ANNUAL REPORTS : From Gloss to Toss – The End of an Era

In Brief
• Changes to the Companies Act 1993 mean shareholders now ‘opt in’ for annual reports.
• Very few reports are now printed.
• Companies need new ways to convey meaningful messages to shareholders.

Changes made last year to the Companies Act 1993 mean shareholders must now ‘opt in’ to receive printed copies of company’s annual report. Previous legislation enabled them to ‘opt out’ if desired. Companies still produce annual reports but they are now posted electronically on the internet and/or mailed to shareholders who request hard copies.
The move has been welcomed in most quarters. Companies are applauding the reduction in compliance bureaucracy and costs, while legal and financial services firms are promoting the cost-saving potential of the new regulations.
While the traditional annual report is compliance document – it also has to do the job of brand building, communicating competitive differences and appealing to people’s emotions. So new communications challenges have arisen and, several months into the new regime, companies are developing different strategies to convey meaningful messages to their shareholders.
John Blair is company secretary and general counsel for Air New Zealand, as well as being the deputy chair of the Listed Companies Association (a voluntary organisation which acts as lobby group and sets best practice).
He welcomes the law changes in both his roles. The LCA was instrumental in getting the Companies Act changed because, as Blair explains, with the growing use of electronic communications (email, internet) annual reports quickly became outdated. Add to this the fact they can cost large organisation half million dollars, and the transformation to electronic delivery makes good sense.
Blair notes that due to continuous disclosure requirements, shareholders are more regularly updated and informed of any changes in company activities and/or forecasts, so he brushes off suggestions the new delivery options downgrade the information available to investors.
“The recent change to the opt-in legislation has been very positive – if somewhat overdue – improvement on shareholder communications. There was plenty of evidence suggesting that most annual reports sent to retail shareholders went straight in the bin. The opt-in process ensures that only those who really want the detail in hard copy receive it that way and that the web version is there for all to view, whether someone is shareholder or not.
“I think this does sound the death knell of annual reports as we know them. Few shareholders are really interested in the huge amount of detail now inflicted on them by legal compliance and accounting rules,” Blair said.
That aside, he believes that many companies are still looking for opportunities to produce, periodically, meaningful precis of the progress being made by the business, the challenges ahead and the issues of the day for distribution to shareholders and other important stakeholders.
In Air New Zealand’s case, this now takes the form of high-level interim review and magazine style annual review, both designed to provide an interesting and informative perspective of key issues with only financial highlights. Blair says both have been well received by shareholders and also provide way for keeping other stakeholders, including staff, informed of developments occurring within the company.
From previously printing and posting around 30,000 extensive annual reports, Air New Zealand now posts out the shorter annual review document. It had requests for fewer than 200 hard copies of the detailed financial publication – and that number included media and analysts.
Kensington Swan partner Chris Parke explains that the changes to annual report requirements were introduced as part of wider series of business law amendments, which were aimed at producing clearer and more efficient law, and by doing so, reducing company compliance costs.
“As increased red tape and ever-mounting compliance costs are constant commercial bugbear, these sorts of changes, no matter how small, are generally welcomed,” he says.
Auckland-based corporate design company Insight Creative recently won Best International Annual Report at the US-based international Annual Report Competition (ARC) for its communication strategy, design and production of the Lion Nathan annual report. But, despite obviously being world class at the old-style format, Insight Creative managing director Mike Tisdall isn’t letting the changes derail his business.
He sees the new regulations and changes in the ways corporates communicate with stakeholders as challenge and says companies have been handed unique opportunity to adopt “fresh, meaningful new ways of communicating with their shareholders”.
Tisdall believes that, so far, commentary surrounding the law change has ignored the wider implications of communication with shareholders – an area he says begs numerous questions: how investor branding impacts on business reputation; the importance of strong stakeholder relationships; and, how public perception can affect company’s share price.
“Companies often think only about their product brands, but in fact investor branding is imperative in communicating the corporate brand personality to investors – helping them to understand, trust and like company. Developing strong investor brand and bringing it to life through collateral is way of differentiating one investment from another and showing what the company is really all about.”
Tisdall says the reform is driven by the capabilities of the internet and the continuous disclosure environment and echoes Blair’s view that, for some time, the annual report has not been about financial results reporting.
“Companies would be wise to take this opportunity to reassess their entire communication process. While the nature of the communication may change in terms of channel mix, there is an even greater need for companies to invest in their ‘investor brand’ – the reputation they seek to grow in the market, and the manner in which they speak to investors,” he says.
There is also risk, says Tisdall, that the change will aggravate shareholder apathy. Much more effort is needed by shareholders to respond to, for example, proxy mailings. The opportunities for distraction and procrastination are higher compared with the traditional model. Evidence from the United States shows that just four percent of retail shareholders voted in 69 company meetings in 2007 – compared with 17 percent the previous year when companies were not allowed to use default electronic delivery. The number of retail shares voting was also down 50 percent to 13.3 percent from 28 percent the previous year. (Source:
Online communication may be ideal for sourcing information and dates and it’s star for frequent updates and topicality – but it’s not great medium for telling the stories that make an investment compelling proposition or building investor loyalty, Tisdall says. Which is why many corporates are now releasing shareholder reviews or updates, as well as corporate social responsibility publications. These are usually sent out to all shareholders automatically.
Similar changes have taken place recently in Australia and Insight Creative clients CBA and Lion Nathan have changed their communication and publishing methods.
Michael Roberts, the Australian-based investor relations director of Lion Nathan, says that companies have started to look at and think about which stakeholders they are communicating with, such as corporate, retail, potential employees, the media, or the NGO community.
“Annual reports now are multi-stakeholder communications document, and look more broadly at the communications strategy of company.
“In terms of the new opt-in legislation, we are already seeing change. Annual reports are

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