When TD Bank Group’s Chief Executive Ed Clark delivered his 2013 letter to shareholders, the message wasn’t a print-only affair but was also communicated through a video that could be viewed many ways, including through closed captioning and American Sign Language. “The CEO and CFO’s video updates humanize the bank,” says Rudy Sankovic, Senior Vice President of Investor Relations, and that’s why he believes that they need to be accessible to a varied audience.
By focusing on customers, employees, diversity, the community, and the environment, TD’s annual report is no longer simply a straightforward exploration of financial performance, says Sankovic. “It has a more balanced focus,” he explains.
Sharon Loung, Director of Investor Relations at First Quantum Minerals Ltd. in Ontario, is also a firm believer that annual reports should tell a comprehensive story. “The whole purpose an annual report serves hasn’t changed over the years: it’s to inform a wide range of users who you are,” she says. To create the annual, Loung begins by asking the CEO where he has taken the company and how new developments illustrate its longer-term strategy at work.
The annual report serves a critical informational need, and so Loung believes that it won’t simply disappear from the landscape. “The main purpose of an annual report will remain the same,” she says. “How you tell your story? Now that will change.”
Responding to New Demands
From a regulatory standpoint, all public companies in Canada are required to make public financial disclosures 90 days after the fiscal year-end and to accompany these disclosures with an MD&A, says Andrew Perro, Senior Art Director at Craib Design & Communications. Beyond that, the individual stock exchanges on which a company lists might pose additional disclosure requirements, but these requirements tend to be modest.
Notice and access, which lets public issuers forego the historical mandate to mail annual reports to all shareholders, whittled down the ‘must-do’ list dramatically. And yet a study conducted by Blake, Cassels & Graydon LLP found that less than 10% of TSX and TSXV issuers adopted notice and access during the most recent proxy season.
Lorie Brière, Principal of The Works Design Communications in Toronto, emphasizes the resilience of the annual report. “There was an opportunity to abandon the annual report three or four years ago. Many companies took it. But those that felt annual reporting was important three or four years ago still think it’s important today.”
Brière points out that because analysts and portfolio managers now have access to the audited financial statements several weeks before the annual report is mailed, the financials are no longer the star attraction. “Sustainability reports are almost more required than annual financial reports, though not from a legal perspective but from a social license to operate,” maintains Brière. “There’s more demand from a wider range of stakeholders for clear, transparent disclosure around non-financial sustainability practices than there is for the financial statements.”
First Quantum’s Loung attributes her company’s “keen focus on sustainability” to the nature of the company’s work: mining copper and other materials in Zambia, Mauritania, Panama, and other far-flung locales. “We’ve been under the microscope for how we operate and how we handle dangerous products,” she says. “We’ve had to be very open and transparent.”
For Brière, a force driving the popularity of sustainability reports is the rise of international frameworks, such as the Global Reporting Initiative (GRI), which make it possible for stakeholders to draw increasingly meaningful comparisons between organizations reporting on CSR, climate change, and other issues.
Susan Sheehan, President of Leapfrog Sustainability and a judge for the 2013 CPA Canada Corporate Reporting Awards, also recognizes GRI as an important boon. “Without a guideline,” says Sheehan, a company might just publish fluff, and “the audience doesn’t accept fluff anymore.” She cites a company like RBC (Royal Bank of Canada) that publishes a sustainability report and is becoming known for its stance on water usage.
“In Canada, analysts are behind the eight ball in terms of using GRI or sustainability data,” says Sheehan. Nonetheless, some IROs are feeling mounting pressure from international buy-side institutions and sell-side analysts to provide this type of information. The intensity of the pressure often depends on the industry sector. Sheehan sees real estate, consumer brands, and global mining companies as facing more heat than others to step up to these challenges.
As Canadian companies strive to tell their stories to stakeholders eager for the information, Brière believes that sustainability reports are becoming the star vehicle while “financial reporting is becoming a subsection of the sustainability report.”
Segmentation and Technology
With new technologies and communication vehicles emerging, Brière is seeing companies segment communications to address various audiences. A company like The Coca-Cola Company, for instance, publishes multiple sustainability reports, each tackling an issue from water usage to human rights to childhood obesity. Looking beyond the mega-caps, she singles out SABMiller for doing an excellent job of segmenting its sustainability reports, covering water usage in a discrete document.
Companies that have found other avenues of communicating their financial messages, such as investor day presentations, might logically gravitate toward non-traditional formats for their annual reports. Perro observes that summary annuals continue to be popular, with a typical summary running 24 pages and consisting of a description of the year in review, a report card, and a look forward for the business. He notes that 10-K wraps have a large cadre of adherents, although they’re not necessarily the best way to slash page counts. In fact, says Perro, “we see a lot of 10-K wraps that are as long as the annual report.”
Is segmentation just a deepening of the trend noted last year towards an ‘anything goes’ annual? [See The ‘Anything Goes’ Annual, IR leader, Volume 23 Issue 3.] Yes and no. While companies are splintering in their approach to annual reports, all IROs are responding to some of the same technological innovations. Arguably, the biggest trend within the last year is the proliferation of tablets and iPhones. “You’re starting to see a significant number of companies directing their [annual report] information to smart phones and tablets,” says Gerald Trites, Founder of Zorba Research Inc. and a judge for CPA Canada’s Corporate Reporting Awards.
“Most of the online reports we design are designed responsively,” explains Perro. “We design for three screens: the computer, the tablet, and the mobile phone. It’s the same information but the programming determines which device [the report is] being read on and it optimizes the experience for the viewer.” Since so many stakeholders are accessing annual reports on smaller screens, Perro notes that IROs are redoubling their efforts to provide user friendly highlights sections and to make the letter to shareholders shine.
Brière agrees that mobile phones and tablets are game changers, but she sees far too few companies addressing the precise informational needs of audiences on each device. “People are looking for different information when they’re scanning quickly on their phone than when they’re sitting on an airplane reading the report,” she explains. “To do a really good job, you need two versions of the report: one to be quickly scanned on your phone, and a desktop version where you are reading a narrative.”
A Look Ahead
If designing for new devices and providing segmented reports were not challenge enough, IROs are also extending their reach by translating their annual reports into a greater number of foreign languages. Brière points out that many of her clients have gone beyond producing annual reports in English and French and are publishing in Spanish as well.
Brière also flags XBRL as an important technology to watch. So far, XBRL has been slow to catch on because of the difficulty of building a lexicon and agreeing on algorithms, but once these issues have been resolved, she is convinced that the annual report will again undergo a seismic shift.
“With XBRL,” she says, “you can satisfy me and my kids. Everyone can get what he or she wants by putting in a search word. The annual report will no longer have to be beautiful; it’s just got to be useful.”
Although experts continue to debate the future of the annual, one point is met with ready agreement: all of these changes are placing far more demands on the IRO – and there’s no sign of relief in sight. “In the interest of greater disclosure and reaching a greater audience, all of which is fantastic, there’s an enormous pressure on investor relations professionals to squeeze more out of their budgets and out of their staff,” concludes Brière. “It takes a lot of time to produce these annual and sustainability reports.”