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2011 trends in corporate reporting

A cost-effective and relevant corporate reporting model remains fundamental to the health of capital markets and the societies in which they operate. There are diverse views on the purpose of creating a report, who it is for, and what it is trying to achieve. With the changes in technology and reporting requirements of the past few years, as well as the increasing diversity of stakeholders and the information they seek, companies of all shapes and sizes are re-evaluating what they publish, and how. This paper will look at the four major trends we identified as we analysed the Fortune 200 reports for 2010 and assessed a large sampling from smaller companies. Overall, the trends are clear: reporting is moving online, but print is still a vital component. There is a continuing increase in companies issuing responsibility reports, and integrated reporting is also gaining momentum.

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by Michelle Marks

Executive Summary A review of Fortune 200 and other leading companies reveals distinct trends in corporate reporting. The move online is accelerating and expanding. Print remains vital, albeit in smaller print runs and often in conjunction with increasingly robust online reports. More companies are issuing responsibility reports. And, integrated reporting has taken a significant step forward, following the example of a number of industry leaders. About the Author Michelle Marks is a founding Principal of the New York City-based design firm, Ideas On Purpose, and has worked on the design and strategy of corporate reports for nearly 20 years.

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1. The move online, and expanding the online report Online reporting1 is still quite new for most companies, and is being defined and redefined rapidly and in many directions at once. New rules have mandated the posting of reporting information online. Communications and IR teams are still figuring out what works best for their companies and stakeholders, given their time, resources and communication needs. The online realm presents a host of challenges—and opportunities—that many corporate teams have little to no experience with. People familiar with print design are discovering that good online design requires its own distinct, and often very different, approach. Presenting the required information online in the right way—with desired impact as well as according to the dictates of the SEC for plainspoken, clear reporting—is an entirely new challenge. Another challenge is that often senior management are still print-oriented and not used to reviewing online materials. And then there is the challenge that every business has reason to take on: telling the story of the business and its progress, challenges and accomplishments in a compelling way, in this dynamic, rich medium in which attention is hard to hold. Companies large and small are embracing the web (see Coca-Cola, Stanley Black & Decker, Kellogg, MF Global and Walmart). 25% of the Fortune 200 created an interactive piece to accompany or augment their 2010 printed Annual Report or Review. Leaders are creating original video content, or posting expanded detail on topics to satisfy all their stakeholders. According to a recent article in Inside Investor Relations, 60% of retail investor accounts in the US (amounting to 90 million accounts) now get either a notice by mail or an electronic delivery of proxy materials instead of a full package by mail.2 But, the dirty secret of a web-driven approach is that you need to drive people there. Leading companies devise a distribution strategy, using a print piece, email, social media, or some combination to get stakeholders to their online content. Many public companies have found that they still need to print something to meet their communication objectives, while also needing to build the capacity to do online reporting well. As a result, the hoped-for windfall in cost savings from taking the report online does not always materialize.

25% of the Fortune 200 created an interactive site

Stanley Black & Decker created a 10-K wrap Annual Report plus an online Year-in-Review with extended content and rich media.

The PDF. Most companies creating a printed report convert it to a PDF and post the PDF online. (That alone does not make it an “online report” in the sense that we are referring to here.) Many employ PDF viewers provided with their IR packages from Thompson Reuters, Broadridge and others. The benefits of these viewers are lost on us, other than avoiding a download and the use of Acrobat, a free, near universal application. The much compromised user experience and lost communication opportunity do not seem worth the trade. The PDF 2.0. The interactive PDF has arrived. This approach is more popular in Responsibility Reports to date (see Intel and Covanta Energy). This hybrid, web-enabled, printable document is usually formatted as a horizontal 8½" x 11" piece. Although it typically includes simple navigation, it lacks the functionality of a true website so users cannot easily share in social media or link to specific information. While an improvement on the standard PDF, its utility is limited and it ignores much of the power of the online environment to engage the user and customize his or her experience.

Kellogg Company translated its 10-K into a fully navigable, searchable web tool. As yet, this is a rarity for US companies.

1 For the purposes of this paper an “online report” is defined as web-native pages/module or micro-site. This does not include PDFs and PDF viewers, which are merely digital presentations of materials designed for print. 2 Inside Investor Relations, “Directions for annual reports” by Neil Stewart, June 14, 2011.

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2. The redefinition of the print piece Everyone knows the financials are old news by the time they reach print. But the Annual is far more than numbers, now more than ever. Most companies like the control that print gives them, and in this new web-supported era, they continue to find intriguing ways to use print. Print runs are shrinking, but print persists. Print is by far the most popular method of communicating, and remains a powerful medium. On a table or desk, on a shelf, or coming out of an envelope or briefcase, it captures attention and intrigues in entirely different ways than on screen. The 10-K wrap. Our analysis of the Fortune 200 and the research of groups like the National Investor Relations Institute (NIRI) confirm that many companies, including some of the largest, have gone to the 10-K wrap. The wrap is typically a presentation of the letter to shareholders and sometimes other strategic messaging, attached to the required 10-K. Companies such as MF Global, Moody’s and ConEdison create a more cohesive experience by applying a design sensibility to the 10-K itself, so that it marries nicely to the narrative wrap.

2011 Annual Report

MF Global and ConEdison create a more cohesive experience by applying a design sensibility to the 10-K itself.

With “Notice and Access” even the 10-K wrap may start to wane. The upside is well known: public companies can now save considerably and serve their shareholders by reporting business performance online.3 As a result, printing and mailing costs are a fraction of what they used to be. Companies that used to print and mail literally millions of Annual Reports are now printing just tens of thousands and sending them primarily to those that ask. But there is a downside. Many companies are having an even harder time connecting with shareholders. Proxy voting fell steeply in the first year of “Notice and Access” and has recovered only slightly since. Just 5% of individual retail investors voted their proxies in 2010, down from recent levels of 20-25%.4 Retail investors generally tend to vote with management; as their participation drops, the voice of activist and dissident investors grows stronger. The summary report/review. The ability to separate the narrative from the detailed financials creates numerous possibilities to connect with investors and other stakeholders. The summary AR approach is especially useful for large companies that generally do not communicate widely about broad corporate strategies in a holistic way (save for the corporate web site). This document tends to be used across many stakeholder audiences, including employees and recruits, and is less bulky than the 10-K wrap. Companies creating summary reports include ConocoPhillips, United Health Group and Chubb. Not widely used (14 in the Fortune 200 and 10% in the NIRI study), this approach may grow in popularity given the flexibility it offers. More and more we see this redefinition of the printed piece in conjunction with an online report, often titled Year in Review or something similar in order to avoid the requirements of a strictly duplicated piece. Companies creating summary reports and accompanying sites include Coca-Cola, The Southern Company and Exelon, while Stanley Black & Decker created a 10-K wrap and an extensive Year in Review web site. Print is still very much alive, with the largest number of companies choosing either the summary or the 10-K wrap approach. It is clear that having a print piece that you can drop on a desk, mail and hand out at a meeting still has value.

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2010 Annual Review

AdvAncing ouR globAl MoMentuM

Companies creating summary reports and accompanying sites include Coca-Cola and The Southern Company.

3 The SEC’s e-proxy rule, requiring all filers to post their proxy materials online, went into effect on January 1, 2009. 4 Broadridge press release, “Broadridge Financial Solutions, Inc. CEO Calls for Nationwide Effort to Increase Individual Shareholder Voting,” March 29, 2011.

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3. Responsibility reporting It goes by many names—Sustainability; Corporate Social Responsibility (CSR); Citizenship; Environmental, Social and Governance (ESG); and many others—but no matter what you call it, responsibility reporting is clearly on the rise. In the recent CEO survey conducted jointly by the UN Global Compact and Accenture, an overwhelming majority of corporate CEOs—93%—say that sustainability will be critical to the future success of their companies. This viewpoint is translating into a distinct trend toward a commitment to reporting on sustainability.5 There has been a substantial shift over the past few years. The subject of corporate responsibility is no longer seen as a vehicle for philanthropy and PR. It is now seen as a material issue, a proxy for the quality of the company and an important driver of brand value. Requests to companies for Environmental, Social and Governance data have almost caught up to the number of requests for financial and strategic issues.6 Many companies see it as tied to both revenue growth and competitive advantage—in the marketplace, in hiring and in retention. But, for others, it is not yet clear how the issues affect the core business or its ability to create financial value.

93% of corporate CEOs say that sustainability will be critical to the future success of their companies.5

In our research we found that 86 of the Fortune 200 created separate Responsibility Reports, with 40 of those using the GRI reporting framework.7 Of the approximately 45,000 publicly held companies worldwide, only about 2,000-3,000 have produced some form of CSR report.8 Leaders are using the web to its full advantage, creating robust sites that support corporate strategies and goals. Some excellent examples include SAP, Nike, Starbucks and GE. It is fairly standard now to include some responsibility content in a traditional Annual Report or Review. Socially responsible investing is still a niche strategy, but a growing one. According to the Social Investment Forum, 12.2% of the $25.2 trillion in total assets under management tracked by Thomson Reuters Nelson, is involved in some strategy of socially responsible investing. Pension funds (such as CALPERS, TIAA-CREF and Parnassus) are active, influential and increasingly interested in these issues. This is further support for wider adoption of responsibility reporting, either as a standalone piece or within an Integrated Report.

“P fizer has a truly dynamic stakeholder environment. The issues of access to medicines, pricing, clinical trials, transparency, marketing, our pipeline— are material issues for a wide range of stakeholders. The online environment is perfect for presenting our view on these vital issues.” – Jenny Flezzani Senior Manager, Corporate Responsibility Pfizer

Leaders are using the web to its full advantage, creating robust sites that support corporate strategies and goals. Some excellent examples include Nike and Starbucks.

5 A New Era of Sustainability: UN Global Compact-Accenture CEO Study 2010. 6 “The State of Engagement Between US Corporations & Shareholders” – Institutional Shareholder Services (ISS) for the Investor Responsibility Research Institute (2011). 7 The Global Reporting Initiative (GRI) is a multistakeholder governed institution collaborating to provide global standards in sustainability reporting. The Reporting Framework sets out the principles and Performance Indicators that organizations can use to measure and report their economic, environmental and social performance. More at 8 Driving ESG Reporting Progress Through Dialogue – Report, NAEM.

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4. Integrated reporting The culmination of all these trends brings us to the emerging Integrated Report, combining required financial reporting with responsibility reporting. Full integration, as promoted by the new International Integrated Reporting Committee (IIRC), is still rare in the US, but that is changing. Outside of North America, the “triple bottom line” approach is becoming more common and is even mandated in South Africa. A few leading US-based corporations are moving in this direction, while for many acknowledged global leaders such as Novo Nordisk, Natura, Phillips and United Technologies, this is already their standard practice. The Integrated Report is still a leading edge idea, gaining some traction but not mainstream yet. We expect that to change. 2010 was a significant year for integrated reporting, as several more leading companies adopted and refined the approach. Pfizer’s 2010 Annual Review is an Integrated Report, consisting of a highlights piece in print and a robust website. Tyco International created a combined report both in print and online, but financial and non-financial information are segregated. Southwest Airlines issued its second Integrated Report for 2010. Other early adopters include American Electric Power, KKR and Vancity.

Southwest Airlines issued its second Integrated Report for 2010.

“Integrated reporting is still in its early stages, just what it means to issue an Integrated Report is not yet well defined… Approximately 270 companies using the Global Reporting Initiative’s G3 Guidelines are self-declared integrated reporters.” – Leading and Lagging Countries in Contributing to a Sustainable Society Robert G. Eccles and George Serafeim The reasons for going to an Integrated Report vary, from simply saving money to a core belief in the interdependence of sustainability with economic value/ profitability. There is a spectrum of reasons and levels of reporting. According to some leading observers, reporting on both financial and non-financial performance to all stakeholders can shine a spotlight on an organization’s commitment to sustainability and thereby improve its long-term performance, especially in regard to reputational risk. In the book One Report, its Harvard Business School authors identify four major benefits of an integrated approach: 1. Greater Clarity about Relationships and Commitments; 2. Better Decisions; 3. Deeper Engagement with all Stakeholders; and, 4. Lower Reputational Risk.9 This book is part of a groundswell, both in and out of the corporate sphere, that we expect will lead to greater numbers of Integrated Reports in the near future. Since an overwhelming percentage of CEOs believe sustainability is business critical, or will be soon, it seems likely that sophisticated reporting on sustainability will follow suit. The lack of a single global standard may keep this trend relatively slow growing, but the IIRC and others are working on that, and many of the leading companies in the world are showing the way.

Pfizer’s 2010 Annual Review is an Integrated Report, consisting of a highlights piece in print and a robust website.

“Our summary print integrated report fulfills a number of roles, from investor relations to governmental relations to recruiting. We designed the piece to be adaptable to local markets. And everywhere, it’s driving people to our website, for the full story.” – John Santoro VP, Executive Communications Pfizer

9 One Report, Robert Eccles and Michael Krzus.

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Looking at the spectrum of reporting, one can draw many conclusions but no one right answer. There are many ways of doing year-end reports, and all of them are legitimate. Corporate communicators and investor relations leaders need to determine what kind of reporting, in what mix of media, serves their company and stakeholders best. Even with all these changes and additional media to consider, annual reporting remains a communication opportunity that can be made more powerful and more useful with the right attention to how one frames and sets the terms for the ongoing, necessary conversation with shareholders.

This report features the work Ideas On Purpose created for several of our clients: Kellogg’s, MF Global, Pfizer, Stanley Black & Decker, and Tyco International. It also features other good examples that we did not create. All examples are hyperlinked for your convenience.

No matter the approach or vehicle, the key remains a consistent story and presentation. Delivering a single, coherent message to all stakeholders improves disclosure and transparency, and gives stakeholders of all stripes reason to invest in your company and brand. The Annual Report or Review— in print, online or both—remains a potent vehicle for a company to tell its story, clarify its point of view and purpose, and engage all key stakeholders in a meaningful way.

Ideas On Purpose applies strategic thinking and storytelling across the spectrum of communications design to build brands, change perceptions and enhance reputations. Essentially, we build brands and the vehicles through which they are expressed: corporate reports, stakeholder communications, marketing materials, visual identity systems and websites.

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