Current trends in annual reporting

by Mike Guillaume
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Continuous improvement -but not everywhere

In parallel with homogenization (see below), as a result of it, or sometimes independently, the last years have been marked by continuous improvement in (annual) reporting practices around the world and across the board. When the Annual Report on Annual Reports was launched, good reports were mainly a Western thing, and very much an American affair (13 U.S. reports in the 1998 top 20).

Highest rated annuals still remain predominantly European, with a strong north wind: these last three years, more than 40% of the top 50 were produced in Scandinavia. Reports from German-speaking countries are stable, while a number of French and Dutch have improved and British have come back. Ten years ago, two handfuls of Asian companies, mostly from Japan, were making the top 200. This year, 21% of top 400 annuals come from Asia (including Japan). Indian and Chinese blue chips are still lagging or making slow advance (bar a few exceptions) but, besides progress made in Japan (10% of this year's top 200, less than 6% ten years ago), let us point out that more Malaysian reports than Italian ones are now ranked in the top 400. Talking of BRICS, South African reports outstrip e.g. Spanish ones in the ranking, and Russia delivers almost as many top reports as India, which has a longer -and more transparent- reporting tradition.

Now the other side of the coin: former report pioneers and trendsetters, i.e. the U.S., have gone down. Ten years ago, more than 20% of top 100 reports were from the U.S. (a percentage that was already decreasing). This year, there are as many U.S. reports ranked in top 400 as in the 2004 top... 100, and most of them rank lower than 100 (Note that Canadian neighbors have maintained or strengthened their rankings in the meantime.)

Many companies have followed suit in the drive for better reporting. However, the gap between lowest marked reports and top ones is almost as big as a decade ago. In the 2014 edition of the Annual Report on Annual Reports there is still a 30-point difference between top 10 annuals and the bottom of top 300.

More homogeneous...

Several trends in the last years -and decade- have resulted in an increased homogenization of reporting:

  • Globalization of companies and (financial) markets;
  • Internationalization of reporting standards (IFRS et al.);
  • More demanding and converging regulatory requirements (remember Enron et al.?) with related efforts in compliance (Sarbanes-Oxley et al.);
  • And cultural homogenization in investor relations and corporate communication (not least yet not only through the use of English as lingua franca).

The result is more homogeneous reports than in the past, with many elements often blended into a similar structure or pattern, whatever the company, country or industry. This has also led to higher reporting standards and better quality of information. That allows easier comparisons by analysts, shareholders and investors, but it also makes ReportWatch's scoring and rating process much more difficult than in the past! In 2014, two thirds of top 300 reports were rated B+ or higher compared with one third ten years ago. Back in time, from 1996 through 2001, two-thirds of top 100 reports were rated B maximum or lower on key reporting areas.

...but often standardized, repetitive and undifferentiated

Standardization is both a cause and an effect of growing homogeneity. For the better, i.e. comparability (with previous and against peers' reports); and for the worse, i.e. predictability and less and less originality in various report attributes. Admittedly, it is difficult -if not impossible- to be creative in financial statements and notes. But why should they be so tedious? Isn't there a way to explain how they work, to interpret figures, to help the reader? CLP (Hong Kong) stood among the first -and only- reports doing this exercise, now also applied by Boliden from Sweden, where many companies keep on sticking to the good practice of explaining movements in statements next to... statements. Sasol (from South Africa) remains an exception in backing notes with charts. And Danish companies have innovated by placing accounting policies near related notes. With the exception of those rare examples, reporting standards for accounting matters are just, well, standardized (a polite word for boring). If it was just about the numbers! Many annual reports look like being cast in a mold and officers in charge are not keen to break it, even if the format is overused or the model broken.

Another downside is repetition. This is somewhat connected with the fact that publishing an annual report is mandatory. Thousands of companies just stick to a legal format -adapted or not- and repeat it year after year. Reporting as a necessary evil or as business as usual, that is what has happened to U.S. annual reports over the last decade (except for a few words and the figures, some have produced almost the same report for five years or more). Although all companies, countries and industries didn't fall into the same "compliance only" trap, many use the same template without too many efforts. The number of Fortune-ranked companies following this model is not small -witness the number of non-ranked famous blue chips on (or, better put, outside) our list.
To be fair, repetition may work very well too. "Never change a winning recipe." True, but the recipe should be made of good ingredients and the meal tasty. More than 50% of this year top 20 reports already ranked in the top 20 three years ago. Some of them have reused the same ingredients. It's only natural, especially when they are of high quality, and because shareholders and investors would like to find something they are familiar with. But, like good musicians, some executives and report makers change a few notes, a chorus, or a beat to avoid playing the same tune. Repeating in A like Philips, in B like General Electric, and in C like Microsoft does not strike the same chord with the report audience.

Report differentiation should be to corporate communication what product differentiation is (or was?) to marketing. In spite of what is trumpeted by branding and advertising agencies, distinguishing reports has sometimes become as difficult as... recognizing products. "Well positioned and resilient to capitalize on business platforms to create sustained growth, robust results and sustainable value for shareholders." Read that somewhere? Corporate lingo, executive doublespeak, consultant's gibberish, buzzwords, clichés, business fads, trite comments, auditor-sealed formulas, photo-library pictures, social media hype, etc. Reports with a distinctive style, content and ID are harder to find these days. By the way, it didn't take long before online reports start looking like each other. In less than five years, most of the design work moved from invention to aping apps. Rest assured that ReportWatch does all what it can to find better and best practice both in print and online (Check our lists for report attributes. And have a look at past editions of the Annual Report on Annual Reports.)

Talk global, work local

Globalization of markets, cross-border investments, the role of institutional investors and funds, international accounting standards, round-the-clock information have impacted greatly on reporting. The challenge is virtually the same for report makers whatever the company, industry or country: preparing and presenting financial information in a way that is relevant, accessible, more timely, reliable, comparable, understandable and appealing to a wider and more diversified audience than in the past. Content, structure and architecture of documents -whether printed or on screen- are increasingly homogeneous and standardized (see above). Like products and services, reports must be able to travel to reach foreign stakeholders and reach out to international investors and analysts.

Nevertheless, annual reporting remains largely a local business when it comes to design, preparation, production, and physical distribution (when it's still used). Working with local suppliers and service providers remain a "comfort factor" for most CC and IR departments. Only a few communication agencies based in London, UK (and very few from other places such as Vienna, Austria or Colombo, Sri Lanka) have been capable of exporting and offering services remotely, though with patchy results. For some to such an extent that client reports appear more as designer's books than as reflecting a company identity (a number of Dutch, Swiss or- Russian reports really look and sound British. Not exactly a way to convey a strong personality, that is).

National peculiarities still exist. Because it is important to keep on attracting local shareholders or to boast company's origins, or simply because globalization often means less differentiation. A Japanese, a Swedish, a British or an Indian report are instantly or easily recognizable, thanks to a number of characteristics sustained over the years. Some of these are real pluses. Other aspects fall into self-regulation, self-reliance, self-indulgence or another "self-something". Why have most listed U.S. companies fallen for a compliance-only model and gone for the drab uniformity and poor intelligibility of Form 10-K, with or without narrative? Why do almost all chief executive statements in German annuals look virtually interchangeable from the salutation to the signature? Why do French firms leave most of financial information out of reviews (often nicely done though) and cram it into long "Reference Documents"? Why aren't Spanish report makers capable of coming up with a report in English before six months? Why are shareholders of British groups forced to learn about TSR in the remuneration report and not as investor information? Why that mishmash of "annexures" and other items in Indian annuals? In all those cases, wouldn't a bit of emulation harm?

Integrated reporting: trend or fad?

In an issue of the Accounting, Auditing & Accountability Journal, R. L. Burritt and S. Schaltegger were asking that question about sustainability reporting. That was in 2010. Asking the same question four years later proves that it was not a fad. Integrated reporting is the logical consequence of the growth of sustainability and corporate responsibility as issues, both as such and in reporting. About 300 responsibility reports were published in the mid-90s; about 3,000 were produced in 2010. This number has probably trebled in less than five years, with a growing tendency towards combined and integrated reporting. One report out of three in the 2014 Annual Report on Annual Reports top 50 may qualify, partly or fully, as "integrated".

According to some research carried out in the mid-2000s and confirmed recently, one-third of investment decisions are based on non-financial attributes. Companies must now report to a broader audience than shareholders -themselves often looking beyond numbers too- and speak to several categories of stakeholders. These expect more than accounts, financials and business indicators, and want to know why, where and how companies create and add value, and how they deal with responsibility and sustainability.

Embarking on combined or integrated reporting means new challenges to executives and reporting teams. Defining what "integration" effectively implies (also in day-to-day operations), managing a bigger volume of data, describing a business model effectively, keeping documents readable and accessible (in print and on screen), etc. Let us point out two potential pitfalls.

A first pitfall is the definition of integration. Consider the (mis)use of a concept such as "Sustainability", which has increasingly been recycled into (sometimes empty) corporate speak about "sustainable" and then simply "sustained growth". Not sure the latter expression has much to do with sustainability as defined in GRI words and used by many stakeholder groups. In a similar vein, making "Integrated reporting" boil down to "the creation of value over the short, medium and long term" (as defined by the IIRC) may sound either all-embracing or quite narrow. Even more when you read that communications "are principally aimed at providers of financial capital". Aren't many among these still keeping a very short-term perspective on investment and performance? Last but not least, integration and sustainability should not be reported at the expense of business and financial reporting, which remain the primary raison d'être for reporting.

The second pitfall is information management and, more tangibly, the subsequent overload and report length. More information is made available, while most readers (and surfers) spend less time reading reports than in the past. How do you deal with this? In a concise book as Novo Nordisk -a pioneer in integrated reporting- has achieved it for years; in a hefty piece like ACS et al.; in separate books like Stora Enso and many Japanese firms; in a web format like Novozymes?

Online but not only. Optimizing the channels to report

These last years have shown an increased use of web-based annual reports. The first place where you can get access to an annual report is no longer your letter/mailbox but a company (or other) website. Time flies! We are just out of the trial-and-error years in internet reports, and many companies are still wavering between a print-first -less and less-, an all-online/on screen -not as many as one might think-, or a mixed reporting policy -a majority of reports for now-. Vienna-based digital report specialists from Nexxar refer to the latter categories as "Digital thinkers", "Print reducers", and "Multi-channel publishers".

What is the most appropriate channel or medium for delivering the report (the results, the message, the strategy) is the first question, as Renee Carter says. And the answer is... not always that simple! Print first or only? HTML only? PDF too? PDF only? HTML + PDF + print? One or more documents (e.g. for CSR, sustainability, integrated form, case studies, etc.)? One or more applications? A dogmatic approach would be ill-advised here. Just take a few picks among top 20 or 50 reports. Some of them stick to a classic format, without online extras. On the other hand, check the online reports selected for best practice and you discover a variety of options to choose from. One thing is for sure, according to Renee Carter, Managing Director at Designate (Sydney) and ReportWatch panelist: "The annual report now 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." Martin Sagmüller of Nexxar has identified no less than 16 possible actions (in five steps) to get more readers for/surfers on the annual report all year long -and, why not, investors for a few years.

Shorter reports? Not a trend

"Annual reports don't need to be so long. Compliance fatigue is no excuse for lengthy, unwieldy reports. Financial directors must ensure that each word counts." (Robert Bruce, on A large majority of companies don't give heed to that remark and keep on producing long and heavy reports. However, Japanese and Scandinavian report makers are still capable of making it concise (many around 100-150 pages). Note that, despite appearances, going for online first or only does not decrease the volume, far from that! Printed versions, whatever the printer, are on average in the 150-250-page bracket. A growing practice is to reduce the report size for "core" annuals and to play with links to/on the corporate website (e.g. for sustainability, case studies, videos, factory data...).

No more prints? Maybe a trend

Almost five years ago, Mikael Wegmüller, a marcom director at a Finnish company, asked the question on LinkedIn: "The printed annual report: obsolete or not?" Read the comments summed up on The discussion is as topical as then. If, indisputably, as it is the case for newspapers, less reports are printed and distributed than in the past, the need for sheets of paper (printed or copied from PDF files) remains for those who want a closer look and a better grasp than a glimpse at a screen.

Looking forward? A trend, really?

A survey conducted among buy-side investors worldwide by U.S.-based Rivel Research showed the "clarity of business strategy" and "growth potential" as the two major aspects considered for long-term investment. Where else can it be better explained than in an annual report? Still, the days of the old report style aren't over: "A report created annually that provides an analysis and assessment of the trends of the past year," states an accounting website. So, "most annual reports actually say very little about how companies and corporate executives plan to get from point A to point B, or give other information required to gauge future performance," says Shelley Taylor, a reporting expert. Instead, readers are served with those cautionary "forward-looking statements" (another U.S. export). After the tyranny of short-term (so-called) shareholder value (is this really over?), the now hyped-up long-term value is back in fashion e.g. in integrated reporting. This shouldn't hide the fact that many, if not most, annuals don't dare to commit on a thorough outlook for the next fiscal year (Germans are a notable exception here) and even less on medium-term objectives and measurable targets (Japanese remain boldly apart with these).

Looking forward to more continuity and change...

Mike Guillaume

Trends compiled by Mike Guillaume, co-founder and Editor of the Annual Report on Annual Reports, based on direct observation and on comments from panel members and report analysts. © August 2014

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Mike 4 faces's co-founder and ReportWatch kingpin Mike Guillaume wears a few hats, including financial reporting specialist and international economist, and has therefore good vantage points for monitoring companies, reports and management; as well as for watching economies and economics work (or not). Learn more about Mike's experience and expertise here. Read about Mike's work and views, including his recent book "The Seven Deadly Sins of Capitalism", on