Tips On Improving Annual Reports And Annual Meetings

Here are some thoughts I’d like to share with you about the importance of Annual Reports and Annual Meetings and how to make them the best they can be.

Annual Reports
There are certain absolutes for a public company. A form 10-K must be filed with the SEC within ninety days of your company’s year-end. Proxy materials for your Annual Meeting must accompany or precede the mailing of the Annual Report. Ideally you want to coordinate the mailing of the report and proxy to save on postage. However, mailing the Annual Report to shareholders can get delayed when trying to coordinate proxy materials, Annual Meeting locations and other details. The problem is that the information contained in the Annual Report can become dated. This includes the Letter to Shareholders, which is usually a discussion of the events of the past year and a perspective on the future. Delaying the Letter, and the Annual Report itself, may make the entire project futile.

In our experience, a company burning cash should not produce a four-color, glossy, obviously costly Annual Report. Your shareholders will not appreciate the expense. Instead, try doing a “wrap.” A wrap is as it sounds: heavier quality paper that wraps around your 10-K. Wraps deliver a nice cover on one side coupled with the Letter to the Shareholders on the inside. Wraps can be produced fairly inexpensively, whether you select full color or a “fade” (color graduations — for example, a yellow “fade” would display a range of shades that fade from hot yellow to lemon to pale yellow). Wrap artwork can sometimes be designed and delivered by a graphic artist for as little as $2,500. Other expenses vary depending on such factors as the quantity printed.

While shareholders certainly want to hear from you, they don’t want glitz, which could be interpreted as a waste of their money. In any case, the Shareholder Letter is the most important section of an Annual Report. It should review the past year in the form of a progress report. More importantly, it should allow shareholders to envision management’s goals for the future. The Shareholder Letter ought to be reflective of the CEO, or Chairperson of the Board, who signs the letter. This letter is your opportunity to remind investors that you have a solid game plan and are on top of things.

A good Shareholder Letter clearly describes a company’s vision and strengths. It details strategies for success and defines actions and performance. It is written candidly and — and this is crucial — expresses concern for the company’s shareholders. If you want to put out a good letter, be prepared to spend some time:

• developing your message and theme,
• setting a realistic timetable for copy, printing and distribution,
• budgeting for it and sticking to that budget,
• having it written by the best writer you can find, putting all egos aside, and
• listening to constructive criticism before you go to print.

The pointers that follow for Annual Meetings can also apply to writing your Letter to Shareholders. You should not assume your Web site is a substitute for a full-blown Annual Report. Nor can a wrap take the place of a well-written Letter to Shareholders. Paper still rules. According to a National Credibility Index poll by The Public Relations Society of America, Annual Reports are ranked number-one as a credible information source. This is followed by: (2) a story in the newspaper, (3) an endorsement by a business expert, (4) a recommendation by a financial planner, (5) a financial magazine story, (6) a recommendation by a known stockbroker, (7) an investing magazine story, (8) a recommendation by a consumer protection advocate, (9) an investment advertisement, and (10) the opinion of a business school professor.

Annual Meetings
Although the Annual Meeting of small or unknown companies may seem like a non-event, there are many under-followed companies that do have their loyal shareholders, and we’ve seen as many as over three-hundred attendees at these meetings. The Annual Meeting is a chance for management to personally present their version of the state of the company’s union.

Important things to keep in mind for the Annual Meeting include:

• Preparation. Annual Meetings are not the time to improvise. Once the required formalities are complete, make sure you are prepared to deliver a well-scripted speech, along with a dynamic, rehearsed Power Point presentation or slide show.
• Keep a close eye on the budget. Shareholders like to know you are monitoring spending at all times.
• Use a disclaimer before presenting.
• Start and end on time. Late starts are sloppy. Demonstrate that you value the attendees’ time. Also, end promptly so that you don’t get bogged down with a never-ending Q&A that could become contentious.
• The CEO, Chief Financial Officer and other significant managers should be available to answer questions.
• Provide an overview of the past year and define your vision for the future, including all aspects of growth.
• Show unity. Displays of internal conflict will undermine management’s credibility.
• Be frank. Address the impact of negative forces and events your company has experienced.
• Be on the offensive — meaning, be forthright about your challenges — and you won’t have to be defensive if an irate shareholder decides to voice his or her dissention.
• Be respectful at all times to the other members of the management team as well as the shareholders. Shareholders can sometimes be challenging. However, officers who appear arrogant are often rapidly rewarded with a nice sell-off.
• Preface your Q&A segment with the following statement: “We are now going to begin the Question-and-Answer period. We ask anyone with a question to please stand up, identify yourself, and state if you are an individual shareholder or what firm or fund you represent.” People are more likely to behave when they are no longer anonymous.
• Have handouts, such as copies of the Annual Report, at the ready. Also make available the “Guidelines for Conducting a Shareholder Meeting,” as seen on the next page, which you have my permission to copy and use.

Rules for Conducting a Shareholder Meeting
In the interests of an orderly meeting, we ask you to honor the following Rules of Procedure:

1. Shareholders shall not address the meeting until recognized by the Chairperson. Upon recognition, the shareholder shall then state his or her name and status as a shareholder.
2. The Business of the meeting shall be taken up as set forth in the Agenda. When an item on the Agenda is before the meeting for consideration, questions and comments shall be confined to that item.
3. If a shareholder has a question or comment not related to an Agenda item, an opportunity shall be provided to present proper questions and comments following the discussion of the Business.
4. Shareholders shall confine their comments to one subject at a time in order to allow other shareholders an opportunity to speak on that subject. The speaker shall be permitted to conclude his or her remarks without interruption.
5. The proponent of each proposal in the proxy statement shall be granted five minutes to introduce the proposal. At all other times, a shareholder shall be permitted a maximum of three minutes to address the meeting when recognized by the Chairperson.
6. If there are any questions of individual concern to a shareholder, they shall be raised after the meeting. There shall be representatives of the company there to respond to these questions.
7. Nominations from the floor for membership on the Board shall not be accepted unless the person nominated has given written consent to such nomination and agreed to serve if elected.
8. Derogatory references to personalities, or comments that are otherwise in bad taste, shall not be permitted and shall serve as a basis for removal from the meeting.
9. The views, constructive comments and criticisms of the shareholders shall be welcome, but the purpose of the meeting shall be observed and the Chairperson shall have the authority to stop discussions that are:

• irrelevant to the business of the company;
• related to the conduct of the company's ordinary business operations; or,
• repetitions of statements made by other persons.