Reportwatch

Q 1. Why is the annual report not yet extinct?

For Richard Carpenter, managing partner at London-based MerchantCantos, "A good annual report has a value similar to a one-on-one meeting with investors." While David Robinson, marketing professor at the Haas School (University of California) says: “No one reads that stuff… So the truth of the matter is that annual reports arrive too late to be useful, and in any case don't contain a lot of the information shareholders ought to know… I view annual reports as completely irrelevant.” In a similar vein, in an article titled “The death of the annual report” (October 2007), James Guthrie wrote: “The annual report may not yet be extinct but it is certainly an endangered species.”

For many listed companies, the primary purpose of an annual report is simply to meet legal requirements. Consequently, they only care about compliance and don’t really invest much in corporate reporting. This trend is now most obvious in the U.S. -the place where the annual report was invented- where a vast majority of annuals have become, bar the numbers, interchangeable and unreadable 10-K forms (naming these interactive on the Web doesn’t make a difference). Questioning their relevance is indeed here far from... irrelevant.

Many others (including non-listed ones) still dedicate significant human and monetary resources, and seem committed to making their annual reports informative, communicative and attractive. Besides providing last year(s) figures and complying with regulatory demands, the report becomes a rendezvous with or even a beacon for investors and stakeholders, but also remains in best-practice examples a strategic document, a corporate communication vehicle, a reference book. Far from extinct, that is.

The Web has also given the good old annual report a new lease on life. New channels, new tools, new formats, new techniques, renewed accessibility. Renee Carter, coordinator at the Australasian Reporting Awards, says: “The annual report is definitely not dead. If anything it is alive and kicking. In fact, the report now just has more avenues for reaching people... The stats are showing that the annual report has a huge online audience and should be capitalized on by companies to communicate a strong message to attract investors and solidify shareholder confidence.” Hold on a minute, though. Recently, Toronto-based IR Web Report reported that “Investors spend just 5 minutes on (online) annual reports”. Yet based on arguable statistics, this can be chalked up to the one-minute culture, and is not necessarily good news for wise investment decisions.

With a job incurring such essential questions and involving such a lot of work -online and/or in print- is the annual report still worth the effort? “The fact that… investors on average don't read them for a long time, hides the fact that some investors, the ones that count..., may spend a long time reading them. Perhaps "who" reads the annual report and the number of times an annual report is viewed, provides more insight as to its usefulness.” (Rob Stangroom, CEO, African Information Solutions for Companies Online). After all, how many readers read a newspaper or newssite from beginning to end?

By giving the broader and longer perspective through upswings or downturns, as well as through a number of distinctive attributes, an annual report may prove to be an information antidote to short-termism and that “instant culture”; the herd instinct -remember Keynes’s words: “Investing is trying to predict how other investors will behave”-; and blind stock-picking, three value-destructive flaws in today’s global economy.

The Annual Report on Annual Reports is designed for those report teams and (internal and external) makers who commit themselves to doing a good job, for the ones who comply... and go beyond compliance, for the quick readers (hopefully spending more than 5 minutes) and for the ones who read carefully (before or after investing, for analysis purpose, or just out of stakeholder’s curiosity). Any other reader is of course welcome!


Quaker Oats 1996: No. 1 annual report in 1997.

Q 2. What is ReportWatch?

ReportWatch is the denominator, trademark and website for the report monitoring, scanning, scoring and rating process that results in the Annual Report on Annual Reports, which is posted online yearly in July or August. Based both on e.com’s internal desk research and an external panel of reporting specialists, this survey of annual reports’ best practice is often regarded as the most comprehensive, international and authoritative survey on annual reports (see http://www.reportwatch.net/uploads/files/what-readers-and-users-think.pdf for readers’ comments and http://www.reportwatch.net/best-annual-reports/media for corporate and other media coverage).


Sara Lee 1998: No. 1 annual report in 1999.

Q 3. What is the main objective of the Annual Report on Annual Reports?

This is the 15th issue of the Annual Report on Annual Reports (°). The Annual Report on Annual Reports was created in 1996 at the Enterprise Group, a small Brussels-based international consulting boutique that had set up a reporting unit (spun off into e.com in 1999) to advise companies on their annual reporting process and content. The purpose is to survey and benchmark best reporting practice in order to strive for higher standards in financial reporting, investor relations, stakeholder information and corporate communication. With higher report value, richer report content, better access to company information, increased investor confidence, and decreased cost of capital as subsequent results.

(°) Below each answer to the 15 questions are featured the reports that made n° 1 in the ranking since its launch.


Sara Lee 1997: No. 1 annual report in 1998.

Q 4. How are companies selected?

The ReportWatch monitoring process starts with the selection of a sample -from 250 to 500 in the early years to about 1,500 for this year’s survey- of listed companies. Our sources for selection include published international and local rankings as well as internal desk research based on company positions, peer groups and report performance. Many of the large(st) companies are therefore part of the primary selection but many disappear later due to insufficient report quality. We have also recorded an increasing number of spontaneous applications these last years.

Though imperfectly -due to various factors such as lower reporting standards, only blossoming report practices, less developed IR policies, or the lack of report applications- our list of companies and their reports is a relatively representative cross section which reflects the industrial, geographical and stock market diversity upstream, and best reporting practice downstream. The fact that a majority of reports rated and ranked come from Western and Japanese origins is thus not entirely our fault. Still, following the shift in the global economy, watch for more new reporting (quality) players in the next years.

Our main goal is to be selective and representative rather than comprehensive. Although striving for a sample as representative and large as possible, we easily admit to cover a small portion of the worldwide quantity of listed companies, now estimated at about 40,000. A survey of all of them would be a mission impossible to accomplish, wouldn’t it?

The name of the company that appears in this document is the one as referred to on the covers or as written or abbreviated in key report sections. For legibility reasons, legal forms or words such as corporation, company, group, holding, etc. are not reproduced. Names do no take into account mergers, acquisitions or brand identity changes that might have occurred and been approved after the fiscal year-end or the report release.

A ranking is competitive in nature, but we have made competition tougher by going for a direct comparative approach. Every report scanned is immediately compared with a peer. The results of this option are that some industries, companies and reports are left out, while some reports are left in just because they are compared to higher ranked peers. Of course that penalizes hundreds of companies whose annuals may certainly deserve a good rating.


Electrolux 2009: No. 1 annual report in 2010.

Q 5. Why focusing on listed companies?

Was the annual report invented first for listed corporations to report to their shareholders? Not sure, yet highly probable. There are hundreds of thousands or millions of institutions in the world releasing a yearly report, and some of them can be very exciting (some even much more than dull pieces from the private sector). The fact is that "in 1959, IBM hired Paul Rand, a prominent book designer, to create its annual report. As a result, the high-concept annual report was born." (Addison Annual Report Handbook 2005). A limit has to set, and since its inception the Annual Report on Annual Reports has focused on reports from listed firms (note that as a consultancy e.com regularly advises privately owned or publicly controlled ones).

Though the selection and the evaluation criteria remain primarily based on stock-listed companies we leave the doors open to any company who wants to submit its annuals for rating.
That explains why the readers find an increasing number of less known (yet) companies, including privately or government-owned companies (small or larger) in our ranking –some of them producing annuals that rival with, and sometimes surpass listed firms’ documents.


Ford 1999: No. 1 annual report in 2000.

Q 6. Who cannot compete (well, at least here)?

Are not considered for selection in the Annual Report on Annual Reports:

• Financial sector companies (banks, insurance, investment funds, financial holdings) (see below);
• Privately owned companies (except those electing to compete);
• Purely government-owned companies (except those electing to compete or those compared with);
• Wholly-owned subsidiaries (except those electing to compete);
• Investment, income, mutual or real estate funds and trusts;
• Listed stock exchanges;
• Central banks;
• Development or reconstruction banks and similar financial institutions;
• Public agencies;
• Non-profit organizations from any sector;
• Reports for a fiscal year before or after 2010 or interim/quarterly reports.

The above are not included in our survey due to the inapplicability of a significant part of report evaluation criteria based on listed companies, as well as to various comparability and consistency reasons (apples and oranges).


Bank of Montreal 2001: No. 1 annual report in 2002.

Q 7. What is judged –the company or the report?

The scoring, rating and ranking are based on an evaluation of the company report and output and cannot be interpreted as such as an assessment -and even less a rating!- of the company that releases the report. Put plainly, ReportWatch scans the how and, to some extent, the what is reported and not as such the who and the why. That said, investors, and especially long-term ones and other stakeholders, might infer some opinions and decisions based on report content for last year and also over a period of time (°). "The key point (in a report) is to get as much of the information that management uses when making its decisions out there, so investors can understand it," explains Ken Lever, formerly in charge of Tomkins annual report.

Even though a relationship may sometimes be found -or argued- between company, report and shareholder value, this should be dealt with all due caution. On the one hand, and to choose but one example, some among the renowned financial institutions used to produce decent (and better than that) annual reports before the latest “home-made” crisis; while on the other hand, some famous top companies have never been capable of publishing high-quality annuals. Good performance and even less company size don’t necessarily translate into good reports: comparing the top-rated annuals with top-ranked companies in Fortune, Financial Times, Forbes or other rankings would often be merciless for the latter.

After all, shouldn’t a company who treats its current shareholders, potential investors and other stakeholder audiences well, not least through good reporting practice, deserve more market confidence than others?

(°) For tracking historical annual report performance, use our ranking index available at http://www.reportwatch.net/best-annual-reports/a-z-ranking-index.

PS: The Annual Report on Annual Reports does not represent directly (what about indirectly?) an offer to buy, sell, hold or trade the securities to which the reports cited or ranked in this survey are related.


IBM 2000: No. 1 annual report in 2001.

Q 8. Why are reports from the financial sector no longer rated?

“Letter to Shareholders and Clients” in Lehman Brothers Annual Report 2007: “Dear Shareholders and Clients, In 2007, Lehman Brothers produced another year of record net revenues, net income, and earnings per share and successfully managed through the difficult market environment (...) Despite this record performance, our greatest disappointment in 2007 was that our share price declined for the first time in five years. We are more focused than ever on demonstrating to the markets that we have a proven ability to continue to grow our diversified set of businesses, manage risk and capital effectively, and deliver strong results in all market environments.” In September 2008, it became the largest bankruptcy filing in U.S. history.
Bank of America annual report 2007: “A mortgage without the worries” (p 19). Federal bailout in January 2009: $20 billion, plus $118billion worth of “guarantees against bad assets”.
Credit Suisse corporate citizenship report published in 2008: “In the financial services industry, professionalism, trustworthiness, diligence... are more than just catchwords” (p 12). A few months later, some traders were suspended in connection with a $2.85 billion over-evaluation of assets.
Fortis Board of Directors’ message in the annual report 2007: “We believe that our acquisition of selected activities of ABN Amro can be described as truly transformational.” Nine months later, the group had to drop the purchase plan and was bailed out by the Dutch and Belgian governments.


Yes, reports are assessed, not companies (see above). But when the gap between what is reported and realities is as big as… a bubble, making report evaluation less applicable than a lie detector, a line must be drawn.

For consistency, comparability and credibility reasons (at both ends) it has been decided not to select financial sector institutions for the Annual Report on Annual Reports since 2009, i.e. annuals for annus horribilis 2008 (a premonition: the page for risk reporting examples was already “intentionally left blank” for 2007 reports). This does not imply that there are not (very) good and improved reports in the sector, such as some who ranked (some of them high) in past surveys. However, with a solid track record in the assessment and benchmarking of reports in the financial sector, e.com keeps on providing evaluation services to some financial institutions who strive for higher reporting standards and best practice.


Wells Fargo 2003: No. 1 annual report in 2004.

Q 9. Is report entry free?

Absolutely! Participation in the survey is entirely free of charge, except of course for mailing, downloading, copying or printing costs incurred.
Report submission does not automatically guarantee rating and ranking.
The use of e.com report evaluation services is no prerequisite to -and no guarantee for- being selected, rated and ranked and is independent of the ReportWatch process and the results as published in the Annual Report on Annual Reports. We view this as a guarantee of neutrality.


SCA 2002: No. 1 annual report in 2003.

Q 10. Which documents are assessed?

Documents named, linked to and referred to as “Annual Reports” are assessed, as well as summary versions (reviews, overviews…). Corporate social responsibility (CSR) and sustainability reports are checked, either in printed, PDF or online format, not as such but as a component of annual reporting. Proxy forms or separate governance documents are considered when made accessible enough.

Reports simply made up of a legal file (e.g. 10-K, 20-F or other similar GAAP and proxy forms) are considered as eligible -even if they fail to match a significant number of our evaluation criteria- only when they are compared to more elaborate reports. That explains why a number of well-known blue chips who stick to purely legal reporting forms do not qualify for being rated and do not appear in the ranking.


CIBC 2004: No. 1 annual report in 2005.

Q 11. Printed or online reports?

The sharply increasing use of Internet as a corporate communication and investor relations channel is reckoned with. Most of the ReportWatch process is now based on HTML reports or PDF versions downloaded from corporate websites. However, printed copies, printouts or effective e-books are still preferred when it comes to in-depth report screening. When an online report is judged as optimized for reading, the scoring and rating is based on it. In other situations, and these still constitute a very large majority, PDF, e-book or printed versions are scanned.

The ReportWatch criteria are based on report content and apply whether published on paper or on screen. The investor, analyst, stakeholder and any reader should find the information required by regulatory bodies as well as what the company makes available beyond compliance whatever the mode of communication. Except for communication and a few specific aspects, all evaluation criteria (see below) apply in both printed (or PDF) and web (or HTML) contexts.

Does that imply that an online report should simply be a copy-and-paste of a printed one (the so-called “interactive” 10-K being the most laughable example) or, in the future, vice versa? Certainly not. Corporate and investor websites can be used to (re)format, (re)structure, (re)build annual and other reports, and, in best practice, to add value by providing extra features and contents for stakeholders. These aspects are taken into account in our scoring and rating job.


BASF 2010: No. 1 annual report in 2011.

Q 12. Which evaluation criteria are used to score reports?

The total number of evaluation criteria is 50, with each item scored on a scale of 0 to 2. Evaluation criteria are divided into 10 categories. Maximum marks are 100.

The report evaluation criteria are:

1. Packaging
2. Highlights
3. Strategy
4. Business
5. Financials
6. Investors
7. Governance
8. Accounting
9. Responsibility
10. Communication

Though the emphasis has always been placed on financial and performance reporting and investor indicators, report assessment criteria have consistently been based on a well-balanced perspective blending financial and business analysis, short- and long-term performance aspects, strategy and operations, visual and textual elements, share- and broader stake-holders issues, information content and communication style, whether in print or online. Evaluation criteria have evolved -an explanation to changes in report ranking in some cases- and are updated and upgraded regularly.

The scoring process is the first stage of the ReportWatch assessment. It is carried out by e.com report analysts (financial analysts, investor relations specialists, corporate communication advisers, accountants, economists, copywriters, at senior or junior levels) and it provides a basis for final ratings by the rating panel and results in the report ranking published in the Annual Report on Annual Reports.

The increasing complexity of reporting requirements and… the overall improvement in reporting practices over the last decade have made our scoring job more difficult. If the gap between lowest marked reports and top ones remain as big as in the past, there is less than a 20-point difference between some reports ranked between 100 and 150 and top 20 ones.

Neither the total score nor the breakdown is publicly disclosed. These are only available through an order for a Report Scan (°) placed directly by the company or via an internal representative or external agency. In addition to the marks, the Report Scan (see below ad) gives an overview of pluses and minuses based on e.com’s desk research for the Annual Report on Annual Reports.

(°) Scans are among the numerous evaluation services that enable e.com to publish a self-financed survey based on independent research. Go to http://www.reportwatch.net/e-com/making-reports-pay-off for more information.


Telus 2005: No. 1 annual report in 2006.

Q 13. Are the report marks made public?

No. Only the ratings are made public. In line with our tradition since the launch of this survey, the total score or its breakdown is never publicly disclosed. It may be obtained by companies or via their advisers through an order for a Report Scan (an edited output of e.com’s internal desk research). The revenues generated through scans and other evaluation services help us produce the Annual Report on Annual Reports –and keep it independent.


Electrolux 2007: No. 1 annual report in 2008.

Q 14. How are reports rated? What is the rating panel’s role?

Based on the marks resulting from e.com’s scanning job, an internal rating is given to reports. The primary role of the independent rating panel is then to cross-check top reports scored by e.com and to help move from a very quantitative and “dry” scoring to a more qualitative rating, based both on intrinsic report value and communication towards various investor and stakeholder audiences. As a result, some reports are upgraded while others are marked down, from slightly to significantly. An estimated quarter or third of top 100 reports move up or down in the ranking after rating panel’s intervention. Because of rising reporting standards, better practices and increased homogeneity in requirements, and like for the scoring job (see above), the rating task is more difficult than in the past. One example: between 2002 and 2011, the number of reports rated B+ and above has increased by 50%.

Panel members are appointed for their experience and expert knowledge in corporate reporting, financial communication, investor and public relations, and any matter related to report publication and content (see separate section for panelists’ profiles).The ReportWatch rating panel has always been characterized by its diversity (see http://www.reportwatch.net/best-annual-reports/report-rating).
Panelists have to judge independently of their own interests (reports in which panelists are or have been involved may not be judged by them). Individual votes are not publicly disclosed. The final ratings and ranking as published in the Annual Report on Annual Reports are the sole responsibility of e.com - ReportWatch.

Ratings and rating agencies have drawn a lot of criticism these last years, mainly due to the use and misuse of measurements, questionable accuracy, misjudgments, et al. It is worth reminding that, even when based on objective assessment criteria -what we are trying to achieve with our annual survey- ratings are also often made up of more subjective judgments and hardly avoid bias. Our report ratings should therefore be seen as indicative and not be considered as an opinion about the companies/stocks/investments.


Adidas 2008: No. 1 annual report in 2009.

Q 15. What are the report ratings?

Report ratings are:

A report scan?

How is your report doing?
What is your report rating? How does it score –in total and on all evaluation criteria used for the Annual Report on Annual Reports?
Order a REPORT SCAN. An edited output (°) of desk research done by e.com report analysts, it provides your company (or advisers) with the complete score breakdown for 50 report items plus a summary of pluses and minuses for each of them.
The price? € 900 or US$ 1,200 or £ 800.
(°) For copywriting and editing reasons allow a few weeks for delivery.

E-mail your order to: e.com@reportwatch.net