It's annual report season, and the new spring collection is out. Your report may have all the right information, but does it have style?
Once regarded as dull, stodgy and hard for the average shareholder to understand, the typical annual report today is more attractive, more readable and far more credible than
its more austere predecessor of a few years ago.
According to a survey by the Public Relations Society of America foundation, people making investment decisions trust the annual report more than any other source, including
national business newspapers such as The Wall Street Journal and business magazines such as Forbes and Fortune. On a credibility scale of 1 to 100, annual reports ranked 82,
barely beating business newspapers such as the Journal, which scored 81.
Despite their growing acceptability and increased credibility, are annual reports really read? And how do companies justify the high cost of producing a creative report?
Eric Schellhorn, director of corporate communications for Jack in the Box Inc., recognizes the difficulty in producing an exciting and creative report that's going to be
readily understood.
"Typically, people don't read annual reports. It's not something they take to the beach and read on a hot summer's day," he says. "We try to make ours fun and entertaining to
read. We have a good story to tell too, and that helps: our earnings have gone up the past three years in a row."
Schellhorn says the company holds down production costs by doing 50 percent of the work in-house and outsourcing the rest to a design firm.
"We do it on the lean," he says. "The writing, for instance, is done in-house."
What Jack in the Box doesn't skimp on is style. The San Diego-based company's 1999 report took the form of a comic book, featuring Jack, the restaurant chain's fictitious
founder, drawn in the cartoon style of Dr. Seuss.
Merck & Co.'s 1999 annual report poses yet another example of an unorthodox style, albeit less a departure from the norm than Jack in the Box's. It's laid out more like a
news magazine than a traditional annual report.
"It's deliberately done that way," says Sharyn Bearse, director of corporate communications at Merck's headquarters in Whitehouse Station, N.J. "We asked ourselves, 'How are we
communicating with people? How do people read?' We found 85 percent of readers are influenced by what they see. If the cover is compelling, they'll open it up. If the call-outs,
photos, layout and headlines capture their attention, they'll stop and read it."
Bearse and her team of writers find there are two groups of readers. "There's the finance people who scrutinize everything to the nth degree," she says. "They don't care about
the layout or the cover. Then there's the average shareholder. They're more like you and me. They need help, guideposts along the way. So we formatted the report into a finance
section with detailed data, such as charts and graphs and, for the other group, we made the report more reader-friendly."
Merck produced 2 million copies of its report, of which 1.7 million went to shareholders. The remainder are being used internally to give new hires information about the
company and for recruiting purposes. They're also given out to the financial community, the media, and government officials.
Bearse has no problem justifying the expense involved in producing the report. "The more you know about Merck, the more likely you are to buy our stock and hold on to it," she
says.
Patrick Tuohey of Market and Communications Inc., a research firm in Rockville, Md., that specializes in focus group research for annual reports, agrees with Bearse. If a
report has an attractive cover, a creative layout and eye-catching photos, it's much more likely to be read, he says. Tuohey's chief criticisms of today's reports are that they
are too often written for industry insiders, not for shareowners, and they contain a lot of hype.
"[I/R teams] need to write them for the common man," he says.
(Bearse, Merck, 908/423-1000; Schellhorn, Jack in the Box, 858/571-2121; Tuohey, Market and Communications Inc., 301/962-5660)
By Jim Shevis
Digitize It
New economy shareholders are younger and more Web-savvy, and they're expecting to find annual reports online, according to Shirley Thompson, president of Carl Thompson
Associates, a Louisville, Co.-based I/R firm. On average, annual report print runs have dropped by about 10% over the past two years as Web versions have caught on, she says.
"The beauty of online is that an investor can view not just the annual report, but a full packet of information, including news releases and EDGAR filings. It's more complete than
what they receive in the mail," she says. Online reports can also feature email links directly to corporate executives, and instant feedback forms delivered to the desktops of
I/R staff.
Carl Thompson Associates charges clients roughly $500-$600 to post a pdf version of their annual report online, and $1,000-$3,000 to post an html version (depending on the
number of pages in the report).
(CTA, 800/959-9677)