| Creating and managing
brand value Interbrand
Look Both Ways
A vision of the future rooted in an analysis
of the past can help rebuild confidence.
A SPECIAL REPORT
June 2003
www.interbrand.com
Look Both Ways in Your
Annual Report
Interbrand
Investor relations officers and corporate communications
directors in Canada and the United States have
had a couple of rough years. New accounting regulations,
intense media scrutiny, expanded MD&A disclosures,
the Sarbanes-Oxley Act – for many companies,
it’s enough to turn what may have been forward-looking
communication into exhaustive navel-gazing.
That’s an understandable reaction. When demand for
greater transparency bumps up against shrinking
budgets for the annual report, the pages that get cut
more often than not are those that provide the reader
with context and insight into the corporation’s business
strategy. And with the growing regulatory
requirements for board oversight of financial communications,
it’s easier to get a sign-off on mandated
MD&A disclosures than it is for more visionary statements.
That’s a pragmatic approach to preparing the annual
report, but it misses a fundamental truth about investor
perceptions. While detailed analysis of past results is
crucial to understanding your company, investment
decisions are made on the expectation of future performance.
Investors need a view of the prospects for
your business, as well as its past successes, in order
to invest, or stay invested, with confidence. The same
can be said of other audiences for the annual report –
employees, suppliers, partners, bankers, regulators –
each of which has an investment in your business in
one form or another.
Despite the need for a meaningful forward view, many
public companies insist on “walking backwards into
the future,” as Marshall McLuhan famously put it. We
think this rear-view-mirror approach limits understanding.
More concerning, it may also limit the renewal of
trust and confidence in the post-Enron, post-bubble
world in which we live. Still, many CEOs and CFOs
have concerns about using the annual report to
expand the messaging of their investor and corporate
communications programs. Let’s deal with three of
those concerns here.
1. Our CEO and IRO do a good job of telling
our story throughout the year.
PowerPoint presentations, conference calls and
Webcasts are effective communication tools in the
hands of most corporate executives. While presentations
and Webcasts can be very useful in providing a
broader context for investor understanding, they are
targeted primarily to investment analysts and fund
managers. A wide variety of other important audiences
may not have access to the proceedings, let alone the
knowledge required to decipher messages intended for
sophisticated professionals. A fully developed annual
report can present your story completely to all audiences
and allow the reader time to reflect on its messages
about your business context and strategic positioning.
2. We put our forward-looking analysis in the
MD&A.
The MD&A is a legal document requiring precision of
language and intent. Unfortunately, the requirement of
precision usually casts a chill over the quality of discussion,
despite the Canadian Institute of Chartered
Accountants’ guiding principle that the MD&A should
focus on management’s strategy for generating value
for investors over time. In practice, “over time” typically
means over 12 months, not the three to five years during
which corporate strategies typically unfold. Our
view is that corporations should encourage investors to
focus on the long term by providing a section in the
annual report that deals with the business context,
management’s vision of market opportunities and its
strategies for enhancing competitiveness. This section
– not necessarily an operational review – should marry
compelling messaging to attractive design to create a
clear vision of the future. In our experience, such quality
of prospective discussion in attractive graphic presentation
falls well outside all but the most innovative
MD&As.
3. Our printed report consists of the Letter
and the MD&A. Everything else can go on
the Website.
Thanks to Regulation Fair Disclosure, timeliness is next
to godliness in corporate disclosure, and it’s impossible
to beat the Net for fast, fair communication. In the
best of all worlds, we would have instant dissemination,
and receipt, of all material information to all interested
investors. But the fact is we live in a multi-channel
world of communications. Some – especially
Bev W. Tudhope
Co-CEO, Toronto
Interbrand
Despite the need for a
meaningful forward view,
many public companies
insist on “walking backwards
into the future,” as Marshall
McLuhan famously put it.
Look Both Ways in Your
Annual Report
Interbrand
investment professionals – value the immediacy and
scope of what’s available on-line. But many investors
seem to have little inclination to sit hunched over
their computers in order to scroll through a lengthy,
though important, discussion. Increasingly, people go
to the Web to get exactly the information they need.
In a recent analysis of its Website metrics, for example,
Verizon found that 75 percent of visitors accessed
the site for current news, stock prices, financial analysis
or regulatory filings. Just 16 percent looked at the
quarterly and annual reports or corporate profile, typically
the source for forward-looking perspective.
What’s going on here? We believe it’s basically
human nature. When we consider the “have-to know”
immediacy of press releases and earnings reports,
investors seek out the most efficient form of communication,
like corporate Web sites, the on-line editions of
major news organizations or the nightly T V business
report. But for most investors, longer-term decisions
to buy or retain your company’s stock take reflection
on past results and future prospects. That kind of consideration
is more likely to take place in the comfort
of a favourite armchair than it is in front of a computer
monitor. Ask yourself: when faced with reading a long
document on-line, do you read it on the screen or do
you send it to the printer? Answering the “why” of that
question may give you an insight into the use of your
IR Website. It may also tell you why the printed
annual report, after an initial rush to the Web, is
beginning to reassert its dominance as a corporate
communications medium.
Whatever its goals in providing transparency of reporting,
the annual report, like most corporate communications,
is intended to influence the perception of readers.
In our experience, there is value in the annual discipline
of identifying and shaping messages about the
business context, its evolution, and the corporate strategy
designed to create value from change. It is not
critical that the annual report leads or responds to the
overall communication objectives of your company.
More important is the opportunity to speak in a compelling
manner to a wide variety of audiences, and to
do so with a document that in many cases is the only
complete picture of the business.
The effectiveness of the forward look in the annual
report is limited only by the creativity of those charged
with the messaging – and those charged with approving
it. While we are advocates of a balanced view in
the Letter to Shareholders, we don’t believe it is the
place to discuss, for example, industry conditions of
individual business segments. The Letter should offer
the high-level view of the future as seen from the
CEO’s perspective. But many audiences will require a
deeper understanding of your business context and
prospects before taking action. That demands a layered
approach to the communication and a set of reinforcing
messages that are woven throughout the
entire document.
The first task of your communications team, then, is to
decide on the messaging for your annual report, with
an emphasis on the impressions you want to leave in
the minds of readers. As communications professionals,
you are well aware of required disclosures. But is
the communication of those disclosures sufficient, and
sufficiently interesting, to promote the impression you
would like to leave? Or more specifically, to present
compelling reasons for buying or retaining your company’s
stock? If you have questions about how well
you’re communicating with this important and costly
document, there are some ways we think the messaging
in your annual report can be enhanced.
The Look Back
An understandable reaction to the call for farreaching
disclosures in Management’s Discussion and Analysis
has been to make this section of the annual report
appear more sober and legalistic. Our view is that
clarity and impact do not have to be sacrificed for
accuracy. All three can cohabit very effectively in your
report – as they do in recent reports by Canadian Tire
and George Weston – to present a compelling set of
messages to readers. Some ideas for improved communication
in the MD&A include
• Using a detailed table of contents or, if appropriate,
an annotated table of contents.
• Delineating sections clearly, with an easily
recognizable hierarchy of information.
• Using headers and subheads – possibly as
qualitative statements on results or financial
condition – to break up long narratives.
• Employing bullet points where appropriate for
easier, quicker reading.
• Adding depth and interest by including
operational imagery, management commentary and/
or profiles.
Whatever its goals in providing
transparency of reporting, the
annual report, like most corporate
communications, is intended
to influence the perception
of readers.
Look Both Ways in Your
Annual Report
Interbrand
• Presenting information graphically where
appropriate, using the narrative to discuss the |
implications of year-over-year changes.
• Considering call-outs to reinforce key messages and
add visual interest.
The Look Forward
Because readers should have some context for strategy,
the theme section or operations review of the
annual report is typically a look back as well as a look
forward. (In the “look back,” it’s important to keep
focused on high-level messaging in order to avoid
redundancy with MD&A content.) The thematic section
of IBM’s 2002 report is an outstanding example of
communicating future strategy in the context of past
accomplishments.
Here are some tips on using this section of the annual
report to convey your company’s story with clarity and
impact:
• Identify a theme that will both focus the messaging
and act as an organizing principle for the content.
• Package the story in a clear and accessible way for
two kinds of readers – those who scan and those
who read in depth.
• Use proven design techniques such as type design,
headlines, call-outs and imagery that reinforce the
key messages and theme you’re intending to
communicate. • Keep the messaging as high-level
as is appropriate to your company and industry.
A balanced, accurate and compelling view of both the
past and future for your company should be a key
objective of any corporate communications or investor
relations program. A thoughtfully designed annual
report is still your most effective medium for communicating
that view to the greatest number of stakeholder
audiences.
Bev Tudhope is Co-Chief Executive of Interbrand’s
Toronto office.
Identify a theme that will both
focus the messaging and act as
an organizing principle for the
content.
Creating and managing
brand value Interbrand
Founded in 1974, Interbrand serves the world with
34 offices in 22 countries. Working in close partnership
with our clients we combine the rigorous strategy and
analysis of brand consulting with world-class design
and creativity.
We offer a range of services including research, strategy,
naming and verbal identity, corporate identity, package
design, retail design, internal brand communications,
corporate reporting, digital branding tools, integrated
marketing services, and brand valuation.
We enable our clients to achieve greater success by
helping them to create and manage brand value.
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