Smart moves: Knowledge is power

The 1980s recession put an end to annual reports for staff. Now the new class of stakeholders demands to kept in touch, writes Philip Schofield

TWENTY years ago most big organisations produced an annual report for their employees. These provided much the same information as the annual report for shareholders - but concentrated on the issues of concern to staff rather than the City. They presented financial data in a form more readily understood by the layperson.

A Europe-wide research study for the CBI has shown a strong link between employees being well-informed and having high levels of job satisfaction - with all that implies for morale, productivity, absenteeism, and turnover. The study found that the well- informed were two-and-a-half times more likely to say they were satisfied with their jobs than the ill-informed. The survey also found that the well-informed were more realistic in wage negotations.

An annual competition run by the Industrial Society for the best employee report used to attract 300 or more entries. But the competition came to an end in the mid-1980s when entry numbers fell to about 50. It is thought that the decline in employee reports was the result of cost-cutting during in the early 1980s. Many have been replaced by articles in house journals and by "road shows". The Institute of Personnel and Development says that such information is now cascaded down the organisation from the top.

However, there are doubts as to whether these alternatives are an adequate substitute. In their book Communicate, published in 1977, C Northcote Parkinson and Nigel Rowe argued that communications passed through either official workers' representatives or cascaded down the established chain of command to the shop floor have limitations. They frequently act as strong filters, with "both likely to restrict the dissemination of some information ... while embellishing others".

They said that communication media such as employee annual reports and employee newspapers are more controllable even though they are relatively impersonal. But, they point out, most employee newspapers avoid sensitive issues and lack the level of credibility to do an effective job of communicating anything except routine information.

It seems curious today, when people are told to think of themselves as "stakeholders" that many do not get a report on each year's results. Some companies argue that the annual report to shareholders is available to staff who want to see it. This may be true of staff in the financial sector, but how many ordinary employees understand such items as "historical cost profit on ordinary activities before taxation" or "realised fixed asset revaluation gains"?

The fact is that most people find annual reports to be impenetrable. This is tacitly acknowledged by the many companies that produce simplified financial statements aimed at individual shareholders, as well as a full annual report aimed at professional investors. Recently privatised utilities, with many shareholding customers and employees, are particularly likely to do this. It has been suggested that such a simplified statement would be suitable to give to staff. There may be some truth in this where the vast majority are also shareholders. However, despite the fact that the figures may be understandable, the interpretation and commentary primarily still addresses the needs of shareholders. Unless the staff are already highly motivated - and research suggests morale is usually lower than the board thinks it is - it could be taken to mean your shareholders matter more than your staff, and that ideally there should be a report written for employees. It is often argued that annual reports for employees are too costly, and that the alternatives, although not as effective, are an adequate compromise. Some employers - including Boots, the Post Office, Railtrack and Unigate - clearly disagree and still provide them.

Last year the Post Office, against the general trend, issued its first annual report for employees. In previous years the staff were told about the annual performance in a special edition of the employee newspaper. One article described the profits and performance, there were quotes from the chief executive, and columns by each of the managing directors. It was, they admit, "very much us at a management level speaking to them. The Post Office wanted to get away from this traditional approach and provide something that was more accessible and relevant to its very large workforce.

"It important that our employees feel they have a stake in the business," says Nina Cooper, head of communications policy at the Post Office. "They are delivering the service to customers, and it's important for them to know what their work has contributed to in terms of the over-all performance of the Post Office and the individual business they work for."

The 12-page report was written by Richard Lomax of the design consultancy Redhouse Lane. He imagined a questioning employee going through the shareholders' report with a red pen marking anything that was unclear; he provided clear explanations in everyday language. He emphasises the need for painstaking honesty. He says he wrote it for the person in the street, not for managers. Unfortunately few organisations have the courage to talk so openly to staff. And the PO report cost no more than the special edition of the staff newspaper, which it replaced.

In recent years the restructuring of organisations and work practices has left people demotivated, insecure and over-worked. They have never had a greater need to know what their efforts have achieved and to know where their employer plans to take them. It seems that the time has come to restore a high priority to annual reports for employees.