Shareholders May Be Looking For More From Annual Reports

Should Your Annual Report To Shareholders Do More?

Most publicly traded companies use annual reports to disclose key business information to their shareholders. The reports typically include a letter to shareholders, along with financial data, operations information, new product or service plans, subsidiary activities, and research and development undertakings.

Reporting companies are required to post their annual reports on their websites and send them to shareholders prior to holding annual meetings to elect directors. In addition, companies must provide a more detailed version of their annual report when filing Form 10-K with the Securities and Exchange Commission.

While most annual reports fulfill a company’s compliance obligations, a recent Harvard Business Review article suggests that they should do more.

As author and shareholder Graham Kenny explains:

What we want to know simply isn’t in there. We want assurance that our investments are secure, of course. But more than that, we want to know the health of the companies we’re investing in. We’re looking for a holistic view, just as we are when visiting the doctor for a check-up. And to get that, we need more than the financial equivalents of blood pressure and temperature readings.

With regard to the level of disclosure shareholders should ask for and receive, Kenny suggests that an annual report should show “what the company is doing for and getting from each group of key stakeholders.” In support, he cites a recent study that found increasing stakeholder support enhances the financial valuation of a firm.

So what kind of specific information should companies provide? First, it depends on the nature of the company’s business. For instance, Kenny suggests that he would “really like to know how satisfied franchisees are with factors that matter to them, such as the amount of support they receive from the head office.” Meanwhile, customer-centric business models should provide key information on how the company is measuring customer satisfaction with service, product range, prices, and other similar issues.

Kenny cites Whole Foods Market as an example of a company that is starting to do it right. The grocery chain provides data on voluntary turnover of full-time staff. “Companies are making some progress in their reporting, but we’re still missing those comprehensive scorecards,” Kenny concludes.

For New York and New Jersey businesses, the article serves as an important reminder that the most successful companies often do more than what is required. In the face of mounting compliance obligations, annual reports are an often over-looked opportunity to connect with shareholders and reassure them that you are making the best use of their investment.

Feel free to leave any comments or insights that you may think that shareholders are looking for when it comes to annual reports below.