• 70 percent think the annual report is useful when making the decision to buy a stock
• 69 percent think the annual report is useful for helping them follow a stock in their portfolio

Not surprisingly, research shows that the Letter to Shareholders is still the most-read portion of the annual report. Not only does it allow the CEO to put the previous year’s performance into strategic perspective, it affords him/her the opportunity to establish expectations and metrics for the organization going forward. And, since more investors will read this piece than will meet with the CEO, it is critical that this section of the annual report be crafted carefully to maximize its potential impact.
 
Getting Started
 
Before you put “pen to paper,” be sure to:

• Review all disclosures and conference call transcripts from the past year
• Review recent non-deal road show and industry conference presentations, including any feedback from investors from those events
• Review the most recent investor perception study findings (if still relevant)
• Review current corporate marketing materials and recently added website content
• Discuss forward-looking “investor” messages and metrics with the CEO, CFO and other relevant senior leaders
• Discuss the company’s governance profile as it relates to current proxy rating agency recommendations, as well as any proxy proposals, with the general counsel and corporate secretary
• Build upon the “uniqueness” of the CEO’s personal style and voice – he/she personifies the company’s brand and investor identity, and this intangible asset makes a real difference in the valuation
• Develop an expanded content outline for input and approval by the CEO before you start writing
   

The Dos and Don’ts of the Annual Letter to Shareholders
 
As you develop the letter, you’ll want to be aware of these accepted best practices:
 
Do

• Focus on the underlying question on every investor’s mind: “Why is now the right time to have a position in this company’s equity?”
• Establish realistic expectations for the company
• Consider expanding the parameters of the letter to address such increasingly important topics as corporate social responsibility, meaningful new product launches or an update on governance-related matters
• Keep all constituents in mind – from long-time investors to prospective employees
• Make a connection between the letter and the theme of the annual report

Don’t

• Avoid addressing the “elephant(s) in the room”
• Presume readers have been following your company closely or for long
• Use industry jargon
• Overlook the Web component or alternative uses for content 

Regardless of whether you produce a glossy, typeset report, a 10-K “wrap” or a Web-based platform, your company’s annual report will represent your management team and present your company’s value proposition for the next 12 months. A thoughtful and thought-provoking Letter to Shareholders will go a long way in determining its effectiveness.

If you would like to discuss your company’s messaging to investors, please contact Rob Berick at 216-241-4611 or rberick@dix-eaton.com.

Over the past few years, the world of investor relations has been dominated by talk of a pending technological revolution that would forever alter the way companies attract and retain investors. Among other things, we’ve heard about the freedom that will come with “Web disclosure” solutions. Countless conferences, webinars and white papers have centered on how skillful use of social media tools such as Twitter and SlideShare will take “investor engagement” to new heights. We’ve heard how virtual road shows will improve the time efficiency and cost effectiveness of investor targeting efforts. And we’ve been told how increasingly sophisticated website functionality will replace the traditional annual report.

Amid all this talk, however, one critical component has been overlooked – content. 

The most sophisticated technology tools and integrated communications channels cannot make up for an indistinctive value proposition that fails to clearly address the basic question in the minds of all investors: “Why is now the right time to invest in this company?”

In no particular order, here are five key messaging areas to consider as you work to keep your IR content as strong as your IR channels:

• Innovation – Every company claims to be innovative, but how many can prove it? By establishing a consistent and accurate metric and reporting it to investors (e.g., a vitality index that captures the amount of revenue generated by products launched over the past three to five years), you will be able to more fully leverage this important value driver.
• Use of Cash – With balance sheets restocked with cash, investors are anxious to understand how these dollars will be deployed effectively to spur growth and drive value. They want to know what criteria the board and management are using – and over what timeframe – to determine the best uses of the cash to generate value.
• Governance – Investors consistently rank quality of governance as pivotal to strategy execution and shareholder value creation, and they expect transparency around a variety of governance issues. Succession planning is a key area. Investors are also becoming more acutely focused on the qualifications of each director and want to understand how each contributes to the company’s strategic growth plan.
• Corporate Social Responsibility – Socially responsible investing now accounts for more than $3 trillion of assets under professional management in the United States, and 40 percent of all shareholder proposals voted on in 2011 focused on social and environmental issues. Among other things, investors want to see the quantitative and qualitative impact of the company’s CSR efforts on its financial results.
• Enterprise Risk Management – As humorist Will Rogers said, “It takes a lifetime to build a good reputation, but you can lose it in a minute.”  These days, it might not even take a minute.  Today’s investors want to know how companies are measuring and monitoring their reputations with key constituents and how they are using this intelligence to mitigate the impact a crisis would have on the company’s reputation and valuation.

The effectiveness of your technology tools may help draw investors to your company, but the actual ROI on these channels – and your chances of converting interest into investment – will be greatly impaired if the quality of your content fails to hold their attention. 

If you would like to discuss your company’s messaging to investors, please contact Rob Berick at 216-241-4611 or rberick@dix-eaton.com.

Such actions have triggered debate about whether municipalities should shut down social networks and cell phone service (a.k.a., free speech) in order to assure public safety. Here are some recent examples of the types of solutions that have been suggested or employed:

• Officials of BART, the subway system connecting San Francisco to the rest of the Bay Area, shut down cell service to stations in order to thwart a protest they feared could turn violent.
• England’s prime minister has said he’s considering blocking Facebook and Twitter to help contain and prevent riots in London and elsewhere.
• In Ohio, Cleveland Heights imposed a curfew for minors in select business districts after a violent flash mob descended on a street fair, and Cleveland City Council proposed legislation that would make it a crime to summon a flash mob via Facebook, Twitter or other social media.

Perhaps the act of determining and putting into place solutions to prevent and curtail violent flash mobs feels so overwhelming because of the technology involved to organize such events. “We fear what we do not understand,” do we not? For example, in many cases, parents, government officials and law enforcement agents are light years behind familiarity and adoption of social networks compared with teens and young adults.

In actuality, violent flash mobs share similarities to other types of demonstrations and organized protesting that communities and companies must be prepared to confront. The medium for organizing the protest may be different, but the principles for crisis communications planning are the same.

As with any crisis prevention strategy, the first step is to create a plan. One aimed at preventing and dealing with violent flash mobs for entities such as communities, shopping centers and public transit stations should include four crucial components:

• Create and communicate a “flash mob” policy. Define what is acceptable vs. unacceptable behavior regarding crowds and how participants will be handled if a situation is perceived as an imminent threat. Consider posting this “flash mob” policy to preclude events before they occur.
• Partner with authorities. Decide when and how to act in alignment with applicable laws of the municipality and/or policies of the location to disperse a violent flash mob.
• Monitor social networks. Dedicate resources to stay ahead of online flash mob organization efforts.
• Create an “online neighborhood watch.” Engage in dialogue with customers/citizens, law enforcement agencies and city governments.

Free speech and public safety are not lighthearted topics and certainly warrant further discussion and brainstorming. By engaging in preventive actions, organizations and municipalities can be better prepared to handle any threatened organized effort.

To discuss digital communications, contact Christina Klenotic at 216-241-4636 or cklenotic@dix-eaton.com.

For more on the latest developments in digital communications, see Christina's blog, Beyond Social.
To discuss crisis communications, contact Matt Barkett at 216-241-3073 or mbarkett@dix-eaton.com.

Since the reality is that your customers are making decisions using mobile devices, does your communications strategy include mobile marketing efforts?

Here are some things to consider regarding how mobile marketing can impact day-to-day customer interactions.

Website

If your analytics demonstrate that a significant amount of traffic to your website originates from mobile phones, then it’s imperative your website is optimized for mobile browsing either by revising your current site or creating a mobile version. If your website isn’t mobile-friendly, you can miss out on potential inquiries and even purchases.

Packaging

Save on printing costs by linking instructions for product usage to a QR code on your product packaging. (A QR Code is a two-dimensional barcode with a website address, text or other information encoded on it. It can be read by a QR code scanner, including QR scanner smartphone apps.) Customers will appreciate a how-to-use video on YouTube or an infographic on your website.

Sales meetings

Lugging heavy laptops to sales calls is becoming a thing of the past. iPads and other tablets allow for sharing of digital brochures, charts and online catalog browsing in real time. Customized apps on the iPhone and Android networks, both for internal or customer usage, make it easy to share specialized knowledge and to ensure that your brand message is consistent from salesperson to salesperson.

Trade shows

Instead of passing out brochures and whitepapers at your booth, allow attendees to receive information via bluetooth or share materials by asking visitors to text you their email address. Employ promotions using foursquare and reward attendees for stopping by your booth and checking in on the social network. Also consider sending attendees updates about panel discussions and giveaways at the show via text message alerts.

Advertising

Create a meaningful call to action by making it easy for customers browsing a magazine or display to connect with your company instantaneously. Text message opt-ins allow customers to sign up for more information, deals or a contest. Also consider Google’s keywords for mobile browsing as an addendum to your desktop SEO program.

Just like social media, mobile marketing should be viewed as one of many communications channels in an integrated communications strategy to interact with your customers. Take advantage of mobile marketing’s opportunity to offer customers access to your brand at any time, wherever they are.

For more information, contact Christina Klenotic at 216-241-4636 or cklenotic@dix-eaton.com.

For more on the latest developments in digital communications, see Christina's blog, Beyond Social.

Why sustainability reporting and the annual report should be combined.

Of the more than 80,000 transnational companies, roughly 4,000 of them issue a report on their sustainability, corporate responsibility (CR), and corporate citizenship programs, according to data compiled by the Global Reporting Initiative, CERES, and other sources.

A number of reasons might explain the failure to communicate on sustainability, but it is a missed opportunity for many companies. Sustainability—the “triple bottom line” that addresses social, environmental, and economic outcomes—belongs as part of the annual report because it reflects an important measure of performance that should be captured in the most important, transparent, and far-reaching communications document a public company produces.

Eaton Corporation, a $13.7 billion diversified power management company, has found that the most effective way to report on its sustainability efforts is in the annual report to shareholders, and the company has been doing so since the 2006 annual report. The sustainability section in Eaton’s annual report covers environmental performance, health and safety, business ethics, and citizenship, supplemented by web-based access to sustainability data, progress reports, case studies, and more. (See Eaton’s sustainability web page at http://eaton.com/Eaton/Sustainability/index.htm.) At the same time every year, all in the same place, Eaton reports its financial and sustainability performance and progress to all of its stakeholders.

A 2008 study by KPMG Sustainability and SustainAbility Ltd. (Count me in: The readers’ take on sustainability reporting) indicated that report readers preferred to see sustainability information fully integrated into annual reports and other corporate communications. In fact, 70 percent of those surveyed are predicting “the end of sustainability reports” by 2020, according to the study.

Reporting Is Shifting

For now, the vast majority of companies that report on sustainability/CR do so in a separate report. According to our field research, a small fraction of companies worldwide currently address CR/sustainability in their annual report without issuing a separate report. However, we believe this approach reflects a trend and the way forward for many public companies.

In our view, at least three compelling reasons argue for integrating sustainability reporting into the annual report.

1. Socially responsible investing. An increasing number of institutional investors, mutual funds, and individual shareholders are explicitly incorporating environmental, social, and governance (ESG) criteria into their investment analysis and portfolio construction. According to the latest research from the Social Investment Forum Foundation, nearly one out of every eight dollars under professional management in the United States—12.2 percent of the $25.2 trillion in total assets under management—is involved in socially responsible and sustainable investing (SRI). That $3.07 trillion represents a 34 percent increase since 2005, while the broader universe of professionally managed assets increased only 3 percent during the same time period, according to the foundation’s 2010 Report on Socially Responsible Investing Trends in the United States. The continued growth of SRI and the importance of intangibles (which can account for 30 percent to 50 percent of a company’s valuation) mean that the sustainability/CR audience is the annual report audience.
2. Business strategy. Eaton has focused its business strategy on providing power management solutions to assist customers in reducing their carbon footprints and their energy costs. As organizations continue to gear their growth efforts toward alternative power and energy sources, the linkage between business strategy and social responsibility becomes increasingly important. As a result, in order to assert the company’s value proposition to investors, companies should include mission-critical sustainability information in their annual reports because it is impacting companies’ financial results and long-term outlooks. Furthermore, including this information in the annual report reaffirms for all audiences the importance that senior management and the board place upon these sustainability efforts.
3. Efficiency and cost effectiveness. Large companies such as Eaton invest significant time and resources in the annual report. Separate sustainability reports require a significant additional commitment of time and resources. In fact, we are aware of a number of companies that actually spend more time and money on their voluminous sustainability reports than their annual reports. (It’s no wonder some companies have gone to biannual sustainability reporting.) Some companies simply do not have the resources and time to take on another large report production process. We do not believe that should prevent them from reporting on their sustainability goals and progress.

With so much investor attention now being paid to socially responsible investing and various intangibles, it may be only a matter of time until more companies integrate the two reports into one publication. For us, it is not hard to imagine that the typical annual report in the not-too-distant future will consist of a letter to shareholders and narrative section that discuss the company’s strategic focus, and financial and sustainability performance and progress, followed by essential financial and sustainability statements, notes, and tables. For more information, readers would reference the 10-K and the equivalent sustainability form, which would most likely be based on the Global Reporting Initiative guidelines. A combination of print, video, online, e-book, and other forms of media could be used.

From a theoretical perspective, the “integrated reporting” movement is gaining steam, inspired by the book One Report: Integrated Reporting for a Sustainable Strategy, by Robert G. Eccles and Michael P. Krzus. The authors argue that “integrated reporting shapes how a company sees itself.” They would like to see “one report” that reports on performance in many areas such as financial, environmental, social, governance, diversity, ethics, and community engagement—all measured against established standards and independently verified. According to Eccles, who teaches at Harvard Business School, a few very large global companies such as BASF, Novartis and Novo Nordisk, Philips, and United Technologies Corporation have made big moves in this direction.

Eaton’s Process

Eaton is committed to a high level of sustainability reporting and transparency. As we began to lay the groundwork for our first sustainability report, Chairman and CEO Alexander M. Cutler accelerated the timetable by asking that sustainability reporting begin with the 2006 report. And, as the internal champion of the annual report, Cutler felt sustainability belonged in that official, widely circulated document. Nothing can replace decisive, C-suite-level leadership and strong board support.

Eaton’s 2006 annual report introduced the company’s sustainability reporting under the annual report theme of “The Power to Make a Difference.” The letter to shareholders explained, “This year—thanks to a new internal system that enables us to measure those efforts consistently across our organization—we are able to share our progress with you by publishing our first sustainability report….Over time, we will strive to achieve continuous improvement across these measures, while maintaining our commitment to delivering superior financial results.”

In Eaton’s view, sustainability is about “doing business right,” which pays dividends to customers and employees, as well as rewarding investors both in the short term and the long term. Cutler has said, “We operate from a position of integrity in all that we do and care deeply about how we get our company’s results.” That means Eaton aims to provide a fair and honest assessment of its performance, including its activities, its progress, and its shortcomings. The commitment to transparency means, for example, that Eaton not only reports total emissions and percentage changes, but also indexes those numbers against changes in sales. Eaton does not claim to have all of the answers, and believes readers are interested in both the process Eaton is using to address sustainability and the metrics and performance against the metrics. Eaton expanded its sustainability reporting online in 2009 with quarterly reports on key performance metrics.

Eaton has received direct and consistent feedback from several of its largest, long-standing investors that they value the annual report and the way it connects strategy execution and financial and sustainability performance. The 2009 annual report summarizes the connection as follows: “We believe financial performance and social responsibility go hand in hand. During 2009, we didn’t waver from that belief—or our commitment to sustainability leadership—despite the challenges posed by the weak global economy. In fact, under almost any scenario, the demand for improved power management, Eaton’s core capability, will grow as escalating energy demands and carbon regulations increase the cost to power our homes, businesses and communities. Eaton is well positioned to answer that demand—not simply because we engage in sustainable practices, but because we are building a culture in which sustainability permeates everything we do as a company.”

Given the breadth of Eaton’s annual report, it should be no surprise that it takes a significant team effort to complete the project. The brainstorming and planning process, led by corporate communications, starts in mid-summer, and involves the IR, finance, HR, legal, government and community relations, EHS, supply chain, and business unit/regional functions. Their involvement is critical because they all have information and perspective to lend to the project. The annual report is used in so many ways—as an investor tool, for employee engagement, as a recruiting tool, for community relations, with the media, and to make our markets aware of our total capabilities and responsibilities.

The Eaton approach would be a big step for companies that have a successful track record with a separate sustainability report. At a minimum, those companies should begin to cross-reference their two reports. For many other companies—in fact, the vast majority of publicly traded companies around the world, which don’t currently report on CR/sustainability—the annual report will emerge as the best way for them to report to their key constituents on this issue. It works.

Don McGrath is senior vice president, communications for Eaton Corporation, a Cleveland-based diversified power management company. Gregg LaBar is senior vice president/energy practice leader at Dix & Eaton, a communications firm. (Eaton Corporation and Dix & Eaton are separate organizations, and Dix & Eaton is not involved in Eaton’s annual report project.)

Reprinted with permission from CR, March/April 2011. On the Web at www.thecro.com.

© SharedXpertise, LLC. All Rights Reserved. Foster Printing Service: 866-879-9144, www.marketingreprints.com.

The models created for individual companies have been proven to be highly predictive over time. What time has also shown, looking back at all the models in aggregate, is how reputation has evolved.

Those analyses also determined the current and potential value of individual elements of each company’s reputation, for example stakeholder perceptions of product quality or innovation. While each organization was unique, looking at all of the research over time provides an archaeological view of reputation’s evolution. In other words, at any point in time a particular driver tended to rise above the others in terms of its general impact on value across companies and industries, only to recede after a few years and be replaced by a different driver.

When we first started measuring intangibles, “image” was the dominant factor, as it proved to have a larger impact on average than other intangibles. As we began to study reputation specifically, “trust” emerged as the weightiest characteristic. That was replaced by “strategy,” which gave way to “intellectual property” and then to “leadership.” The latter was the era when superstar CEOs had an outsized impact on value and, yet, trust in leadership was beginning to be questioned.

In those earlier days, champions of sustainability, then simply known as environmentalists, were considered “tree huggers.” That perception started to change in 2007, when the attention of corporate and institutional stakeholders started to move from leaders, per se, to the way their organizations operated. Today, the dominant factor in reputational value – in demonstrable impact on performance outcomes – is “Corporate Social Responsibility” (CSR), including, of the utmost significance, “sustainability.”

This became clear to me when, for a 2007 BusinessWeek cover story, we were asked to determine what would happen to Walmart’s market capitalization if it had Target’s CSR reputation. That analysis showed that Walmart’s value would increase by 8.4 percent, or $16 billion.

Just as sustainability is the prevailing reputational component on average today, our analyses also show that specific elements of sustainability tend to be more highly valued from one industry to another. Those that generally have the greatest impact include having high ethical standards, giving back to the environment, reducing carbon footprint, using recycled materials, and being committed to not harming the surrounding environment.

Stakeholders are voting with their employment, purchase and investment choices, and organizations are seeing a strong and positive impact on bottom-line performance as a result of implementing sustainability programs and communicating clearly about those efforts. It is true that companies can suffer if they greenwash their CSR performance. By the same token, companies that shy away from communicating about sustainability efforts are leaving potential value on the table.

If you would like to discuss your organization’s sustainability reputation, please contact Pam Cohen at 734-276-1237 or pcohen@dix-eaton.com.
 

• Practice a total operational shutdown and personnel evacuation through a tabletop exercise. What would happen if you needed to get your people out NOW? Where would you begin, and who would take the lead? And would you be able to maintain reasonable continuity of customer service? A tabletop exercise can simulate this process and tell you very quickly how prepared you are.
   
• Ensure alternative means of communication to your overseas operations extend beyond normal procedures. Cell phones, Internet communications and even land lines might not be available under a martial law environment. If none of these channels is available, how can you get in touch with your people and advise them what to do? Satellite phones, virtual private networks and even old-fashioned dial-up connections can help companies stay in touch when the government cuts off access to traditional means of communication. Of course, having managers on the ground delivering real-time information in person back to corporate and locally to employees is also a critical element.
   
• Be ready to engage a private air charter service. Major airlines cancelled all flights in and out of Egypt indefinitely, and other international carriers are notoriously unreliable. The situation at major airports has been chaotic at best. Private air charter service has been instrumental for companies looking to avoid the problems created by last year’s volcano eruption.
   
• Create contingency housing plans. Traditional crisis planning typically calls for temporary housing in area hotels in case of a natural disaster or environmental incident. If staying inside secure company facilities becomes the only option in an unstable neighborhood, ensuring temporary bedding, food and other supplies are available can help keep employees comfortable until evacuations can take place.
   
• Stay in close contact with the U.S. Embassy. Ensuring a good working relationship with local Embassy officials may help prioritize their assistance to your organization in a crisis. If they are aware of your preparedness plans and are included in their development, they will be in a better position to expedite any needed assistance for your personnel and operations in the region.
   

Predicting every unforeseen event is impossible, but examples like what has been happening in Egypt represent an opportunity to consider – what if my operations and employees were impacted in the same way? Could I make good decisions about when and how to act in preservation of my business and on behalf of my employees if a seismic shift in government occurred anywhere we operate? The answers to those questions represent a new concept to consider when addressing your company’s crisis preparedness overseas.

If you would like to discuss your company’s crisis preparedness, please contact Matt Barkett at 216-241-3073 or mbarkett@dix-eaton.com.
 

Internally, do your employees still feel loyalty to your brand, or are they among the 60 percent of employees who plan to leave their jobs when the economy improves, according to a November 2009 study by Right Management? And externally, do your stakeholders still believe in and pay attention to your brand, or are customer-facing tools such as your logo or tagline due for an upgrade to increase their relevance?

Unfortunately, the majority of company leaders and communicators do not feel good about their answers to these questions. Out of necessity, their communications efforts during the recession have been focused mostly on managing negative news, including announcements of layoffs, bankruptcies and corporate restructurings.

One of the best ways to reinvigorate your brand is to start with your company’s most valuable asset – your employees. Every employee in your organization personifies the brand – either positively or negatively. Research by Gallup and others shows that engaged employees are more productive, more customer-focused and more likely to withstand temptations to leave.

Here are a few examples of how to reconnect with employees and get them excited about your brand once again:

• Build internal teams of employees who understand and live the brand, and who can relay their excitement to colleagues and customers. Effective employee-ambassador teams can ensure that external stakeholders – from customers and investors to suppliers and the community – have consistently positive experiences with the company.
• Highlight the company’s core strengths. Reaffirm the company’s vision, culture and values. Determine what needs to be further leveraged or emphasized to reinforce the brand to employees.
• Create an ongoing dialogue. One way organizations can increase employee engagement is to have leaders engage in dialogue with their employees to show that leadership is listening and is willing to work to address their concerns. When employees feel they are heard, they usually feel more committed to their organization.
• Reward employees. Recognize and reward exceptional performance. Even though you may not be ready to offer raises or bonuses, non-monetary recognition such as verbal acknowledgment, new title or discussion of career progression can be highly effective.

Engaged and dedicated employees also help strengthen your brand externally. Key questions to ask regarding your external stakeholders include: How do they receive information about your organization? Is the content clear and concise, and does it benefit them? Are the visuals up-to-date and do they complement your company’s post-recession outlook?

Most likely, your brand will need some kind of a tune-up to help sustain itself in a new, re-energized economy and revitalized marketplace. Consider the following tactics to help keep your external stakeholders loyal:

• Update your messaging. Establish clear messages that resonate with your customers and differentiate you from your competitors.
• Examine your current tagline/logo/web presence. Review your key identity elements to see what needs to be tweaked to present a visually appealing message to connect with your external audiences.
• Re-energize your stakeholder interaction. Make sure you know who your key customers, suppliers and investors are. Focus more attention on your relationships through one-on-one business meetings and social gatherings.
• Adopt or enhance your social network presence. Historical patterns indicate that recessions often produce a change in media. During the most recent recession, we have seen the rapid growth of Facebook, Twitter and other social networks. These vibrant communication channels are now a way of doing business for many companies. You are conspicuous by your absence if you are not proactively involved in these media.

Strong internal and external communications strategies are critical to maintain the vitality of your brand. It is important to foster an environment of alignment and commitment both inside and outside your organization to stay successful and compete in today’s marketplace.

If you'd like to learn more about this subject, please contact Chas Withers at
216-241-4603 or cwithers@dix-eaton.com, or Lisa Rose at 216-241-4606 or lrose@dix-eaton.com.