This week on Street Talking in NEXT, I discuss the importance of design in encouraging shareholders to actually want to study annual reports, which is indispensable if they are to understand the business environment, strategy and operations of companies enough to hold boards accountable.
Collecting annual reports is my pet passion. For Christmas, my partner gave me the 2009 edition of the Graphis Annual Report, a coffee-table worthy tome of report design, which I had long fantasized over. At my local post office, I have gained some notoriety for receiving cartons of annual reports from all around the world. I enjoy studying the layout, language, typography, colours, photography, illustrations and paper. At home, I have a room stacked to the ceiling with reports. Just looking at them in that rainbow array is as visually satisfying to me as any aficionado’s art collection.
My current favorite is FirstRand of South Africa’s compact height 428-page 2009 report. Its clean design, intuitive text flow, illustrative charts and judicious use of tables are easy on the reader’s eyes, in spite of its endless length. Best of all, its brick size and spiral binding brings back nostalgic memories of an eighties luxury car manual.
With annual reports, I am partial to the view that a book should be judged by its cover. If the cover is not seductive, then it is dead in water. Perhaps it is permissible for smaller companies to print their reports on cheaper paper, but I think it is inexcusable for big institutions which spend tens of millions pushing their brands annually to use poor man’s leaves. It is a false economy to do so and this has nothing to do with protecting forests. Call me opinionated if you will.
But my hobby does not blind me to the fact that these reports are not primarily created for their aesthetic appeal. After all, they are not fashion magazines. Business first, pleasure next. Glossy paper is not always the twin sibling of good copy. Neither does it necessarily translate to clarity about the business. A well prepared report should give the reader an intelligent overview of the company beginning from the position that he knows nothing about it beforehand.
Nevertheless, providing figures on business performance, the operating environment, risk management, strategy, key performance indicators and executive remuneration should not blur the fact that at its core, the annual report is a presentational document with ‘presentational’ being the operative word. The presentation is as important as the content.
A common mistake many Nigerian companies make is the assumption that the financial statements prefaced by non-material updates by the chairman and managing director are the raison d’etre of the annual report. This is nothing further from the truth. The goal of an annual report is to be read and understood.
Sadly, the pattern of these board member preliminaries reinforces such misconceptions. For example, I have always wondered why chairmen of Nigerian companies waste excess ink on the global economy, fiscal and monetary policies and national politics in their Letter to Shareholders. A cursory discussion is sufficient. At the most, three paragraphs. Four pages is conclusive proof of lazy editing, or worse, fluff.
Annual reports are a great opportunity to revive interest in the company’s equity value narrative. Recently, I read a Logica’s 2008 Annual Report which that swept me off of my feet. In the introduction, the company boldly states that its report seeks to answer six basic questions on the back of every shareholder’s mind. First, what makes our company distinctive? Second, what is our strategic plan? Third, how are we executing our plan? Fourth, do we have the right operational and financial resources to succeed? Fifth, do we have the right strategy in the current market conditions? Finally, how are we getting closer to customers?
How can anyone go wrong with such a clearly defined mission?
The poorly designed and worded annual report with tepid language, misleading or cumbersome charts, indifferent cover, cramped text and ugly typefaces will always have its readership with overworked analysts and harried researchers at the Nigerian Stock Exchange’s 23rd floor library. They have no choice. They would crouch over scholarly archeological journals if they had to. The audiences that a report should aim for are those investors who still prefer to read about company performance in a newspaper even though the annual report just came in in the mail.
Report design is consequential because if shareholders are not attracted to read reports, how can they know enough to hold boards accountable? There could be something sinister about all these dreary reports by companies. Might it be that they have substituted the words of an infamous racist slur to one that suits their purposes namely that if you want to hide something from shareholders, put it in the annual report? Only heaven knows.
The original report may be read here on the NEXT website.
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