report, of course, and big institutional investors such as pension fund managers do their own research. Smaller investors, however, have less to rely on. For these people, the annual report can provide reassurance and even inspire them to invest more in the company.
Employees
The annual report sends an important message to employees. It is an opportunity for senior executives to let employees know the overall company direction. It is a highly symbolic document. Done well, it can communicate a strategy and reinforce certain behavior.
Partners
External audiences such as job seekers, regulators and vendors are also important. The annual is a chance to shape what people think of the firm. How is the company doing? What are the priorities for next year? What does the company value?
Cutting the annual report sends a few messages:
- Small investors don’t matter.
- Employees don’t matter.
- External audiences don’t matter.
When you save money on the annual report, you are saying the only thing that really matters is the bottom line. How you achieved the results, where you are heading, what you are investing in—these details are all unimportant.
The Best
Here are some of the good annual reports I received this year: Corning, United Technologies, PepsiCo, Eli Lilly, UPS, Neenah Paper, Raytheon and Bristol-Myers Squibb.
The best annual report? JP Morgan Chase. This annual report was informative and factual, with commentary on the state of the company and the economic environment. It was built around a series of questions, such as “What are some technology and fintech initiatives that you’re most excited about?”
The Worst
The most disappointing report? Kraft Heinz. Instead of a polished annual report, the firm just sent the 10-K statement, printed on thin paper. Kraft Heinz complied with the legal requirements and spent as little as possible. The message? The company is only concerned with profit.
To build a great brand, you have to worry about all the touch points. The annual report is one of the most visible and symbolic. It is not a smart place to safe a few dollars.
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