CorpComms Magazine

The classic Warren Buffet quote, It's only when the tide goes out that you learn who's been swimming naked, seems particularly apt for this moment in corporate reporting history. Companies that have survived one of the toughest economic years in living memory may well feel worthy of a congratulatory slap on the back, but none can afford to leave themselves exposed to the whims of an uncertain recovery. Shareholders need to know that their organisations have a clearly defined strategy to ensure long-term stability and sustainability. With investments on the line, the annual report may now be more important than ever.

'The recession has heightened the importance of corporate reporting, because it is considered particularly essential to communicate a company's position as it comes out of recession,' says David Stocks, founder and client partner at SAS. While most companies have been forced to implement some level of cost-cutting over the past 12 months, SAS has had no experience of clients wanting to cut their budgets on their annual report, although he admits that this might still change going forwards, as the impact of the past year filters though.

In contrast, Richard Carpenter, managing partner at Merchant, thinks that the recession has made clients very aware of budgets, making them move away from producing all-singing-all-dancing reports. But he also thinks that there is more to this trend than just money. 'There have been a few rights issues this year, which involve going back to shareholders to ask for more money. Clients don't want to be doing that alongside obviously expensive documents,' he says. The result has been an increase in more typographical reports and a slowdown in the movement to online communications. 'In 2008, there was a rush to move reports to the Internet, especially as new legislation allowed companies to default to online communications,' says Carpenter. 'But this stabilised last year. The last thing companies want is to incur additional costs in producing both online and print reports.'

Brigid McMullen, managing director at The Workroom, agrees with Carpenter but thinks that the outcomes might be different. 'A squeeze on budgets has made clients think more closely about how they use and distribute information. They don't want to be seen as flamboyant but want to clearly express areas of strengths, risks and weaknesses. The serious climate for businesses is reflected in reporting that has a very businesslike tone of voice.' Within that, however, she sees companies increasingly moving from print to online reporting. 'There is the opportunity for cost cutting in the online environment as companies can produce more online content and reduce the need for expensive printed forms,' she says.

Differing views on the relative merits of moving annual reports online may just boil down to different types of company. For a large utility, for example, with hundreds of thousands of stakeholders, there is little doubt that moving to an online format will incur cost benefits. But for a smaller company, the move to online reporting may be more financially onerous. 'Larger companies are really pushing forwards with online reports and it certainly makes sense for those with a technological or digital bent,' says Carpenter. 'For the majority of companies that only have 5,000 to 10,000 shareholders, the rationale isn't as great because you probably won't cut costs in print and you may have to invest more, in fact, to create the online format. I certainly don't see print reports disappearing altogether.'

The advantages of doing it online

There is little doubt, however, that online reporting offers companies distinct advantages, especially in providing a more user-friendly means of communication and easier accessibility. 'Now in all annual reports, there's more data and information than clear messaging,' says Chris North, client partner at Further Creative. 'The worst offenders are those, like financial institutions, that have 500 page reports where you cannot see the wood for the trees. As communicators/designers we seek to address that problem. The online medium helps because the architecture allows you to drill down into information, and it aids clarity.'

This point is perhaps best illustrated by looking at how companies are using the latest online tools to improve the functionality of their reports. SAS, the design and communications agency behind online reports from Logica, J Sainsbury and Land Securities, has demonstrated just how far an online mechanism can enable viewers to access information in a dynamic way. With Sainsbury's, for instance, this included creating an online virtual store with people waiting in the aisles to impart useful information about the company. Videos were also incorporated into the site, including a clip from chief executive Justin King.

Last year SAS produced a 'Programme for Growth' micro-site for Logica, which presented key financial information, as well as communicating changes to the firm's chief executive and business direction, via short films presented by five members of the management team. 'Those that have used the technology well are companies like Logica,' says McMullen from The Workroom. 'They have used the online format as it is meant to be used, with a good mix of simple animated graphics and video links.'

She adds: 'The online environment is a much more immediate, in-depth way of communicating. There will not be such a strong desire to invest in the printing form when you can relatively easily put more content online and make updates more quickly and add more value - for example, including links and comments areas, surveys and forums, chart generators so that you can do your own accounts, or being able to download your own version of the report depending on your areas of interest. These tools - as well as the use of moving graphics and video clips - all help bring reports to life.'

New tools pushing online success

North expects the launch of new online tools will further support the case for online reporting. 'There's more drive for online editing systems that are easy to use and that integrate with multiple outputs - for example, being able to send content to both PDF and online without having to do a redesign. Everyone is after this Holy Grail and it will come sooner rather than later.' Stocks also thinks technology capabilities will push companies towards online reporting mechanisms, particularly in terms of being able to provide shareholders with deep level analysis on the performance of a company by using XBRL data tagging.

XBRL (eXtensible Business Reporting Language) provides a more user-friendly way to share business data, speeding up searches and enabling easier report building and investment analysis. 'What we consider to be the bulk of annual reports will increasingly be delivered through XBRL online,' says Stocks. 'This also means that much more can be reported as it's happening. Companies will be able to get information out there quickly.'

This idea of real-time information enabled by an online environment may change the very nature of annual reporting in the long term. 'I think there will be more of a move to continuous reporting - it ties into quarterly and interim reports, which are already prevalent,' says McMullen. But for those wondering if the standalone annual report is dead, Carpenter adds a note of caution. 'There's a lot of discipline behind the reporting mechanism, with a lot of value put on the process - as well as internal reporting mechanisms - behind delivering it. Continuous reporting is great but the delivery of it is something else altogether.'

It's the message that counts

While online annual reports remain a fairly new phenomenon, there will likely remain some conjecture about the course of their development, reinforced by continuing uncertainty in the economic landscape. But there is resounding agreement that companies need to clearly convey their strategic message. 'There's been a return recently to message-driven reporting,' says Stocks. 'Two years ago the focus was on best practice - just ticking all the right boxes. But now there's a greater understanding that people can overload on information. The message needs to be clear.'

More focus is given to improved governance communication, particularly in terms of how directors are managing risk. Since 2008, for example, the Financial Reporting Council (FRC) has published updated guidance calling on companies to better detail their 'going concern' conclusion.

An FRC paper also identified key questions for audit committees, including assessing the impact of new risks on a business. For many companies this area of risk and governance remains a weakness in the annual report, and one that also translates to poor messaging throughout. 'Banks used to have 60-odd pages on risk but still failed to hit on key details - such as the fact that they were going bust! A key trend now is to not just list risks with boilerplate content, but rather to explain key risks and how a company intends to mitigate them,' says Carpenter.

This far more detailed, analytical approach also carries through to other aspects of the report. Sallie Pilot, director of corporate reporting at Black Sun, has witnessed a shift in content generally. 'In the wake of recession, companies have become much more open and transparent, focusing on growth and detailing areas such as cost-control and debt,' she says. 'They are also concentrating on strategic objectives within their market context, as well as focusing on risk management within that strategy.' In Pilot's view, this  leads to a more integrated communications approach. 'Reports were once very silo - you could tell every section had been written by a different author. But companies are now keen to link everything together.'

Success with these aims will only increase the role for communicators in annual reporting. 'This reporting season will be all about telling the story effectively,' says North. 'It'll be about keeping the message consistent and telling it in a comprehensive and easily accessible manner. Often the communications team handles the front end of the report while the accountants manage the back section. But the trend now is to make sure that both sides are consistent and that everyone is singing off the same hymn sheet.'

The annual report may well move increasingly online. It may well use tools to become increasingly dynamic and no doubt more appealing on the eye. But no matter what the look and feel, the recession has proved without a doubt that it is the underlying message that counts. 

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