By Dominic Jones | Published: June 3, 2008 | 
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Reflections on 2008 annual report season
THE online annual reporting period in Europe and North America is drawing to a close — and except for an elite group of forward-thinking companies it has been a disappointing season.
This was the first year where many companies had the option of delivering their reports on the web as the default option. This was also the first year that all large US companies were required to post their annual reports and proxy statements online in formats “convenient” for both onscreen reading and for printing.
Consequently, we expected that many more companies would make long-overdue investments to improve the usability and interactivity of their reports. But that did not happen. Not by a long shot.
Despite the US Securities and Exchange Commission (SEC) explicitly requiring usable documents, our reviews have found that almost 90% of companies chose formats that do not live up to the spirit of the rules.
Ironically, in the United Kingdom where the Companies Act is silent on the usability of online annual reports, more big companies provided full HTML reports this year compared to last year — 46% versus 32%, according to a survey by design firm Radley Yeldar.
Image-based documents back with a vengeance in US
There appears to be widespread ignorance about what constitutes an effective format for online annual reports and proxy statements. Most US firms that took advantage of default electronic delivery posted their online reports in large, poorly-formatted PDFs and hard-to-use image-based formats purchased from big vendors who obviously know little about effective online communications.
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| Image-based annual reports like this one from Broadridge’s supplier EZ Online Documents have poor usability and should not be permitted by regulators. |
That image-based documents should be so dominant this year is surprising given that the usability problems with these formats have been well-documented since 2003 when IR Web Report and Jakob Nielsen, the world’s leading web usability expert, first started explaining why companies should avoid using these document formats for their annual reports.
The problems with image-based documents include:
- Hard-to-use navigation;
- Fuzzy text;
- Inability for analysts, investors and journalists to reuse content: and,
- Inconsistent usability conventions across vendors.
In many ways, image-based reports are less usable even that bulky PDF files. Companies are being grossly overcharged for these unusable online documents because they are unaware that the conversion process is largely automated. The fact is, similar or better conversions are available free of charge in as little as 5 minutes to anyone who knows how to open a file on a computer and copy and paste a snippet of code into a webpage.
Vendor-fueled confusion around SEC’s requirements
The main culprit for the resurgence of image-based documents is confusion about the SEC’s requirements for online formats and websites hosting proxy materials. The SEC’s ambiguous language in the e-proxy adopting release about the use of cookies has created an opportunity for vendors to scare companies into buying image-based documents from them.
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| This is an example of an image-based annual report from Computershare. It is perhaps the least usable of the lot. |
In some cases, companies that provide usable HTML reports on their own websites have paid to have duplicate, less usable image-based documents created on a vendor’s website because they have been told by vendors that they must provide their materials on a “cookie-free” website, even though that term is not used anywhere in the SEC’s rules. Ironically, the websites on which the duplicate reports are hosted are using cookies themselves.
The SEC needs to clarify its rules around cookies and what constitutes a convenient format because the current language has resulted in proxy materials being less usable than before the rules came into effect. The confusion around cookies and formats also has resulted in few companies having access to good web analytics on which to base future improvements to their reports.
Corporate reporting leaders continue to innovate
But it’s not all bad news. This year we saw some important innovations for online annual reports among an elite group of companies.
European companies comprise the bulk of this forward-thinking class. The elite North American companies can be counted on one hand, and are mostly companies that have long histories of best practice online communications.
Among the leaders, several new and interesting trends have emerged. Online annual reports are becoming more interactive and more customizable.
The quality of the design and coding is also improving, with some reports meeting all of the standards of the World Wide Web Consortium (W3C), the standard-setting body for the web.
Although they can be a significant expense, we continue to recommend high-end online annual reports and proxy statements as highly effective communications, disclosure and relationship-building tools. They engage, inform and educate investors, make it easier for people to quickly look up key facts throughout the year, and they demonstrate management’s accountability to shareholders and commitment to open and effective communications.
Our current issue of Online IR Trends has an 18-page feature detailing the online annual report innovations we’ve seen this year.
For the vendor reps in the audience, we will be running our Great Online Annual Report Designers list again in the next few weeks. We’ve been getting inquiries from developers we didn’t hear from last year and have been impressed with their work.
That’s a good sign for IROs and corporate secretaries as it means they’ll have more vendors to choose from for what is already shaping up to be an interesting 2009 annual reporting season.
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June 3rd, 2008 at 8:52 am
Dear Dominic, you and other prominent specialists have been strongly advising listed companies and IRO’s for years now to avoid format such as plain pdf or image based files to publish their annual reporting online. Every year you note that there is very little progress on the choice of appropriate formats for online publishing…Why? Why don’t/can’t issuers realize that their choice of technology is not the right one? Do they feel that there is very little return with doing things right in terms of technology? Could they be right? Could you be wrong on that one after all?
June 3rd, 2008 at 10:52 am
Section F Web site confidentiality –
Under the rule, a company must refrain from installing cookies and other tracking features on the Web site on which the proxy materials are posted.
The term is used within the SEC rule.
June 3rd, 2008 at 11:37 am
Eva,
Wow! A cookie is only a “tracking feature” in this context when it infringes upon anonymity. It’s amazing how unintelligent the vendor community is about the Web and yet is so willing to take money from companies for web services.
Please read the story as well as you should be reading the rules and the adopting releases (plural). “Cookie-free” — where’s that term? It’s not used.
June 3rd, 2008 at 11:52 am
Hi Nicolas,
Every year, I wonder about the same thing. Are good HTML annual reports a waste of money? In fact, I’ve advocated in the past that companies try something different and create HTML summary reports focused on the sections that investors use most heavily. I made that recommendation prior to e-proxy and default electronic delivery, when producing online annual reports was an added cost on top of the print run.
But with each passing year, the evidence in favor of a full HTML report becomes more compelling. There really is no replacement for one. And the cost of a good HTML report is coming down and companies are replacing print with electronic formats and realizing huge cost savings, so the cost argument is moot.
I think it’s just a matter now of companies being 1) ignorant and 2) having poor internal management practices and systems that they cannot get their heads around the idea that you start with the web first. There are a lot of people in the profession who aren’t comfortable with technology. They will be replaced in time by younger more tech savvy people who will change the game completely. You can already see that happening in academia, and soon those people will be rising up the ranks in the private sector and in the regulatory world.
But the bottom line is that it is best for companies and their investors to provide information in ways that make it as easy as possible for investors to arrive at accurate decisions, and big PDFs and image-based documents are not good formats.
June 3rd, 2008 at 1:47 pm
Hi Nicolas,
we are a vendor for high-end HTML reports and experience very heavy demand for our services. We grow by 30% + per annum and still have to decline new business from prospective clients every season. The reason, that we do not do more business has to do with capacity, which is not that easy to expand if you have to assure quality.
I don’t agree when you say that online reporting isn’t improving. Like Dominic reports, I see lot of innovation in Europe. And it takes time. Time to educate, to understand and to adopte and also for the vendors to grow.
June 3rd, 2008 at 2:27 pm
Hi Thomas,
Your point about quality being hard to scale is a good one. That’s mostly why we have image-based reports, because it’s impossible for big vendors to produce good quality reports at volume, so they invented this automated image-based report product. Investors and their needs were never considered.
Unfortunately, one result of image-based reports is that the dominance of big vendors chased away a lot of the smaller firms that provided quality work. They moved on to other business opportunities. The IR profession shot itself in the foot and chased away some of its best talent. Today, there are only a handful of expert companies like yours that produce the very best work and understand the market.
However, I do see signs that good developers are slowly coming back to the corporate reporting area. That means companies will have more choice, but it’s a competition and developers will go where the business conditions are best. It’s up to the IR profession to support their support network or lose it.
June 9th, 2008 at 6:01 am
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