Only 37% of reports meet an acceptable standard of usability. And while tighter budgets in 2003 might have something to do with the drop in ease of use, companies can't blame budgets entirely because there are low-cost ways to publish annual reports online in usable formats.

IR Web Report's latest survey of online annual reports follows two earlier ones which studied the reports of 100 of the world's biggest companies drawn from the S&P Global 1200. All three surveys included 37 US-based companies, 28 from Europe, 10 from the United Kingdom, 10 from Japan, nine from Canada, and six from Australia. The list provides good insights into the practices of the largest and most resourceful companies.

The main theme of this year's survey was the marked decline in the overall usability of the year's reports. Companies in the survey are making more basic errors than they did in the prior year, while fewer are investing time to present their reports in HTML and/or usable PDF. This is not a good sign as it means that fewer companies are communicating their messages to investors effectively through their online reports. It also means they are making it harder for investors to research their companies and make sound judgments.

Image-based reports are bad, in part because they waste people's time with poor navigation and pages that don't help or inform, like this gratuitous full-page picture. They also pose reputation risks for companies because they aren't accessible to screen reading software for sight-impaired users. See 10 Reasons to Avoid Image-Based Reports.

More companies making mistake of posting information in images
The survey found a sharp increase in the number of companies publishing their ARs as image-based documents. Variously known as interactive, dynamic or mobular reports - these reports are extremely unfriendly and hard to use and expose companies to the risks of discriminating against Web users with disabilities.

As explained in 10 Reasons to Avoid Image-based Reports, information which is published online in an image is impossible to extract for reuse in spreadsheets or word processing programs. These reports also have very poor navigation, cause problems with printing and cannot be viewed on the small screens of handheld devices.

On top of this, image-based information is invisible to the special screen-reading software that sight-impaired people use to surf the Web. Equal access to information is a fundamental principle of securities regulation, so companies which publish their reports only in image formats are excluding a portion of the population and exposing themselves to reputation risk and potentially expensive litigation from a whole class of people.

There is a growing lobby worldwide from disability rights groups and many governments — including the U.S. federal government — to require public institutions to make their websites accessible to disabled users. In the United Kingdom, for example, large public companies are being targeted in a "name and shame" campaign by U.K. disabilities rights groups. In that country, our survey notices a marked increase in companies addressing accessibility for users with disabilities, such as Centrica in its first-rate online AR.

In the latest survey, the number of companies publishing their reports entirely in images more than doubled to 10% from just 4% in the prior year and zero in 2001. At the same time, a total of 18% of companies published their financial statements as images, up from 13% in 2002 and 12% in 2001.

While publishing text and tables in image formats is the most obvious breach of Web accessibility standards, it is not the only one. Almost all annual reports — be they in HTML, Flash, PDF or office productivity software formats — require special attention to be made accessible to disabled users. At a minimum, all companies should be meeting the World Wide Web Consortium's Priority One checkpoints for accessible web content.

It's important to note that making reports accessible doesn't require doing anything that you shouldn't be doing already. The rules for making Web content accessible are basic best practices that aren't new to Web developers. If you're working with the right group of web designers and developers, accessible content would always have been part of their services — a given, not an optional extra.

More companies posting PDF blobs
There is no doubt that PDF is an attractive and sensible format for delivering annual report information online. However, many of the 96% of companies that use it aren't using it properly. As such, they are making it unnecessarily difficult for investors to use their reports.

The worst practice is posting annual reports in "PDF blobs," that is converting the annual report to one large PDF file. This practice forces people to download a large file when they may only want to access a snippet of information from the report. Almost half (48%) of the companies using PDF dumped their reports in PDF blobs. This is a big jump from the prior survey of the same companies when 33% provided PDF blobs.

PDFs don't have to be blobs. When formatted properly, PDF reports can be the only low-cost alternative to HTML reports that offer reasonable usability. See how to do this in IR Web Report's guidelines.

Also in the current survey, 19% of companies chose PDF blobs as the only format for their reports compared to 12% a year earlier. The results are unfortunate because it doesn't take much effort to make PDF reports usable. Done properly, PDF can be a viable alternative to providing reports in more expensive and time-consuming HTML, currently the preferred format for usable online annual reports.

HTML reports used less and increasingly ineffective
In the hands of skilled professionals, HTML is by far the best format for presenting annual report information on the Web. Unfortunately, very few companies seem to have access to skilled HTML report designers because many HTML reports have poor usability, so much so that some companies would be better off not using HTML.

Meanwhile, fewer companies published their annual reports entirely in HTML than a year earlier, 27% versus 30%. Only 28% published their MD&As in HTML compared to 35% reported last year and 29% in 2001. At the same time, the number posting their financial statements in HTML fell sharply to 22% from 34% in 2002.

This decline in HTML use, coupled with an increase in the use of image-based reports and PDF blobs, contributed substantially to the general decline in the usability of online annual reports in the past year. However, even companies which provided their annual reports entirely in HTML saw a decline in the quality of the reports.

The biggest problem is the tendency by many annual report designers and producers to take shortcuts when repurposing the printed report for the Web. In our upcoming guide to HTML annual reports, we highlight several common usability problems, including:

• Confusing navigation and removing browser buttons in pop-up windows.
  
• Insufficient navigation detail within sections of the report;
  
• Text in multiple columns;
  
• Gray text not optimized for online reading and comprehension;
  
• Redundant information;
  
• Gratuitous images;
  
• Distracting animation;
  
• Poorly formatted financial tables;
  
• Lack of support for Netscape Navigator browsers; and
  
• Failing to support users with disabilities.

If your company is going to invest in an HTML report and incur the cost and time involved, then get the best possible return on your investment by making sure the report is well executed by qualified designers. If you don't have a budget to do a proper HTML report, then don't do one at all.

Fewer companies emphasizing front section
The only bright spot in the latest survey is that fewer firms emphasized the front sections of their reports while ignoring the financial section. Putting all the effort into the front section of the report is bad because it sends a signal to investors that the company prefers its own hype to communicating its serious financial information and discussion.

Information in the front of reports also tends to be superficial and sometimes self-congratulatory. On the Web this can undermine the credibility of a company because users are turned off by promotion or advertising.

One quarter of the survey participants published only the front section of their annual reports in HTML while posting the financial section in PDF, down from 29% in 2002 and 34% in 2001.

However, it's not clear if the decline is the result of companies recognizing the folly of emphasizing the wrong things or if they gave up on HTML entirely as a cost saving measure. Nonetheless, 25% of companies are still making this basic mistake and would be better off saving even more money by using a dynamic PDF Annual Report package instead.

Promotional information also makes sites less useful and slower to use. For people who use IR websites to retrieve information, any content that does not impart useful information is a waste of time.

One waste of time that few will miss are Flash introductions. With few exceptions, these animated text and image presentations hurt more than help online reports. Because they rarely provide useful information, they are simply obstacles to investors quickly getting the information they want.

Flash introductions should only be used when there is a compelling reason for them. And even then, provide a "skip" button so that people can bypass them easily.

The good news is that slightly fewer companies used Flash introductions on their reports than they did in the last survey, down to 12% from 15% in the prior survey.

Archiving practices
Our survey found that 89% of companies post three or more annual reports on their sites, while just 19% posted annual reports for at least the past five years.

Having good archives of financial documents going back several years can contribute towards the credibility of your website by making the site feel more comprehensive and complete. Even if investors hardly ever use these documents, having them on the site offers reassurance that the company stands by its financial track record.

About IR Web Report
Online since 2000, IR Web Report is a subscriber-based service that evaluates the investor relations websites of more than 515 companies around the world and advises companies on global best practices.

IR Web Report is fully independent of all IR website design, hosting and content vendors to ensure the impartiality of its rankings and recommendations. Its research is paid for entirely by its public company members.