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eye on > The Future of the Annual Report 

by Lawson Cox, Vice President and General Manager, see see eye

If you’re in investor relations, it’s no news that the Securities and Exchange Commission (SEC) is considering a proposal to change the way annual reports and proxy materials are distributed. Today, public companies are required to physically distribute printed materials to shareholders. The proposed change involves dropping this mailing requirement and allowing companies to provide these documents electronically, while giving shareholders the option to receive printed materials upon request.

If the SEC guidelines change, would your company discontinue its printed annual report and only offer an online version? About 14 percent of you would say yes, according to the 2006 Annual Report Survey by the National Investor Relations Institute (NIRI).

But would this be a wise move? Would you still reach your audience if you eliminated printed communications and only offered online versions?

Investors still prefer print
Members of the investment community overwhelmingly prefer the printed annual report format. According to a recent survey of investors conducted by the WithumSmith+Brown accounting firm, 81 percent of participants preferred a printed annual report as opposed to an electronic one. Why print? Respondents cited that printed annuals are easier to read, file for future references, take notes on and transport.

While print is the preferred format, online versions of annual reports are widely used and expected by the investment community. Online annuals are the second most sought out content on corporate investor relations sites, according to a January 2006 survey by Thomson Financial. Investor Relations Magazine’s Investor Perception Study, US 2006, also bears this out: It shows analysts and investors across the board using online resources extensively, with more than 70 percent of retail investors citing the Internet as a source for finding potential investment targets.

The bottom line from these studies: investors prefer the printed annual report, but also want and expect an online annual report. To serve the information needs of the investment audience, the best practice for public companies is to develop both.

Online annuals not necessarily less expensive
There are some who believe that producing an exclusively online annual report would be significantly less expensive than producing a printed annual report.

The NIRI study states, “Given the relatively low cost of the online annual report, it is not surprising that, if given the opportunity, more companies are open to the idea of discontinuing the annual report in favor of a Web version.” But this conclusion is incorrect. It fails to account for the inevitable cost shift that would occur if the printed annual report were discontinued. Today, most companies’ printed annual report budgets capture the cost of theme development, graphic design, copywriting, photography and other creative fees. The online annual budget typically only covers the cost of “repurposing” the print annual’s content for the Web. Should the printed annual report be discontinued, all of the annual’s creative development costs would shift to the online annual report budget, driving it up significantly. If more interactive features are used in the online annual – such as video – then the overall cost may be more expensive than a printed annual.

Distribution cost savings may be a myth
Another misperception is that distribution costs would decrease substantially if the SEC mailing requirement changes. However, handling a large volume of individual requests for annual reports may be more expensive than distributing a copy to each shareholder in bulk.

As George Stenitzer, vice president of corporate communications for Tellabs, wrote in the September 2006 issue of Investor Relations Update: “In 2006 we asked [Tellabs] shareholders what they would do if the SEC proposal became effective. While 24 percent said they would read a report on the Internet, 60 percent said they would request a copy of a printed annual report.” Stenitzer concluded: “For public companies, handling such a high volume of individual shareholder requests may be a more costly exercise than mailing annual reports to all shareholders.”

Our advice
Sticking with the printed annual report and distributing a copy to every shareholder appears to be the best approach at this point in time. Even if physical distribution ceases to be an SEC requirement, providing investors information in the format they prefer, in a way that is cost effective for the company, just makes sense.

Lawson Cox, vice president and general manager of see see eye, is an international award-winning communications professional who has developed and executed communication programs for Fortune 500 firms and other companies. see see eye clients have included BellSouth Corporation, Delta Air Lines, Goodrich Corporation, IBM, Neenah Paper, Ryder System, The Coca-Cola Company, UPS and other companies. Lawson recently spoke to the National Investor Relations Institute’s Atlanta chapter as part of an annual report experts panel. His experience includes developing more than 80 print and online annual reports for clients. Lawson is a member of the International Association of Business Communicators and served five consecutive terms on the Atlanta chapter’s board of directors, from 2000 through 2004.

see see eye develops creative and effective communications that speak to companies' important audiences. We have had particular success developing print and online annual reports for clients ranging from Fortune 500 companies to non-profit organizations.

Would you like your organization's annual report to more effectively communicate with the investment community? Contact Lawson Cox to find out how see see eye can help you reach investors and other key stakeholder audiences.

Award-winning graphic design and communications firm see see eye discovers good ideas for public companies and public causes. Since 1992, we have produced distinctive communications that help Fortune 1000 companies and nonprofit organizations build stakeholder confidence, including annual reports, Web sites, identity and brochures. see see eye is certified as a Women’s Business Enterprise. Additional information can be found at the company's Web site, www.seeseeeye.com.