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How the survey was conducted

AR on AR 2018Report ratingsViews about the present and future of annual reportsKey elements of best practices | How the survey was conducted

What is the purpose 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  management  consultancy  that  had  set  up  a  reporting  unit  (spun  off  into e.com in  1999)  aiming  to  advise  companies  on  their  annual  reporting  process  and  content  (primarily  in  the  financial  sector).  Now  in  its  22nd  year,  the  core  business  has  not  changed,  i.e.  surveying  and  benchmarking  best  reporting  practice  to  strive  for  higher  standards  in  financial  reporting,  investor  relations,  corporate  communication,  and  stakeholder  information.  Expected  results  remain:  higher  report  value  for  shareholders,  richer  report  content,  better  access  to  and  transparency  of  company  information  for  all  stakeholders,  increased  investor  confidence,  and  decreased  cost  of  capital.

Which evaluation criteria?

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

Globalized markets, round-the-clock cross-border investment flows, internationalization of reporting standards and their implementation, and the increased complexity of reporting requirements have resulted in an overall improvement of reporting practices around the world and a larger degree of homogenization -and non-differentiation- of annual reports over the last decade.

Report evaluation criteria must remain comparable, at least on a year-on-year basis. This implies a certain degree of stability. But assessment also has to cope with trends and challenges. As a result, criteria have evolved and are updated and upgraded regularly. For those who would have forgotten, governance, compensation, social responsibility, sustainability, integration, value… were almost absent from the reporting agenda two decades ago. Remember the rise and fall of Enron (another “Wall Street darling” -and an annual report considered by our analysts and panelists good enough to reach No. 11 in 1997). The net result of this and other scandals was Sarbanes-Oxley and other related regulations, whose impact on reporting and communication was far from always positive.

Modifications in evaluation criteria may sometimes impact on report score, rating and ranking. Although e.com-ReportWatch emphasis has always been placed on financial, business, strategy and performance reporting and investor indicators, the 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 increasingly broader stake-holders’ issues; information content and communication style.

For annual reports as a whole, five reporting areas were evaluated: communication & style; operations & sustainability; strategy & leadership; figures & financials; investors & governance. 

A focus on best practices – based on report attributes

What are the most important attributes in an annual report? There are, of course, many. For the Annual Report on Annual Reports 2018 we have narrowed down the list to 15 report items or reporting areas. Those are:

  • Cover - Message - Theme - Branding;
  • Business overview;
  • Key figures;
  • CEO/Chairman message;
  • Business model - Value - Strategy;
  • Key performance indicators;
  • Investor and share information;
  • Financial review - Management discussion;
  • Goals - Targets - Outlook;
  • Risk factors, control and management;
  • Leadership - Governance - Compensation;
  • Corporate responsibility - Sustainability;
  • Infographics - Data - Ratios;
  • Digital reporting;
  • Style - Design - Layout.

Each of those attributes may be defined by key words, features, items… (see: Key elements of best practices).

For each attribute, in addition to our scanning and scoring job (see: evaluation criteria above), we have ranked the top five best practices and then selected 25 other examples of reports that deliver. These are listed in alphabetical order. The rating applies to the report as a whole, not to the specific practice as such. Readers will notice that a number of reports appear more than once -actually, on average, reports are listed twice as a minimum. This is due to a premium put on annual reports which perform on more than one attribute and/or deliver outstandingly on many, and sometimes most, evaluation criteria.

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 was first printed and mailed and is now posted online yearly in August. Based both on e.com’s internal desk research and an external panel of reporting specialists, our survey of annual reports’ best practice is widely regarded as the only independent and the most comprehensive, international and authoritative survey on annual reports. 

How were companies selected?

The ReportWatch monitoring process starts with the selection of a sample of listed companies –from 250 to 500 when the survey was launched to about 1,500-2,000 for last years’ surveys. Our sources for selection include published international and local rankings as well as internal desk research based on company positions in their industry, peer groups, and past annual reporting records. Many of the large(st) companies are therefore part of the primary selection yet a significant number disappears later due to insufficient report quality. These last years, we have also recorded an increasing number of spontaneous applications from company report makers keen to benchmark their report against best practice.

Though imperfectly -owing to various factors such as lower reporting standards, emerging reporting 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 still come from mature economies is thus not entirely our responsibility. Still, albeit slowly, in the wake of the power shift in the global economy, the number of reports from newly industrialized or advanced developing countries has increased significantly over the past few 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 more than 40,000. A survey of all of them would probably be a mission impossible to accomplish.

A ranking is competitive in nature. Every report scanned is immediately compared with a peer. As a result, some industries, companies and reports are left out, while some reports are left in just because they are compared to higher ranked peers. As a result, that penalizes hundreds of (un)known companies whose annuals might certainly deserve a good and often better rating.

Note. The name of the company that appears in the Annual Report on Annual Reports is the one as referred to on the covers or as written or abbreviated in key report sections (profile, message). For legibility reasons, legal forms or words such as corporation, company, group, holding, etc. are not reproduced. Except for clarity and communication, names do not 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.

Reports from listed companies – but not only

There are hundreds of thousands and perhaps millions of institutions in the world releasing yearly reports, and some of these can be very exciting –a number being even much more compelling than compliant or puff pieces from the private sector. Still, it seems that the annual report was primarily invented for listed corporations to report to their shareholders. Even though U.S. Steel is often referred to as the first certified annual report, published in 1903, "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." (according to the Addison Annual Report Handbook 2005). As for any survey, a scope has to be defined. Since its inception the Annual Report on Annual Reports has therefore focused on reports from listed firms. (°) These can be compared more easily, and this is even more the case due to the effects of globalization, permanent access to information channels (and internet), and the extensive application of international accounting and reporting standards.

Though the selection and the evaluation criteria remain chiefly 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 companies -including privately or government-owned firms (small or larger)- in our ranking –some of them producing annuals that rival with, and sometimes outstrip listed firms’ documents.

Reports for a fiscal year ending any time in the year 2017 (or the first 2018 quarter when available at the date of scanning) were considered. Were not considered for selection:

  • Reports for a fiscal year before 2017 or interim/quarterly reports.
  • Financial sector companies (banks, insurance, investment funds, financial holdings) (see special paragraph 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.

(°) Note. As a consultancy, e.com regularly advises not only listed firms but also privately owned and publicly (or government) controlled institutions.

Why are reports from the financial sector left out?

For consistency, comparability and credibility reasons, it was decided in 2009 not to select financial sector institutions for the Annual Report on Annual Reports, i.e. annuals for annus horribilis 2008. Note the premonition: for reports of the previous year (2007), best practice in risk reporting in the financial sector was already “intentionally left blank”. The large number of repeated incidents, crises and malpractices in the banking and insurance industries these last years question the input and output of reporting and would make its subsequent evaluation difficult –and risky! We have therefore stopped watching reports from the financial sector ever since.

That 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 competitions. Outside ReportWatch, with its 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 that keep on striving for higher reporting standards and best practice –and, fortunately, there are still some.

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. 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.

That said, investors, especially long-term ones and other stakeholders, might infer some opinions and decisions based on report content for last year and consistency in reporting over a period of time. (°) 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?

Even though a relationship may sometimes be found between company, report and shareholder value, talking of a correlation would be excessive. Consider e.g. the following points:

  • Before the 2008-… financial crisis, some of the financial sector institutions that later showcased malpractice stood out among good- or best-practice reporting;
  • Good performance does not necessarily translate into good reports. In the middle of the worst financial crisis in decades (see: Annual Report on Annual Reports 2009), almost 60 percent of annual reports rated A were made by companies having posted decreased profits or significant losses;
  • Company size or reputation does not mean good reports per se. All over the years some among world-famous companies have never been capable of publishing high-quality annuals (take Apple and Microsoft among many examples). While others, especially in North America, have moved from good quality annuals to purely obedient exercises often resulting in illegible and dull documents (the list of bad examples would be too long to publish);
  • Lastly, a good report doesn’t necessarily equal a “good” company –if we may put it so (with all due caution, that is): 8 companies from our 1997 top 20 (i.e. 40%) have vanished, stopped, or been taken over since then (the list includes Enron), but believe us, some of their reports were really worth a read!

Is report entry free?

Bar the above-mentioned restrictions, any company may submit its annuals at any time.
Participation in the survey is entirely free of charge, except of course for mailing, downloading, copying or printing costs incurred.
Naturally, a 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 that as a guarantee of neutrality.

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 evaluated, either in printed, PDF or online format, as a component of annual reporting. Proxy forms or separate governance documents are considered based on their availability.

Reports simply made up of a legal file (e.g. 10-K, 20-F or other similar GAAP and proxy forms) are only considered as eligible -even if they fail to match a significant number of our evaluation criteria- when they are compared to more elaborate reports. That explains why a number of basic reports are ranked and, on the other hand, 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 rankings.

Printed or online reports?

The increased use of the Web as a corporate communication and investor relations channel has to be reckoned with. Compared to two decades ago, when a small 10% of rated annuals were going for partly web-based reporting, most of the ReportWatch process is now based on HTML reports or PDF versions downloaded from corporate websites. However, connecting the dots from an online report can sometimes be as difficult an exercise as it was ten years ago. Printed copies, PDFs, printouts or effective e-books are still preferred by many -and by our team- 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, PDFs, e-book or printed versions are scanned and scored.

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 a digital report should simply be a copy-and-paste of a printed one, or vice versa in the near future? Certainly not. Corporate and investor websites can be used to (re)format, (re)structure, (re)design annual and other reports, and, in best practice, to add value by providing extra features and contents for stakeholders. These aspects are naturally taken into account in our scoring and rating job.

Are the report marks made public?

Only the ratings are made public. In line with our tradition since the launch of this survey, the total score and its breakdown are never publicly disclosed. It may be obtained by companies or via their advisers/agencies through an order for a Report Scan. The revenues generated through scans and other evaluation services help us produce the Annual Report on Annual Reports –and keep it independent.

How are reports rated?

Based on the marks resulting from e.com’s scanning job, an internal rating is given to reports.
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, etc. It is worth reminding that, even when based on objective assessment criteria -what we are trying to achieve with our methodology- ratings are also often made up of more subjective judgments and perceptions, and cannot completely exclude bias. Our report ratings should therefore be seen as indicative -neither more nor less- and not be considered as such as an opinion about the companies/stocks/investments’ past and future performance.

The primary role of our 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. Rising reporting standards -the number of reports rated B+ and above has doubled over the last two decades-, better practices and increased homogeneity in requirements make the rating task much more challenging than in the past.

The ReportWatch rating panel, made up of all-round and specialist members, has always been characterized by its diversity. Panel members have to judge independently of their own interests (they may not rate reports in which they have been involved or have a vested interest). 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  ReportWatch.

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