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Annual report reform: an opportunity to rethink stakeholder communication

01 August 2008

Recent changes to annual reporting requirements provide opportunities to reduce printing and other administrative costs. More importantly, the reforms should provoke reconsideration of how companies can communicate more effectively with their stakeholders.

Until recently, a company was obliged to send a copy of its annual report to all of its shareholders prior to its annual meeting of shareholders (except in limited circumstances). The annual report has also been a key company profile document. As companies have moved to IFRS reporting, the “back end” of annual reports has become more and more complex and lengthy.

While electronic delivery of reports is permitted under the Electronic Transactions Act, the requirement for shareholders to make conscious elections to receive annual reports electronically reduced the take-up of this option.

Annual report election notices

Under recent amendments to the Companies Act (and, for listed companies, the NZX Listing Rules, which also extend the changes to half-year reporting obligations), a company may now elect to send shareholders its annual report, or an election notice including statements:

  • that the shareholder has a right to request a copy of the annual report, free of charge

  • that the shareholder may obtain a copy of the annual report by electronic means, together with instructions on how this may be achieved (e.g. from a specified website address), and

  • a statement as to whether the board of the company has prepared a concise annual report (i.e. an abbreviated version of the annual report which must, as a minimum, contain certain summary financial information for the relevant period).

An annual report made available electronically must remain readily accessible and usable for subsequent reference until an annual report or an election notice is sent to shareholders for the next year.

While shareholders remain entitled to request a hard copy of the annual report, over time it is likely that many companies will cease producing traditional full format glossy reports. Companies will be able to satisfy a shareholder’s request for a hardcopy annual report by providing a copy printed on a standard office printer.

Benefits of the new regime

At face value, the primary benefit of the new regime is cost savings through not having to print significant quantities of glossy annual reports. The changes allow companies with sustainability programmes to take an approach to annual reporting that is consistent with sustainability objectives.

The cost-saving benefits for closely-held companies may be negligible, given low shareholding bases and that many closely-held company shareholders will have waived their right to receive an annual report.

More significantly than cost savings, the new regime offers widely-held companies opportunities to communicate more regularly, effectively and innovatively with their stakeholders. Companies electing to send an annual report notice are permitted to send additional documents with that notice. So, companies that have a preference for shareholders to receive some form of hardcopy report could elect to accompany an annual report notice with a concise glossy “shareholder review” document with the type of information usually found at the front end of a traditional annual report.

Companies electing to send only an annual report election notice will also have the ability, through the election notice, to direct shareholders interested in greater detail to appropriate sections of their websites. Once there, shareholders will be able to access the annual report, as well as information in a more digestible and interesting form than traditional shareholder communications. Examples of the type of information that could be provided are endless, but might include:

  • PDF copies of documents such as the annual report, press releases, broker briefings

  • electronic copies of those documents in more easily navigable formats

  • interactive financial information

  • regular management update videos (which shareholders could subscribe to via the website), and

  • videos of annual meetings.

While information of this kind is already available to varying degrees on company websites, it is likely that the new regime will result in that information becoming much more commonplace. If nothing else, increased traffic to investor relations areas of the website and inevitable comparisons between companies are likely to drive improvements.

So, it is likely that many companies will reallocate annual report expenditure to improvements to the investor relations area of their websites. Increased website traffic will also provide companies who sell products or services to consumers with an opportunity to promote those products and services to persons with a vested interest in supporting them. This could include the use of links to sales/marketing areas of the website or shareholder specials available in the investor areas.

Conclusion

While the new annual report regime provides companies with the potential for cost savings, more importantly, it also offers significant opportunities to improve shareholder communication and interaction. Over time, it is likely that companies will adopt more regular, effective and innovative methods of communicating with their stakeholders, including the increased use of websites for the provision of information.

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