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Frank Longid

The best reports are accessible to the general community and help promote a company's image here and abroad

ANNUAL REPORTS are primarily written with stakeholders in mind, but the best ones are just as accessible to the general public.

They serve as disclosure documents and sales pitches to prospective investors, but most companies now know they are more than that.

'The aim is to produce accurate, proper information for shareholders and, increasingly, for the community,' said Howard Gorges,  chairman of the panel of judges for the 2004 Hong Kong Management Association Best Annual Reports Awards.

'As society gets bigger and more complex, the annual report has evolved.'

He said that more companies, such as utilities, banks and property firms, placed greater importance on their interaction with the community and the government.

'The reports have evolved to take into account this wider audience for corporations, which should pay attention to how they present themselves to a wider audience and what kind of image they want to create,' Mr Gorges said.

The judges kept this in mind when the annual reports were read.

In his 16 years as chairman of the  judges' panel, Mr Gorges said he had seen continuous improvement in the quality of reports.

'If you look back every five years you'll see there's quite a lot of change.'

He has seen enough improvement to feel Hong Kong's annual reports compare favourably with those produced in other financial centres such as New York and London.

'Our reports will win top [international] prizes. They may not be the best, but they'll be up there among the prize winners.'

He said the report by CLP, winner of first prize this year and last, had been 'very good all round, from presentation to the clear language.

'Obviously, a lot of thought went into the content.'

For big firms, the problem lay not so much in what to say but what to leave out, he said.

'It's tempting to put it all in. But you don't want your report to be too thick, so there's a trend in producing shorter reports. But the key information must still be there.'

Criteria for entries in the general category include conformity with accounting standards and requirements of the Hong Kong stock exchange, and the discussion of past results highlights.

Entries in the non-profit-making and charitable organisations category will be judged by their purpose and future plans, and information relating to corporate governance.

'Understandability' was an important factor in judging reports in both categories, Mr Gorges said. Some reports, particularly those of large companies, could be daunting.

Mr Gorges said the annual report was probably a company's most important sales document.

'The better they inform their shareholders, the more accurately people can try to put a value on their company, and if they're progressing that should be reflected in the share price.'

If a company's achievements were not reflected in its annual report, it might not get the recognition it sought from the marketplace, he said.

'If you're borrowing money the annual report helps bankers assess your company. And if you're involved with the community then audiences can assess you better.'

He applauded the way companies were willing to address concerns about disclosure. Last year, the management body said one of the areas in which some entries performed poorly was disclosure of financial information. Mr Gorges was pleased at how companies in general had acted on the criticism.

'In general, the accounting progressed this year. Overall, the judges were pleased.'

Some of the new accounting standards had shown up deficiencies, he said. 'But that's only natural - if you set a new standard, you show up a higher number of deficiencies.'

Most entries, however, not only provided the required disclosure but went 'over and above the statutory minimum'.

Some companies, Mr Gorges said, were open about information that could be potentially embarrassing.

He cited Kowloon Motor Bus and the MTR Corporation as being 'pretty open about their accident records - that kind of honesty we encourage'.

'As Hong Kong is a financial centre, companies will tend to make more effort because they're appealing to an international audience.'

He said the managment association was 'trying to get companies to pay a bit more attention' in the area of employee relations, although this year's reports had shown some improvment in this area.

'Companies will find ways of producing more information if we jog them in that direction, so they don't just divulge information on how much training they do, but also, say, what their turnover rate may be.

'Also, there may be some relevant information to their industry which could help you get a feel for whether they're retaining good people or training them or encouraging them to improve their skills.'

As for entries in the non-profit sector, he said they 'tend to show you more with regard to what they're trying to do, what problems they face'.

At the same time, 'they tend to be weak in integrating what they plan to do in future, so we push them pretty hard in being forward looking and of course to account for where they get their money from and how it is spent'.

In general, Mr Gorges said, the top prizes tended to go to the big companies because they had more substance to talk about and more resources.

'But nonetheless we have very good small company reports,' he said.

This improvement of reports among small firms was largely due to companies he called pace-setters, which consistently produced well-written, informative reports and encouraged others to follow suit.



Going by the book no longer enough to satisfy public