ANNUAL REPORTS : From Gloss to Toss - the End of an Era; Running to over 200 Pages and Often More Akin to a Coffee Table Book Than a Company's Medical Certificate, the Annual Report, Thanks to Law Changes, Is Now a Cyber Shadow of Its Former Self. How Does This Impact on Company-Shareholder Communications?
Byline: Ellen Read
* Changes to the Companies Act 1993 mean shareholders now 'opt in' for annual reports.
* Very few reports are now printed.
* Companies need new ways to convey meaningful messages to shareholders.
Changes made last year to the Companies Act 1993 mean shareholders must now 'opt in' to receive printed copies of a company's annual report. Previous legislation enabled them to 'opt out' if desired. Companies still produce annual reports but they are now posted electronically on the internet and/or mailed to shareholders who request hard copies.
The move has been welcomed in most quarters. Companies are applauding the reduction in compliance bureaucracy and costs, while legal and financial services firms are promoting the cost-saving potential of the new regulations.
While the traditional annual report is a compliance document - it also has to do the job of brand building, communicating competitive differences and appealing to people's emotions. So new communications challenges have arisen and, several months into the new regime, companies are developing different strategies to convey meaningful messages to their shareholders.
John Blair is company secretary and general counsel for Air New Zealand, as well as being the deputy chair of the Listed Companies Association (a voluntary organisation which acts as a lobby group and sets best practice).
He welcomes the law changes in both his roles. The LCA was instrumental in getting the Companies Act changed because, as Blair explains, with the growing use of electronic communications (email, internet) annual reports quickly became outdated. Add to this the fact they can cost a large organisation half a million dollars, and the transformation to electronic delivery makes good sense.
Blair notes that due to continuous disclosure requirements, shareholders are more regularly updated and informed of any changes in company activities and/or forecasts, so he brushes off suggestions the new delivery options downgrade the information available to investors.
"The recent change to the opt-in legislation has been a very positive - if somewhat overdue - improvement on shareholder communications. There was plenty of evidence suggesting that most annual reports sent to retail shareholders went straight in the bin. The opt-in process ensures that only those who really want the detail in hard copy receive it that way and that the web version is there for all to view, whether someone is a shareholder or not.
"I think this does sound the death knell of annual reports as we know them. Few shareholders are really interested in the huge amount of detail now inflicted on them by legal compliance and accounting rules," Blair said.
That aside, he believes that many companies are still looking for opportunities to produce, periodically, a meaningful precis of the progress being made by the business, the challenges ahead and the issues of the day for distribution to shareholders and other important stakeholders.
In Air New Zealand's case, this now takes the form of a high-level interim review and magazine style annual review, both designed to provide an interesting and informative perspective of key issues with only financial highlights. Blair says both have been well received by shareholders and also provide a way for keeping other stakeholders, including staff, informed of developments occurring within the company.
From previously printing and posting around 30,000 extensive annual reports, Air New Zealand now posts out the shorter annual review document. It had requests for fewer than 200 hard copies of the detailed financial publication - and that number included media and analysts.
Kensington Swan partner Chris Parke explains that the changes to annual report requirements were introduced as part of a wider series of business law amendments, which were aimed at producing clearer and more efficient law, and by doing so, reducing company compliance costs. …