How To Develop An Engaging And Impactful Annual Report

EQ: For anyone involved in the Annual Report production process from a company perspective, what would you say are the hot topics right now? And what are the more challenging topics?

The regulatory landscape for preparers is very challenging right now – I have never known a period of such rapid and continuous change. It gets even more complex when this is overlaid with evolving stakeholder expectations and the move to digital. In my mind, there are three key topics that are front of mind for us, as a creative comms agency, and for our clients:

1. The constantly moving ESG and sustainability goalposts

Top of mind for a lot of our clients is, of course, ESG and sustainability reporting - the term ‘alphabet soup’ is frequently used to describe the current ESG reporting landscape and I don’t disagree!

Although there has been a lot of progress made to create a global baseline through the creation of the ISSB, there is still a way to go to simplify the ESG reporting framework for UK companies. Just trying to keep track of how developing regulations and the numerous voluntary frameworks fit together is challenging, but it is even more challenging to then interpret what this will ultimately mean for a company and its reporting. 

With so much complexity at the moment, I expect to see a lot of ‘tail wagging the dog’ reporting; by which I mean companies focusing purely on what needs to reported rather than thinking about how reporting requirements can inform and shape strategic and operational decision-making for the medium and long term. This switch in mind-set takes time, but it does happen. We saw it when s172 statements and the requirement of the Corporate Governance Code to have a ‘purpose’ came in. 

Everyone scrambled to report against the new requirements just to ‘tick the box’, but now corporate purpose and stakeholder engagement are increasingly seen as part of the fabric of how well-governed and successful businesses operate. I expect that we will see the same thing with ESG and sustainability.

2. Finding clarity amongst the noise

A by-product of all this ESG-related ‘noise’ is that companies are increasingly struggling to find the clarity to surface key messages (which may or may not be sustainability related) to target audiences. As we heard at the recent IR Society Conference, as much as companies would like to believe that they are front of mind for all their investors, the reality is that they’re not. Therefore, consistency and clarity across all investor touch-points is key. Sometimes the clarity of messaging simply hasn’t been articulated yet and it is an incredibly heavy lift to get this formulated and agreed by leadership. Sometimes this clarity may exist, but for all sorts of logistical reasons it’s not always possible to produce targeted and consistent comms in a timely manner. Trying to find that clarity and then execute effective and timely communications around it continues to be an ongoing challenge.

3. Increasing reliance on digital communications and information

COVID has really accelerated our use and reliance on digital comms and information in our everyday lives, and this is increasingly bleeding into investor communications and reporting ecosystem.

A company website is the first-place people will go to find out more about a business. What different stakeholder groups are interested in and how much detail they want to know will vary, but the website always acts as a virtual gateway into a company. Therefore, funding, creating and maintaining a fit-for-purpose and up-to-date website is very important, but a continuing challenge. There are always quick and easy wins that can be implemented, such as aligning content on the website with the latest articulation presented in the annual report and investor presentations. These quick and easy wins can pave the way for more wholesale change, for example, rethinking how ESG and sustainability content could be provided digitally.

Another consequence of a more digitised world is the proliferation of user-generated content being readily accessible online for everyone to see. Social media channels such as LinkedIn and Facebook, and review sites such as Glassdoor and Trust Pilot, provide investors with an unvarnished view of a company coming directly from employees and customers. Investors and analysts will corroborate company-generated information with user-generated information available online but it is not possible for companies to control what is being posted online. Processes around managing and limiting reputational damage are increasingly important but getting a handle on your own company-generated information is also critical.

EQ: Moving on to the Governance section of Annual Reports, what’s your view and advice on what best-in-class looks like? Do you have any top tips for company secretaries, who often hold the pen on this section?

I’ve been advising clients on reporting for a number of years now and the consistent and still ever-present message I hear from Company Secretaries is that they feel that the governance report is the ‘poor cousin’ to the strategic report and it is often described as ‘boring’, ‘dry’ and ‘not sexy’. And my response is always that it doesn’t have to be. Firstly, good governance is critical to business success, therefore, communicating this has to be a key priority. Secondly, it doesn’t have to be boring, dry and not sexy. Quite the opposite in fact!

I think there are three things that must be considered in the round to craft a great governance report:

1. Structure: Take a moment to interrogate the flow of the report

Before you start drafting content, take a moment to interrogate the structure and flow of the governance report and resist the temptation to just roll over what you had last year.

• Does it make sense to follow the five-section structure of the Code or is there a better approach that fits in with how you are governed?
• Where is the best location for governance topics that don’t naturally have a single ‘best’ location, such as the board effectiveness review and board diversity and composition?
• What is the best approach for governance topics that crossover into the strategic report, such as stakeholder engagement, s172 statement, culture and internal controls? Should this content be split or kept together? Should it go into the strategic or governance report?
• Do you need to have a Chair’s governance statement or can you create a single statement that is featured in the strategic report?

2. Content: Be brave and get the red pen out

By virtue of their role, company secretaries are compliance-focused which can have an impact on how governance content is presented in the governance report, often manifesting as boilerplate statements lifted directly from the Code just to show compliance and to tick every box.

• The Code is applicable on a comply or explain basis and the FRC expects companies to deviate from the Code when it is appropriate to their individual circumstances. The key takeaway here is that you shouldn’t approach your reporting with the mind set of ‘comply or else’. If you do deviate from the Code, just make sure you provide clear and justifiable reason for doing so in your annual report.
• The FRC has repeatedly indicated that best-in-class governance reporting comes from companies that focus on the outcomes and impacts of governance activities and board decision-making. A simple barometer for this is that if a statement in your governance report is a direct lift from the Code or it can apply to any company, then it should just be deleted or replaced with something that is specific to you. Be brave and get the red pen out!

3. Design: Use graphic design to bring content to life

Great graphic design is your gateway to turning your ‘boring, dry and not sexy’ content into something that is visually engaging and easy to understand. As the adage goes, a picture can paint a thousand words and good graphic design will also create better engagement. 

• Make sure at the start of your project that you clearly scope and earmark design time that can be devoted to the governance report, and ideally identify the key areas you think could be improved.
• The committee structure graphic and board composition charts are the obvious things that spring to mind when thinking about the more visually engaging elements of a governance report. But there are many more opportunities where visual interest can be introduced to increase engagement and improve understandability. For example:
  • A governance at a glance section can house governance highlights and diversity charts but also double up as a wayfinding device to guide readers to key governance content elsewhere.
  • The appointment and induction of a new director can be brought to life through a Q&A, a featured case study or a timeline graphic plotting out the process.
  • The annual board evaluation can be supported with graphics outlining where in the three-year cycle you are, the process that was undertaken and the outcomes and actions of the current and prior year reviews.
  • Board activities can be sharpened to focus on key board moments and decisions rather than a bland list of BAU items and be visualised as case studies (perhaps in support of the s172 statement)
  • Remuneration is complex and difficult to understand but often the first place that readers go to. Consider introducing a ‘Remuneration at a glance’ to synthesise the information into something that is easy to understand and use colour-coding throughout the remuneration report to highlight the different elements of remuneration (eg fixed, annual bonus and LTIP).

If you’re able to think about all these three elements – structure, content and design – in the round you should be able to create a step-change in the quality of your governance reporting by immediately capturing those quick and easy wins and developing a game plan for changes that you will implement going forward. If you are lacking in inspiration, ask your reporting agency to provide some examples from other good governance reporters. Don’t be tempted to only ask for examples from your peer group; governance reporting is universal and there may will be best-in-class reporters outside of your sector that you can get inspiration from.

EQ: Finally, we have both heard how investors consider the Annual Report to be one of the key sources of truth about a company, so how can a company tell its story in a way that is authentic, stands the test of time and truly sets out how it is achieving long-term sustainable success?

Yes, it was so heartening to hear directly from both buy-side and sell-side investors that the annual report is not dead! The panellists referenced the need for detailed but concise articulations of the business model, strategy and performance metrics, alongside a well-executed user-experience ensuring information is easy to access and understand. You won’t be surprised to hear that those sections – the business model, strategy and KPI – are typically the ones that companies struggle with the most!

I always think about an annual reporting suite as the equivalent of a year-end self-appraisal form for a company. It is an opportunity for leadership to explain what did and didn’t go so well and why, and what their objectives are for the next 12 months and beyond. The report should provide sufficient evidence and data to support the self-appraisal of performance, provide the external market context to support future strategic plans and ambitions, and identify the metrics that can be used to hold leadership to account.

As we discussed at the IR Society Conference, the team at Brunswick Creative take a more holistic view to reporting. My key piece of advice is to craft your corporate narrative first, and then overlay the mandatory disclosure requirements, not the other way around. This is easier said than done, but those companies that have their corporate narrative nailed down first tend to produce better quality annual reports and have greater engagement with their investors.

Reporting is dead… Long live communications.