ANNUAL REPORTS Agenda Benders – The dangers of hybrid reports

Management magazine: What is the main job of an annual report?
Brian Gaynor: It’s the key document, the flagship of any organisation. An annual report is meant to communicate to shareholders how the organisation has performed over the past year, how it has been governed and who has been governing it. The report should give some indication of how the organisation is likely to perform in the year ahead and the strategies adopted to achieve those goals. It doesn’t have to be complicated document. Too many companies get carried away by the design and style rather than the content.
Lyn Mayes: It’s the main vehicle for communication to range of stakeholders. I get very interested in what the company is doing for its people, communities and the environment so I look at how they’re managing health and safety and what other information they put in. The people that read these reports are shareholders so reports should give concise view of the organisation. But employees are reading them too so it’s got to be tool that communicates with them and with other people.
Mike Tisdall: Because the stakeholders are many and varied, an annual report runs the risk of falling between whole lot of stools. For me, there are certain absolute givens. One is any statutory obligation. Then there are governance issues, giving shareholders confidence in how the organisation is being run and its future outlook. So organisations have got to do the disclosure exercise clearly, openly and transparently. But what else can report do? As Brian said, it’s the flagship document. So I sit down with my clients and ask who the audience is for their report. Lion Nathan in Australia is absolutely clear: it is for potential employees, it’s for international recruitment. They’ve made that very clear in the past three or four years and their annual report is their best recruiting tool internationally. The Promina report – which we also do out of Sydney – became an internal document. Because they own large number of brands the report became the glue that holds them all together. It’s been huge added bonus for them. Two years ago, with Waste Management it was very much story about trying to get the message out about their concern about sustainability. But last year they’d spent lot of money on Australia so it was about that. So you start to get these other agendas coming through.

Management: Are the objectives of annual reports changing?
Mayes: The stories of poor business management and bad governance coming out of Enron and other organisations have changed some of the aspects of what’s required in report. Now, there’s almost disconnect between the corporate communications function of report (the glossy publication stressing an organisation’s good points) versus the fact that your report actually has to be honest.
Tisdall: It’s fine line.
Mayes: Traditional methods from the corporate communications department are to only put in what you want people to know. To some degree it’s not company culture to say ‘we polluted river last year’. It may be statement of fact for whichever company it happens to be and it’s always compliance registered so if journalist wants to find it they can anyway. But it’s not immediately what comms department does. This is now changing because people are expected to think differently about what the report is.
Gaynor: So you’re saying the comms department is taking over the annual report and putting their slant on it?
Mayes: I don’t think they do but corporate comms manage the function and, intuitively, they project positive view. Annual reports are transparent documents. You’re asking corporate communicator to do something that is inherently not what they do because they’re public relations people. As PR person you’re almost schizophrenic: 50 percent of you wants to get your company into the media and 50 percent wants to keep it out. When you’re doing your annual report there’s an element of that too.
Tisdall: Changes surrounding governance are not going away. Governance is getting more and more space and rightly so.
Gaynor: I think it’s becoming too heavy because it becomes systemised. Organisations have to report in certain way and put in lists of committees so everybody just repeats themselves every year.
Tisdall: That’s the positive spin again – wanting to be seen to be doing the right thing.
Gaynor: I agree that there needed to be more disclosure about subcommittees. That’s good example of disclosure. But it’s becoming kind of culture unto itself now. It just takes up lot of space in annual reports. Although it’s quite useful when it’s introduced for the first time, I now find that when I go to meetings shareholders don’t even look at those pages.
Tisdall: I suppose it’s enough for it to be seen to be there.
Gaynor: Yes.
Tisdall: So being seen to play the game comes into it too. The other trend I’m seeing – and we may have driven it bit – is trying to bring out the soul of the company. The document gives the company the opportunity to express its personality – how it thinks, its philosophies. That’s where the design aspect comes in, trying to bring that personality to the fore.
Gaynor: But there’s fine balance. The Pod report is an example that concerns me. It’s gone way over the top [with its design]. lot of elderly people read annual reports and I know from going along to meetings and talking with shareholders that they find designs like that almost impossible to read.
Tisdall: That’s design getting in the way of communication.
Mayes: It’s coffee table report.
Gaynor: I agree there’s an opportunity for some branding to be done but I get concerned.
Tisdall: There’s fine line. To me, design has to enhance communication.
Gaynor: And the substance in the Pod report is very poor. You don’t learn lot about the company. Then you’ve got old style reports like the Colonial Motors one. I’ve been here 29 years and it hasn’t changed. It’s had the same cover for 29 years. It’s the worst. It doesn’t even describe who the directors are, it doesn’t say who they are, what they’re doing or anything. All they do is change the numbers each year. So we’ve gone from this stage [Colonial Motors] to this [Pod]. If Colonial Motors scores one and Pod gets 10, we should be at seven and half.

Management: If we put the annual reports of this year’s top 200 New Zealand companies in big pile against the equivalent five years ago, would the pile now be higher?
Tisdall: Yes.
Mayes: But Watercare has reduced its annual report by 20 percent this year. That was one of the things I like about it.
Tisdall: They have information on CD and on their website. But some companies’ reports come in three tomes.
Gaynor: In Australia companies only have to send summarised report and shareholder can apply for major one. In New Zealand
you have to send the full report unless the shareholder decides they will accept the summarised one.
Mayes: The other thing that companies don’t tend to do is to face up to big issue if they have one. The BP report actually says, ‘what’s our big issue? Fuel prices. Then we’ll deal with that.’
Tisdall: They tackle things head on. That’s fantastic.
Mayes: From sustainability point of view these are the elephants in the boardroom: the blindingly obvious things that people just ignore. BAT is now recording in its report the fact that smoking kills. But some companies just shy away from that approach.

Management: Are annual reports trying too hard now?
Gaynor: I’ve brought along two examples from the same industry. The Steel & Tube report is reasonably simple but it is actually very good – it has all the right graphs and descriptions of directors right up front. It’s 32 pages. The

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