With the average annual report reaching a (somewhat crazy) 204 pages, investors, regulators and citizens are pushing businesses and governments to get to the point. In a word, they want you to declutter!
This post explores how communications professionals can respond to the demand for more concise disclosure. We explain the trend towards leaner and clearer annual reports, then present a framework to help you achieve this. We also throw in examples of best practice.
Understand the trend toward ‘less is more’
In the past few years there’s been an increased emphasis on plain English and transparency in annual reports. In Australia, we’ve seen this trend championed by regulators such as the Australian Securities and Investments Commission (ASIC) and professional associations including the Australian Institute of Company Directors (AICD). In the UK, the Financial Reporting Council (FRC) has been particularly proactive in speaking out against clutter in annual reports.
To help Australian entities strike a balance between comprehensive and concise disclosure, the Australian Accounting Standards Board (AASB) has amended its standards. The changes (which apply to June 2017 financial statements) encourage those preparing annual reports to use professional judgement to determine relevant disclosures. The AASB’s intention is to help organisations deliver clearer and more meaningful reports that are devoid of superfluous and irrelevant copy. Although the changes apply directly to financial statements, they send a strong message to everyone contributing to annual reports. From this financial year, less is the new more.
Declutter with ‘the 4Rs’
Accounting and advisory firm BDO has published a helpful framework for decluttering financial disclosure. It is built around ‘the 4Rs’ – remove, reorder, re-group and re-emphasise – and can help those preparing annual reports to create more meaningful narratives.
Remove unnecessary information, including redundant, immaterial and duplicated disclosures. Stay focused on this year’s messages if you are basing your narrative on a template or last year’s report since not every category will remain relevant. If you need to provide your stakeholders with access to supporting information, you can cross-reference rather than repeat sections across the report.
In Australia, remuneration reports are particularly long and cluttered. If you have a hand in shaping this section of the report, consider what information can be removed (or perhaps reordered, re-grouped or re-emphasised) for more transparent disclosure.
Reorder to introduce information in order of priority. The overarching structure of your narrative must help communicate your key messages and follow a logical flow for your stakeholders. Within sections, you can also order your arguments to clearly distinguish between facts and professional judgements. Typically, facts are provided after and in support of judgements.
Re-group to keep related information together. Assign a discrete theme to each section and likewise each paragraph or note within that section. For example, if you write a section about business strategy, it should encompass short-, medium- and long-term strategies, and deal with each of these one at a time.
Re-emphasise your most important messages. You can help stakeholders understand your report by using plain English rather than technical language. You can also highlight key information and clarify information that needs a comparison or other qualification, such as year-on-year changes.
Plan for next year
The FRC suggests a proactive approach to tackling clutter in annual reports. This involves using the debriefing sessions at the end of annual reporting season to plan for the following year. The FRC provides a checklist on pages 18–19 of its discussion paper Cutting Clutter to help organisations define their desired outcome for next year’s annual report and how to achieve it.
This checklist prompts annual report preparers to ask themselves questions such as:
- What are the overall objectives for the annual report?
- What is the overall tone of the annual report?
- What are the learning points from the prior year and areas of focus for this year?
The FRC also suggests removing boilerplate information. This includes the words, phrases, notes and numerical placeholders that organisations repeat year after year although they add little or no value.
Take a leaf out of these reports
The best annual reports are simple and concise. They demonstrate an open, willing attitude to presenting facts and are sensitive and responsive to stakeholders’ concerns.
Below are excerpts from several recent annual reports that exhibit the above attributes to effectively communicate financial and business information to relevant stakeholders.
Australian Broadcasting Corporation
The ABC’s FY16 annual report won an Australasian Reporting Awards (ARA) Gold Award. It is a good example of a transparent and uncluttered report. This is facilitated by a clear structure, use of plain English and a keen understanding of what information is meaningful to the ABC’s stakeholders. The excerpt below from ‘The Year Ahead’ exhibits all three of these qualities.
“This section of last year’s Annual Report documented the challenges confronting the Corporation: the emergence of new platforms and aggressive new media players; the abrupt shift in power from the producers of content to the consumers; the instant availability of news and entertainment from anywhere in the world; the ever-increasing demand for seamless audience experiences.If anything, the disruptive impact of convergence has increased. An influential survey published in the Harvard Business Review this year highlighted that 72% of global media executives expected moderate to massive digital disruption over the next 12 months. That means adaptation and an overriding concern for audience interests …
Mobile platforms and social media are becoming increasingly popular ways of accessing ABC services. The focus over the next 12 months and beyond will be on ensuring adequate investment in these areas and the use of collaboration, creativity and digital dexterity across all Divisions to ensure that our programming is rich, multi-dimensional and fully accessible. And, as the BBC so colourfully put it, to maintain the dexterity required to ride two horses at once as we serve both traditional and new audiences.”
Lendlease Group’s FY16 annual report is an excellent example of a well-structured interactive report that clearly articulates how the company creates value for its stakeholders. The following excerpt from the ‘Chairman’s Report’ uses active language and relevant, comparative statistics to provide a meaningful description of this year’s performance.
“Lendlease delivered a solid performance for the financial year ended 30 June 2016, with Profit after Tax of $698.2 million, up from $618.6 million in the financial year ended 30 June 2015. The Development segment was the clear standout with residential and commercial development performing strongly.
Securityholders will receive a final distribution of 30.0 cents per security, taking the full year distribution to 60.0 cents per security. The payout ratio for the year was 50 per cent, within the Board’s target range of 40 to 60 per cent of earnings.Lendlease enters FY17 in a very strong financial position. As at 30 June 2016, we had cash and cash equivalents of $1,008.4 million, gearing of 6.5 per cent and undrawn capacity of $2,172.6 million. The resilience of the Lendlease balance sheet, including high levels of liquidity, combined with access to third party capital, provides the financial flexibility to fund our development pipeline and capitalise on potential growth opportunities.”
Woodside Petroleum Limited
Woodside’s FY16 annual report also won an ARA Gold Award. This report contains some good examples of how to communicate some of the drier aspects of company performance. Because risk is inherent to its business model, Woodside includes a comprehensive section titled ‘Risk under the Operating and Financial Review’. The following excerpt is an example of transparent and compliant disclosure that links the topic (risk) to meaningful outcomes for stakeholders (results and operations).
“Woodside’s risk management process focuses on reducing threats that may have an adverse impact on results and operations, and on enhancing opportunities across the value chain. It sets out clearly defined criteria to evaluate and report on material risk across our organisation. We systematically assess the consequence of risk in areas such as health and safety, environment, finance, reputation and brand, legal and compliance, and social and cultural impacts. Our process is aligned to ISO 31000, the international standard for risk management.”
Editor Group provides expert writing, editing and proofreading services to help organisations produce high-quality annual reports. If you would like to discuss your next annual report contact us here.