Nothing spreads as fast as news about your failings. Company chairmen naturally take a grave view of their company being brought into ridicule, so you must do your utmost to ensure that the corporate annual report is sent out, as far as is practical, in a perfect condition. But what can go wrong and just how can you prevent simple mishaps and downright blatant errors from occurring in your corporate annual report?
Even the normally best-organized company cannot take anything for granted to the corporate annual report. For many shareholders and other readers the “annual report” is “the company”. It is all that readers see about the company. To them, the annual report is not the ‘tip of the iceberg’ – what they see represents the company, no more and no less. If you make mistakes or if they find omissions in the report they will naturally assume that this carelessness is indicative of the rest of your company. The corporate message you wish to convey will be sadly diluted. Even relatively simple mistakes can be acutely embarrassing and some mishaps will make you the laughing stock of the business world.
Even in the best-run operations things can ‘go wrong’. When you have checked, double-checked and then carried out one final check there will still be something, somewhere, that is missing, misspells, in the incorrect location, uncaptioned, in appalling English and poor grammar – or, sometimes, just plain wrong. You can never eliminate all errors and mishaps – just try to reduce them to the absolute minimum that is humanly possible.
Through this post I offer some tips that may contribute to address issues mentioned on the above preface paragraphs.
Avoiding The Rush
The principal problem with annual reports is that they are frequently prepared in one almighty hurry. At the year-end, most of the company’s accountants are rushing around trying to finalize the accounts and seeking problems and challenges the auditor’s seal of approval. Further complicating matters can be delays by the company’s senior management in writing their input. The chairman and chief executive can sometimes be slow in drafting their inputs to, for example, the chairman’s statement and the operating and financial review.
They frequently have other demanding roles and responsibilities and believe that they can ‘do’ their submission for the report when they have a few spare moments. And, of course, they often fail to find the time and continually postpone the delivery of their input – not always being aware of your looming deadline. It is at this often panic-driven stage that mistakes arise.
Overcome Insider Politics and Pressure
You must also be prepared for the internal politics and pressure created by the production of the annual report. Too often, the chief executive or managing director believes that he or she has an almost automatic right to make their opinions or views dominant in the report. Sometimes they will have no strong feelings about the report’s message at the start of the process but, towards the conclusion of the project, they come up with all manner of suggestions, which might or might not have been useful at a much earlier stage. It is often difficult to explain to a senior figure in the company that his or her opinions have arrived too late. As a result, some reports attempt to incorporate the chief executive’s last-minute suggestions – just to keep on the right side of senior management. The outcome is usually a report that resembles a rather poor and disjointed compromise.
You must try to resist these final changes. At this stage, there is no easy way of, or solution to, saying ‘no’ to your chief executive. The best way to avoid this situation is to stress strongly, at the outset, that all ideas and suggestions from everyone must be submitted early in the year. Emphasize that fundamental changes are utterly impossible during the closing stages of production. Politely, but firmly, stress this point to senior management early in the year, pointing out such last-minute changes can so easily destroy the theme of the report and seriously distort the company’s message.
The report should be prepared in as much detail as is practically feasible before the final rush. All supporting photographs, diagrams, trend figures, directors’ bibliographies and other material that can be considered well in advance should be checked a month or two before the deadline. Make a checklist of items and of work that is still outstanding. Clearly indicate the date by which you expect this work to be completed and indicate the name of the colleague responsible for chasing up the outstanding material.
If the chairman or chief executive has failed to complete his or her submission, there is no excuse for not politely reminding these individuals of their role and obligations. Repeated but discreet telephone calls to their secretaries will usually secure their cooperation eventually. If need be, the deadlines can always be exaggerated a little in order to get the work done.
The chairman’s secretary can even be informed that the deadline is a fortnight earlier than it actually is. You will then have a two-week margin of safety to play with. Problems can also occur with members of the annual report’s committee. Personality clashes, policy differences and a lack of shared goals can easily undermine the nature and form of the report. If there are significant problems in the committee they must be ironed out sooner rather than later.
Individuality, creativity and a variety of opinions are welcome in the initial stages, but there comes a point at which a consensus has to be obtained. If dissident members cannot agree on key issues, then the lead manager must ultimately take charge. The dissident members must then either conform to the corporate view or consider instead whether their career could best be served by moving to another project or even to another part of the organization. Organizational in-fighting has no place in preparing the annual report.
Avoiding Accounting Delays
You should also monitor the progress of the work of your accountants. At the year-end, time is at an absolute premium. In many companies outright panic sets in. Since the accounting input is one of the key features of the report, it is self-evident that nothing can proceed without the financial information.
Even when the accountants have finished their work, it will need to be approved by the auditors, and therefore further delays may follow. In some companies, constant delays, last-minute alterations to the figures and also discussions over accounting policies can potentially delay publication by days or even weeks.
The financial systems of most large companies nowadays are normally designed to be kept up-to-date on a continuous basis. However, there is still important work to finalize at the year-end. Nevertheless, most large companies will expect to have their accounts completed and ‘signed off’ by the auditors within the space of a few months after the year-end. Time is now of the essence for accountants.
Since you should have already set your report deadline many months ago, you should convey this date to your accountants. Stress that the deadline must be hit, even if the accountants need to work a seven day week. Once the accounts have been prepared, it is normal practice for the figures to be carefully checked and rechecked and then to be presented to the finance director for his or her approval. The finance director will usually also carefully check the key figures in an overall, or global, sense. But even in the best-operated companies, which are audited by leading auditors, mistakes can still creep into the financial picture. A notable case occurring a few years ago springs to mind, when positive cash balances ended up being classified as an overdraft – and agreed by the auditors.
Once you receive the typed proofs of the financial statements make sure that they have been annotated by a senior member of the accountants’ team and countersigned by the finance director. At least it will be easier to apportion blame later if there are delays or mistakes. But apportioning blame is not your primary aim. You need to ensure that all errors and omissions are eradicated first time.
It is useful to ask the accountants for a copy of the accounting checklist when they send you the accounting proofs. This checklist is used by the accountants themselves to ensure that they have included all the accounting statements, notes and details. You can then, if need be, carry out some spot checks of your own.
The manager charged with taking overall responsibility for the report should also inspect the financial statements, which by now should have been signed off. Place these with the rest of the report so that the whole document can be inspected in context. If your company is additionally publishing summary financial statements, then make sure that they include the correct extracts.
Although it is helpful to have some accounting background or training to read the accounting content, it is still possible for non-accountants to identify glaring errors in the financial statements. You should also read the report in its entirety. Reading only segments can lead to areas being omitted.
Although it is not normally the lead manager’s explicit responsibility to check the figures for accuracy of additions or layout, it is nevertheless wise to adopt some random checks on a selection of various figures across a number of pages. If errors are found at this stage, the organization has certainly got significant problems. The accountants must be recalled now from whatever they are doing – correcting any errors in the annual report must be the top priority.
Other Final Checks
Check the narrative content for your corporate theme and message in sections such as the chairman’s statement, directors’ reports and operating and financial review. Read all the sections together. Do they all fit together to make a coherent discussion and convey the message you originally intended to make?
It is now probably too late if parts of the message have ‘gone astray’ but if the full sense of the message seems to have been partially lost this year, you should ask yourselves ‘Why?’. You can then incorporate remedies and changes next year.
Check the very obvious – some areas are often overlooked in the checking process, just because no one ever dreams that there could be mistakes of that nature. This, of course, is the very reason why you should do it. In particular, you should:
- Read the whole document for good English and sound grammar.
- Ensure that the page numbering is correct.
- Check headings and subheadings.
- Check cross-referencing, especially any supporting notes to the financial statements.
- Check the dates, especially the dates of the profit and loss account, cash flow statement and balance sheet.
- Check that the correct date appears on accounts when they are approved by the directors.
- Ensure that all photographs are appropriately titled and all individuals in the photographs are correctly identified.
- Check that all diagrams, graphs and illustrations are to scale, clear, well explained and cross-referenced to the text, if applicable.
- If applicable, check that your summary financial statements have been properly prepared and correctly signed off.
There are other checks you should make on your report, externally to your organization. The next stage in producing the report is the printing and, even at this stage, it is still possible for mishaps to occur. Normally, if properly ordered and correlated pages are submitted to the printers, an acceptable finished product results. But what can understandably confuse printers are the last-minute changes or inserts of new text. Often your instructions in respect of these changes can easily be misinterpreted.
Although printers understand that their clients may sometimes wish to change some sections of the report just before final printing, this practice should be avoided. Most printers will do their utmost to incorporate your alterations, but you are treading on dangerous ground. The risks of errors appearing will multiply exponentially at this stage. Only request changes if absolutely necessary. Put it another way: will you or your company be made to look foolish if you do not make the amendments? If you are going to be open to ridicule then you may reluctantly have to consider these eve of publication changes.
You might also wish to inspect some early copies of the report once the printing process has begun. If convenient, visit the printers and watch a few copies come off the print run. Most printers will run off a small initial print run and you should meticulously inspect the form and content of the report. Sometimes the mistakes are not yours. However careful your company is, printers can and do make mistakes, or misunderstand your instructions. Clearly, if the mistakes lie with the printers then the remedial expenses are down to them, but these are of little concern if a mistake delays your report. So, a check at this stage helps prevent last-minute errors creeping in and keeps your report on schedule.
Paper And Packaging Checks
Do not forget to check the cover pages, binding and the quality of paper and coating. Admittedly, it is often extremely expensive to change any factor at this stage, so if you do discover that some feature is not to your preference you will have to consider whether the errors justify the remedial costs. In many cases they will not. But you should bear in mind the points for next year’s report.
Remember to make a final check of the suitability of packaging material. Is there enough? Is it the right quality? Always remember to check the obvious – even down to making sure that your reports will actually fit in the envelopes. Check that you have the correct names and addresses of your shareholders for addressing the envelopes. The list of shareholder’s names and addresses will normally come direct from your share registrars, most of whom keep exemplary records. But watch out for human error.
Even check that the list of shareholders is your company’s list (and not another company’s). Spot-check a few names and establish that they are your current shareholders – you do not want to use an outdated list submitted in error.
Check with the company secretary that all appropriate inserts concerning AGMs, resolutions, voting forms and so on have been included. If you are also sending out summary statements for the shareholders who have not requested the full report, make sure that the company registrars have correctly identified this group of shareholders. You do not want to send out the summary accounts to those shareholders who requested a copy of the full report.
Finally, establish that the report is immediately distributed to those groups on your ‘priority’ or ‘special’ list such as the chairman, large institutional shareholders and key media outlets. It is so easy to forget one of these key groups. Tick them off on your prepared checklists. Do not rely on memory alone.
Learning From Mistakes
If you do find that mistakes have been made, learn from them. Some of the mistakes may not necessarily be within your immediate control. Many may lie within external agencies such as design consultants, graphic designers and printers. Fortunately, with these groups, you do at least have some power in the longer term. You can always select another firm or agency.
However, in some ways, internal mistakes and problems may not always be simple to overcome. Organizational structures, internal office politic and divisional arguments will often take time to resolve. But, if there are difficulties, do not let the issues fester and deepen. You must grasp the issues and, if necessary, take the matter to the highest levels. The annual report is just too important to be spoilt by unnecessary, and largely pointless, internal disagreements.
Place any problems you have encountered before the report committee who will be preparing next year’s report. Like most things in life, preparing the report is a continuous learning process. Never accept that your report cannot be improved; never believe (because of your checks) that mistakes cannot happen in your report; and always accept that you can do better next year. There is always room for improvement.
Preparing For Difficult Questions
There is another related matter of concern. On the day when the first copies of the annual report are issued, your public relations or corporate communications (or the equivalent) department in your company must be on standby for any enquiries. But not only should your PR department be primed; there must also be back-up advice available from other technical support operations. As some of the public and press enquiries can be very technical with regard to, for example, accounting or company secretarial issues, your finance department and company secretary should be ready to provide your PR department with technical answers to complex enquiries.
It is best to channel all enquiries through named representatives in the PR or corporate communications department. In this way, sound working relationships can be established with institutions and media groups. Individual departments should not normally respond directly to enquiries. Fragmented replies may lack the authority and comprehensive response of a more clearly defined and properly channelled corporate voice.
However, there are a few stock issues and questions that are often pursued when the report is actually issued. And the level of corporate earnings (profits) is not usually one of them, as the company’s earnings figures will have been published some months earlier in the company’s preliminary announcements. The issues that the media focus on are usually more specific and politically sensitive areas concerning the level of the directors’ remuneration packages and chairman’s thoughts on future business.
Directors’ compensation packages never seem to fail to generate interest from media groups. Whether through envy, spite or just to discover what the directors have done for their remuneration, this topic attracts a high degree of media interest. The notes on directors’ remuneration are regarded, rightly or wrongly, as key areas of public interest.
As discussed in the directors’ report, the legislation requires companies to give a reasonably detailed breakdown of both the chairman’s and highest paid director’s actual emoluments, and also the remuneration of the rest of the unnamed directors, in bands of £5000. Journalists will certainly be interested in this – especially if your company is listed, has reported poor results for the year and your directors have received a seemingly generous remuneration package.
The other area that often attracts enquiries is the commentary on future trading prospects contained in the chairman’s statement. Most chairmen deliberately portray themselves as eternal optimists in their reports, and some of their predictions need to be treated with a high degree of caution.
Nevertheless, there are still analysts who seize upon the future trading projections. Expect, therefore, to be asked to enlarge on some of these comments. You should be even more concerned, and prepared for more detailed questions, if your company has reported disappointing earnings and your chairman has still insisted on painting a healthy financial picture of the company. Such questions should be anticipated and replies prepared. Almost certainly they will be needed.
Finally, never give a ‘no comment’ response to any question or enquiry. Such a response will certainly lead to even greater media interest; journalists will want to know just what you are hiding.
Annual Report Preparation Checklist
To re-emphasize some of the key topics discussed in earlier in this post, you should refer to the points listed below in formulating, or reviewing, the systems and procedures for producing your own high-quality annual report. These points will also help minimize the chances of problems and errors occurring.
In particular, you should:
- Initially, and crucially, ensure that the production processes of your annual report are coordinated and led by an effective and committed manager.
- Allocate clear responsibilities to the team of contributors involved in producing the annual report.
- Issue a timetable and ascertain budgetary limits.
- Establish the nature of the corporate message and themes that you wish to deliver this year.
- Ensure that all contributors to the annual report are also clearly aware of this year’s corporate message.
- Decide how this message or theme will be delivered in terms of writing, style and the inclusion of supporting examples relating, for example, to your products, customers or employees.
- Identify any opportunities for outsourcing of work, if appropriate.
- Ensure that the lead manager keeps all targets and deadlines under close review.
- Monitor and continually check that vital input from major contributors, such as the finance department or company secretarial department, are not falling behind schedule.
- Do not neglect the importance of design. Just concentrating on content is insufficient in today’s business environment. Nowadays, form is often just as important as substance.
- Ensure the draft annual report can be read in a smooth and seamless fashion and is made as interesting as possible.
- Be self-critical at all times.
- Check and recheck your draft report. Annual reports are notorious for errors arising from the pressure of producing the information at the last minute. Never be complacent.
- Carry out one last check just before the proofs are dispatched to the printers. You can even ask a person not involved in the report’s production to read through the report looking for glaringly obvious errors – so obvious, in fact, that everyone else involved in the report has missed them.
- Carry out a self-reflective review of the annual report soon after it is published. How successfully do you believe that your message was conveyed to your audience?
- Establish how you can improve in the future. You always can!
- Pass your appreciation to all contributors involved in the annual report – you will need their help again next year.
- Be original, be different and be certain (as far as possible) that your message is being successfully delivered.