Get ready to shed a tear at the passing of the Annual Report-that
glossy paean to management's genius will soon be history. The
Annual Report is becoming as out-dated as the typewriter.
Each year at the Haas School of Business at Berkeley, we teach
more than 1,000 undergraduates in our introductory business course.
And for the last few years, I've gone to no end of trouble to
induce one of the local firms to donate enough copies of their
annual report so that we could hand one to each student. This
is no small undertaking: Those four-color glossies cost more than
$5 each to produce and shipping 20 boxes of reports involves considerable
For the last couple of years, we've been using annual reports
donated by our friendly colleagues at The Gap, a great local company
with a product line that is very familiar to our students. But
when I was asking my course assistants for suggestions for a new
company to inveigle into sending us reports next year they brought
me up short: "No one reads that stuff."
While I launched on an apologia for annual reports and the importance
of learning how to read them, I had to admit that, for my own
stock trading, I view annual reports as completely irrelevant.
If a firm closes its books at the end of December, even if I already
own the stock, I'm lucky to see the report by mid April-by that
time, I've already read the first quarter results in the newspaper.
If there are major events, I can read what I need to know, and
get up to date financial information, through the Internet.
Worse, thinking back to this year's crop of annual reports, it
occurred to me that they don't so much gloss over the truth, as
to deny the harsh realities of business. The Chairman's letter
is usually full of self-congratulation but rarely seems to explain
very much about the firm's mistakes. I decided to look up a few
annual reports to see how some of 1997's most notorious management
blunders were explained away.
The Boeing report arrived in mid-April, and here is chairman Philip
Condit gamely admitting to shareholders in his December message:
"We failed to do a good job of managing a rapid ramp-up in
production in commercial aircraft." But, don't worry, folks,
turn the page and we are reassured that these problems are behind
us. Too bad that was wishful thinking and the problems with out-of-sequence
work seem to be getting worse.
Over at Quaker Oats, management achieved the spectacular destruction
of $1.41 billion in shareholder value by buying and then selling
Snapple Beverages in 1997. But shareholders can't look for much
soul-searching in the Annual Report. Everything is coming up roses:
"These results delivered value to you" boasts Chairman
Robert S. Morrision, who was appointed late in the year to clear
the mess up. Well, not really. The value delivered was a net loss
of $6.80 per share. The previous Quaker management must have had
some plan for this line of business which somehow went wrong,
but we aren't offered any explanation (or apology!) in the Annual
But the prize goes to Michael Eisner over at Disney: In the 1996
Annual report, hiring Michael Ovitz as President was touted as
the best thing that has happened to the firm since Eisner himself
arrived. But in 1997 Ovitz was shown the door and was apparently
paid $11 million in cash (plus huge stock options) for doing not
much of anything. In the 1997 Annual Report, Michael Eisner's
letter to shareholders mentions President Clinton, but no mention
of no-longer-President Ovitz. Apparently this nasty little incident
isn't worth explaining to the shareholders.
So the truth of the matter is that Annual Reports arrive too late
to be useful, and in any case don't contain a lot of the information
shareholders ought to know.
High-tech companies are trying to get away from the expense of
mailing reports to thousands of shareholders. At Intel, a spokesman
told me: "Rather than send our Annual Report to our ever
growing stockholder base, Intel makes its Annual, and other regularly
requested financial reports, available through a literature fulfillment
house, as well as on line." And at Netscape, their press
officer said: "In fact we are not printing an Annual Report
this year. We have had the 10K printed which is in essence the
annual report without the gloss. Anyone that calls and requests
information we try to encourage to go to our web site, rather
than mailing out the information."
So this year I'm going to teach our students that they can find
up to date, accurate financial data on-line through the SEC's
EDGAR web site about three months earlier than you can read it
in an Annual Report. And if they really want to understand what's
going on with management, try an old-fashioned trick: read the
Word Count 826
David Robinson is lecturer in Marketing
at the Haas School of Business, University of California, Berkeley.