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Annual Reports – a failure to communicate

Annual reports are the bread and butter for corporate governance analysts. Here at Manifest we eat our way through almost 4,000 of them every year. You don’t need to take our word for it that they are of, shall be generous and say, ‘variable quality’.  The Institute of Practitioners in Advertising, a professional media industry body, has now entered into the debate on the quality of reporting with the release of its analysis of some of the world’s most prominent companies. Not surprisingly,  it found that many “fail to communicate adequately”.

Best practice in narrative reporting: an international perspective analyses 50 reports from the 2008- 2009 financial year, including the top 10 consumer marketing spenders from the USA, Europe and Asia, as well as a further 20 UK reports.  Even though most of the companies state the importance of their brand to the success of the business they fail to provide enough information or analysis on why their brands are successful. 

Just two reports out of 50 are the exception to this: Reckitt Benckiser in the UK and Procter & Gamble in the US.

Reckitt Benckiser gave a great deal of coverage to its brand outlook and the strategy it has adopted to exploit its numerous brands, all of which are “brilliantly linked into the company’s overall strategy”. It also distinguished itself by its use of KPIs to explore its branding strategy. It had KPIs, over two years, on its media investment (media investment as per-cent of net revenues), on its brand positions (percent of net revenues in No.1 or No.2 brand positions), and the revenue from its top branded products. These KPIs offered metrics that provided strong factual support to the rest of the reporting narrative.

Procter & Gamble’s marketing strategy is incorporated into the chairman’s message and throughout the report into the overall strategy. They also explain on a brand by brand basis how their focus on innovation, and understanding of consumer needs delivers value.

It’s not just us governance geeks that find annual reports so interesting. In the light of the economic downturn, regulators are increasingly interested in how companies communicate to stakeholders.  Seamus Gillen, narrative disclosure specialist for the Institute of Chartered Secretaries and Administrators makes said: “ There’s a correlation between how a company talks about its business and how it runs its business. In other words, it is not possible to generate the necessary levels of support from members of the investing community, and other stakeholders, unless a company has a clear disclosure policy, the aim of which is to persuade the target audiences that the company is well run and will achieve its objectives. The stronger the role played by brands  in generating a company’s revenues the more important it is for there to be appropriate disclosure on the role of brands in developing and delivering the value proposition.”

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