An article by Herbert Smith Freehills asked the question, ‘What do One Hundred Years of Solitude, A Tale of Two Cities, Wuthering Heights and Harry Potter and the Philosopher's Stone all have in common?’ The answer was that they are all shorter than the average FTSE 100 annual report and accounts. While many of us would be happy to while away a few hours immersing ourselves in a great novel, it’s hard to believe that even the most dedicated governance professional, board member or shareholder could find similar pleasure in reading an annual report.
In 2023, James Ashton, Chief Executive of the Quoted Companies Alliance wrote an article for G+C, in which he stated that ‘An average company whose shares are traded on the London market is putting out a yearly document that stretches to 95,000 words, making it longer than George Orwell’s 1984 − although hopefully less dystopian in outlook.’
At the risk of taking the literary comparison too far, unlike a different James’ famous giant peach, annual reports are still growing. So, what could be fuelling this, and how can we slow or even halt the expansion of the annual report in the face of ever-increasing regulation?
The breadth of issues that annual reports now cover is huge. Among other things, organisations are expected to publish information on their strategic progress, ESG initiatives, board diversity, employee engagement and CEO remuneration. The UK Corporate Governance Code, which will apply to financial years starting on or after 1 January 2025, asks companies to strengthen their reporting on material risks and controls. We’re also witnessing a proliferation of ESG reporting requirements across jurisdictions which threaten only to add to the page count.
More information should be a good thing. But at what point do we say, ‘too much’. It could be suggested that if an organisation is unable to identify who might find the information useful, or how it might influence a stakeholder’s decision-making, they ought to be questioning why they are publishing it. According to the FRC, the annual report ‘should provide investors and other stakeholders with clear and relevant information on the company’s performance and prospects to help them make informed investment decisions and to promote effective stewardship.’
This is about companies telling their story rather than providing ‘boiler plate’ statements that are copied and pasted from year to year and could apply to almost any company. As Peter Swabey, Policy and Research Director at CGIUKI has previously commented, ‘I have always believed that the annual report is an opportunity for the company to tell its story; to explain how it creates value. And it is a blank canvas on which the company can write.’
It may be that the length of annual reports is completely justifiable. In which case the question becomes how can we make their production more efficient? And how can readers be better guided to the information that they need? It’s worth thinking about whether everything needs to be spelled out. The saying goes, a picture speaks a thousand words – but not if it is just pretty and irrelevant to the content. Ask whether a chart or table can be used to pull out key information. Can section summaries be applied to help readers ascertain whether the following pages are of interest to them? As Grant Thornton notes in its 2023 Corporate Governance Review, ‘stakeholders dip into specific sections rather than reading reports from cover to cover.’
Companies may also publish a number of topic-specific reports which cross reference one another. Luminous noted in Reporting Matters 10 that having too many different reports can make it more difficult for ‘stakeholders to understand how disclosures hang together. This was exacerbated by poor signposting between reports and the fact that … reports were often presented in separated download centres which didn’t necessarily include all relevant documents.’ To emphasise this point, ISSB and CSRD both specify that companies should not use cross-referencing in a way which makes understanding ESG discloses more difficult.
Those preparing annual reports should bear in mind that some report readers may want to be able to match information to specific disclosures – excessive use of cross referencing can make this more difficult. The requirements of different audience groups can be a useful consideration when organising reporting and categorising content.
Perhaps technology has a role to play here. Annual reports are no longer confined to printed booklets to be posted out to all shareholders, and companies are increasingly adopting landscape rather than portrait layouts as these tend to work better on a screen. Interestingly, adoption of scrollable pages or even microsites seems to be much slower despite the potential benefits that these formats can offer, especially when it comes to linking between content. There are also very few instances of companies publishing spreadsheets alongside their annual reports, however, this option is worth considering as they provide a convenient option for investors, regulators and rating agencies.
Regardless of length or format, the preparation of the annual report takes a lot of effort and skill, much of which is provided by company secretarial and governance teams. In recognition of the excellent practice in the sector, CGIUKI celebrates the very best annual reports at our annual Awards.
For anyone who’s interested, according to some very rough calculations, winning annual reports from the 2023 CGIUKI awards average around 180 pages, putting them roughly in the same ballpark in terms of length – if not entertainment value – as The Great Gatsby and Lord of the Flies. Of course, no one begins the report-writing process with a target page count in mind but, as with any published work, keeping the reader and the unique narrative in mind will help to ensure that the finished product – while unlikely to end up on any best-sellers lists – delivers on its purpose to convey what is happening inside a company to the outside world in a way that is engaging and accessible.
Some tickets are still available to attend the Awards Dinner which will take place on 5 November at the Royal Lancaster Hotel, Hyde Park, London.
