For all types of organisation, communicating with investors (existing and potential) is an essential requirement, particularly for larger companies with a more diverse range of interested parties. After all, existing shareholders will be eager for assurance that their asset is in safe hands, while potential investors are curious about the organisation’s future.
Corporate communications as this discipline is known can involve anything from the production of financial and annual reports to annual general meetings (AGMs) and roadshows. It is the main medium by which organisations communicate information to shareholders and interested parties in the wider investment community and with whom they sometimes already have a relationship.
As Patrick Barrow, MD of the Public Relations Consultants Association (PRCA), explains succinctly, Corporate communications is a label for every aspect of communications on behalf of the body corporate.
Gavin Ingham Brooke, MD of communications and marketing agency Spada, is a little more precise. Corporate communications is anything that affects the organisation where there is an interface, i.e. between management, the company and shareholders, the company and regulators/suppliers and the customer interface.
Given the breadth of this remit, and the complexity of covering it succinctly, this feature will focus only on the role of communication with the investment community: internal communications will be covered in the next edition.
The two main methods through which corporate communications to the investment community are conducted are the annual report and the AGM. Traditionally, annual reports were financial documents, reporting on the finance and investment issues within an organisation to shareholders and others, such as financial directors. Approximately three weeks after its release, the company will hold an AGM, providing shareholders with the opportunity to vote on key company issues, such as the election of board directors, and the approval of accounts.
However, in recent years the process of corporate communications has evolved. The annual report, in particular, is changing in scope, purpose, content and size, as companies are waking up to its potential to communicate a broader range of messages to a wider audience. As a consequence, despite its roots in the finance department, it is increasingly being recognised as a marketing tool.
Beyond the numbers
Traditionally, the annual report was a staid financial document, containing graphs, charts and figures written for accountants, by accountants. They were usually studied, rather than read and digested, and were documents to be analysed.
The report would contain all the financial information pertaining to the company over the preceding year, and that was about it. As a result, almost without exception, they originated within the finance department. It was designed for consumption internally (i.e. by the board), by shareholders and by the wider investment community.
In more recent years, however, the kind of content carried in the annual report has begun to broaden out, driven by a number of factors, including broader share ownership, and a growing awareness of the importance of corporate environmental policies on an organisation’s value and performance. In the Companies Act of 1985, the inclusion of a section on corporate social responsibility became mandatory, and although this stipulation was dropped in 2006, it reinforced and accelerated the trend for companies to seek and perceive a broader role for annual reports.
The annual report is now much more than a financial reporting document to shareholders, says Sholto Lindsay-Smith, strategy consultant at Uffindell West. Companies are under obligation to write and say more in areas to various organisations. Organisations are responding to bureaucratic needs; it’s about addressing the needs of pressure groups [and significant bodies] interested in their behaviour.
He adds that companies are also looking to increase the value of these reports, which in turn drives up their complexity and cost further. Annual reports are expensive to produce, so companies will want them to work harder. With an annual report typically costing between £50,000 and £100,000, it is not surprising that companies want to ensure it works as hard as possible.
Present, past and future
The expanding role of the annual report means it is increasingly encroaching on other areas of corporate reporting. It tends to provide an overview of the company over the previous year, while a business plan will project the future of a business. These have historically been produced as separate documents, although with the annual report model expanding to include other business information, they are now becoming combined.
Data provider DLG used this combined model, providing historic information as well as a projected plan, in its 2006 report to its investor community.
Richard Webster, director of communications at DLG, comments, Our annual report is a comprehensive document incorporating the history from when we started, right through to where we want to be in three years time. We included the corporate background, involving the management buy-out (MBO) earlier this year, so we could quite easily show what/where the market was going in terms of product development. It also included business plans, what we should be marketing and PR aims/ objectives and views of the future in quarterly segments.
Expanding proportions
Given their ever-growing remit, it is unsurprising that annual reports are also growing in size. 35 Commu-nications undertook research into the annual reports produced by FTSE 100 companies, and found that the average report length increased by 15 per cent in the last year.
One of the largest in existence is the 2006 report compiled for HSBC by Radley Yeldar at 424 pages. Richard Carpenter, development director at Radley Yeldar, comments, This year annual reports have got bigger generally, but it is because of their increased role rather than simply an expansion in pages. There is a whole range of subjects in the report, ensuring that key messages get delivered to the audience. Some companies use the report as a wider marketing tool, not just to the financial community, but to suppliers for example. Some companies will use it solely to communicate with investors, but a company will have to know what it wants to use the report for beforehand.
As a result of this trend, companies are increasingly struggling to accommodate all this information in a single document, and many are to seeking to split it up. This is backed up by 35 Communications’ study: four years ago it reported that 60 per cent of FTSE 100 companies used a sole report to communicate with shareholders, while 53 per cent now produce three or more. These three reports include an annual report, annual review and a corporate responsibility document. Online versions of all three are also usually produced. (See box out for more information.)
Lindsay-Smith of Uffindell West, says, Sometimes reports are split; e.g. producing a corporate report and the financial information separately. Then companies can use the corporate report as a marketing document on its own.
The formulation of a corporate and separate financial report shows just how far the evolution of the annual report has come: from it consisting solely of financial information, to this data actually taking a backseat.
However, the production and distribution of documentation to shareholders and interested parties is not the only remit for corporate communications.
The discipline does not just arise in the form of an annual report or review, but also utilises events, such as meetings, roadshows and face-to-face experiences.
Forsyth of 35 Communications comments, The most public form of communications is the annual report followed by the AGM. Roadshows can then be held throughout the year to update messages to the company.
Then there are websites, press and publications and because PLCs have to see their major shareholders regularly and maintain a dialogue there is an awful lot of content and messaging going on, on a one-to-one basis. This will require constant refinement to keep major investors up to date.
These events give organisations the opportunity to use a face-to-face environment to publicise their company messages, visions and viewpoints among both existing and prospective shareholders and investors.
They also give scope for promoting the annual report as a document in itself, endorsing corporate values, messaging and future business plans in realtime, and should therefore be planned and considered carefully by the PR department, which will usually organise the events.
The evolution of the annual report has impacted significantly on these face-to-face communications, most notably the AGM. Barrow of the PRCA observes, Annual reports are now a much more literal interpretation of their own titles; consequently this has changed the AGM. It is much more incumbent for CEOs to tie in company activities to finances and also to match activity with benefit. Now what we have is increasing numbers of people saying they are concerned about the business’ activity, not just the financial impact, but the reputational impact for the future, for example ethical trading.
Considering that the annual report content is increasingly diverse, it follows that questions and points raised at the AGM by shareholders will also be more diverse: if the report contains more content, there is therefore more for attendees to question.
Barrow concludes, What people are increasingly doing is taking a holistic approach to activity above and beyond financial performance.
Happy together
Changes in the structure and content of both AGMs and annual reports confirm that the discipline of corporate communications has come a long way from its roots as a purely financial information channel. However, they have not transformed so completely as to become a marketing discipline, and for the time being at least, the finance department and the FD in particular remain the pre-eminent decision maker in their development.
As this trend continues, however, the overlap between corporate communications and marketing is only likely to grow, and the finance teams must strive to co-operate better to ensure that both their individual requirements and the needs of the wider organisation are met. Whether such radically different cultures are capable of effective collaboration is another matter.