NERVOUSLY REINVENTING THE CORPORATE ANNUAL REPORT
by Leslie Segal, Principal
Warren Buffet, chairman of Berkshire Hathaway, is the undisputed king of annual report letter writers. His clear, direct remarks are quoted consistently as the ultimate definition of responsible corporate behavior.
Indeed, many executives who applaud these words of wisdom seem to have no compunction about doing just the opposite. They send out a voluminous Form 10-K annual report that is anything but direct. Written in boilerplate corporate language that has been amended by generations of corporate lawyers, the document bombards shareholders with far more information than the SEC mandates. Ironically, the few Wall Street professionals who might want to see information of this kind have probably seen it, via the Web, many days before publication. So why go to the expense of printing and distributing a dense document that serves no discernible purpose?
One big reason is the Sarbanes-Oxley Act. There is nervousness and confusion in corporate circles about disclosure and the requirements of the Act. With the threat of criminal prosecution hanging over them like the sword of Damocles, some chief executives might be forgiven for resorting to a "send them everything" response. But we should not overlook the major reason why the Sarbanes-Oxley Act was drafted in the first place. It was not to arrest CEOs, but to help restore the shattered trust of the investing public in corporate America. For those CEOs who want to be true to the spirit of Warren Buffet within the requirements of the Sarbanes-Oxley Act, there are four questions that must be answered -- questions that address the concerns of virtually every annual report reader, from shareholders and employees to business partners and bankers. They are:
Among the current crop of annual reports, there are notable examples of companies that successfully address at least one of these questions. Playtex, for example, plays to its strengths well by graphically highlighting its number one and two positions in virtually all of its chosen markets. The McGraw-Hill Companies talk of their vital and ongoing importance to the individuals, markets and societies they serve.
Microsoft, Entergy and IBM discuss long-term strategy effectively. In an era in which the term "lack of visibility" has become part of the corporate lexicon, it is heartening to find companies that know where they are going. Quality of management, probably the most important factor in making investment decisions, is the hardest to illustrate well. ITT Industries focuses on its leadership development program, one of three core values in its commitment to excellence. GATX Corporation features an illuminating and candid Q&A session with top management.
Different companies with different approaches. But all celebrate a fundamental desire to practice what Warren Buffet preaches -- direct communication in plain English. It's enough to warm at least one investor's heart.
Contact us for more information
Warren Buffet, chairman of Berkshire Hathaway, is the undisputed king of annual report letter writers. His clear, direct remarks are quoted consistently as the ultimate definition of responsible corporate behavior.
Indeed, many executives who applaud these words of wisdom seem to have no compunction about doing just the opposite. They send out a voluminous Form 10-K annual report that is anything but direct. Written in boilerplate corporate language that has been amended by generations of corporate lawyers, the document bombards shareholders with far more information than the SEC mandates. Ironically, the few Wall Street professionals who might want to see information of this kind have probably seen it, via the Web, many days before publication. So why go to the expense of printing and distributing a dense document that serves no discernible purpose?
One big reason is the Sarbanes-Oxley Act. There is nervousness and confusion in corporate circles about disclosure and the requirements of the Act. With the threat of criminal prosecution hanging over them like the sword of Damocles, some chief executives might be forgiven for resorting to a "send them everything" response. But we should not overlook the major reason why the Sarbanes-Oxley Act was drafted in the first place. It was not to arrest CEOs, but to help restore the shattered trust of the investing public in corporate America. For those CEOs who want to be true to the spirit of Warren Buffet within the requirements of the Sarbanes-Oxley Act, there are four questions that must be answered -- questions that address the concerns of virtually every annual report reader, from shareholders and employees to business partners and bankers. They are:
- What are the strengths that will enable the company to grow and prosper (or survive)?
- What is the strategy to take advantage of those strengths?
- What is the quality of management? In whose hands are wallets, careers or future reputations being placed?
- How can CEOs explain in the most direct way possible, using plain English?
Among the current crop of annual reports, there are notable examples of companies that successfully address at least one of these questions. Playtex, for example, plays to its strengths well by graphically highlighting its number one and two positions in virtually all of its chosen markets. The McGraw-Hill Companies talk of their vital and ongoing importance to the individuals, markets and societies they serve.
Microsoft, Entergy and IBM discuss long-term strategy effectively. In an era in which the term "lack of visibility" has become part of the corporate lexicon, it is heartening to find companies that know where they are going. Quality of management, probably the most important factor in making investment decisions, is the hardest to illustrate well. ITT Industries focuses on its leadership development program, one of three core values in its commitment to excellence. GATX Corporation features an illuminating and candid Q&A session with top management.
Different companies with different approaches. But all celebrate a fundamental desire to practice what Warren Buffet preaches -- direct communication in plain English. It's enough to warm at least one investor's heart.
Contact us for more information
