`Clarity, honesty and strategy': the future for model reports

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The Independent Culture
Annual reports as we know them could soon be a thing of the past. Roger Trapp looks at the alternatives on offer

Companies' annual reports attract a significant degree of attention. Next month, for example, the London Stock Exchange and the Institute of Chartered Accountants get together to award prizes for the year's best efforts in this area, while in Edinburgh an organisation called Company Reporting has dedicated itself to analysing these often glossy documents for evidence of the ways in which companies are adopting new accounting rules and other regulations. Journalists, too, scour them for information - especially about directors' pay.

And yet, for all this apparent interest, the annual report and accounts is said to be in danger of dying out. Critics point to the fact that its content is largely pre-empted by increasingly detailed and timely preliminary announcements, to the fact that very few copies of the full document are thoroughly read, to the fact that increasing regulatory requirements brought on by the Cadbury and Greenbury reports and other developments make them increasingly anodyne and therefore unappealing.

Though advocates are believed to see the annual report as a company's "flagship document" and a key "positioning tool", there is an increasingly widely-held view that the report - which typically costs several hundred thousand pounds a year to prepare (and no doubt often involves many hours of directors' time spent on photo-shoots) - serves little purpose beyond satisfying legal requirements.

So, what is to be done? Tonight the Institute of Chartered Accountants' financial reporting committee hosts a debate focusing on how performance should be reported. But more interestingly perhaps, two of the latest suggestions come from the design community. While they accept that technological developments mean that many of the regulatory elements can be filed that way, both Thumb, a design consultancy with extensive experience of producing annual reports, and The Hamiltons, a strategic design consultancy, see benefits in something tangible, albeit somewhat different from that which currently exists.

In a recently prepared briefing on "the role and future of the annual report", Thumb is rather circumspect about putting forward a definitive solution to the problem. Instead, it prefers to take the line that the current situation throws up a number of debating points, such as Is the annual report a piece of corporate communication or a marketing tool? and What is the role of technology?

However, it does suggest that such a document should be part of a "continuous communication process", with key elements being consistent communication of company values and communication of the formula for generating sustainable success. It also sees an enhanced role - particularly among ordinary shareholders - for the summary financial statement that is proving increasingly popular with companies.

And a broadly similar argument is put forward by The Hamiltons, which launched its "new model" annual report during Design in Business Week last autumn. Following extensive research among the companies that produce reports and the professional investors that use the documents, it came up with a concept based on the three watchwords clarity, honesty and strategy.

Michael Hamilton, senior partner of the consultancy, stresses that the model is not really of his making. "It's the investors who have put it together," he says, claiming that reports are failing because those involved in their production from chief executives and finance directors to corporate affairs officers and designers - have failed to grasp the nettle.

The firm quotes a City analyst saying that companies need to report the bad as well as the good in order to avoid accounts users drawing their own conclusions from reading between the lines as evidence that its approach has support where it matters.

"The City doesn't want anodyne reports on information they already possess," says Mr Hamilton. "Through our initiative, investors are emphatically calling for credible strategic propositions and real evidence of the ability to deliver shareholder value. Our new model will help make this a reality - and produce better value for the hundreds of millions of pounds spent by corporate communications departments."