Unleashing the Power of the Modern Annual Report
by Stuart Z. Goldstein

Presentation: World Federation of Exchanges
Corporate Communications & Investor Relations Conference
November 29-30, 2004

Good morning. We only have a brief period of time today, so I’ve narrowed my talk to some key areas that are important in how we think about the modern Annual Report.

What is the Annual Report … and why should we still do them?
At the start, I’d challenge all of my colleagues here to think about our conceptual framework for Annual Reports. Aside from the fact regulators and shareholders need to see our annual financial statements, why do an annual report at all?

Why do an Annual Report at all?
Some see the Annual as a document to report on what the company has accomplished over the past year. Some see it as simply a financial reporting document and nothing more. And I guess it’s also true that some of us see the Annual as a pain in the neck---and something we try to delegate and avoid.

But my point is quite to the contrary. The Annual represents one of the best and most unique communications opportunities you have … to stand apart from the deluge of communications mediums today. Use it creatively, and you can unleash a powerful tool in your communications arsenal that is largely unrecognized and untapped.

There are trends today that are changing the entire communications playing field – including Annual Reports.

What has changed?
For one, Information Age technology has expanded the quantity, quality and speed of information exchange. Not only do we have more distribution channels for information via the Internet, but the subsequent reporting of information through various formal channels – for example, news organizations – and informal channels – such as Blogs – has exploded the sources of financial and business data.

The early role of Annual in providing information on the company’s financial health has been largely replaced in the U.S. and other countries by 10K-like financial filings and securities analyst’s reports.

Another dynamic of this information age is that technology has leveled the playing field. Our stakeholders, our competitors and outside interest groups have the same access to this technology to communicate.

Companies now face a growing competition for influencing the perceptions of our various publics … and the window of opportunity to do so is narrower. In the information age, with more channels and suppliers of data about your company, (and not all of it accurate and favorable) the power and quality of your story becomes an even greater business imperative.

Thinking Differently About Annual Reports:
We need to think differently about Annual reports.

• They can become a more effective communications vehicle
• We can use themes to make the book more compelling and interesting
• We need to consider the Annual as a marketing document

Can the Annual be a more effective communications vehicle?
The modern Annual is the one document that reaches millions of readers, either in print or via the Internet. In a sense, it’s your most direct and controlled method of shaping the perceptions of your various constituencies.

As the single most widely read document of an organization, the Annual provides a chance to address how the company is perceived, in light of trends and against competitors, and to articulate a forward-looking story about the company that reflects vision and direction. The story line in the Annual should transcend current business circumstances and address what you see beyond the next horizon.

Today’s Annual is your best opportunity to make a strong impression – to provide a "singular voice" and tell a consistent and clear story about your direction. The story can be a powerful and compelling picture of the future. It can be a sustaining story. Done well, it can resonate with an increasingly diverse stakeholder audience. In today’s media environment, the Annual can advance the persona of a company and become a powerful means by which to influence perception, reputation and buffer or advance financial results.

I’d define the Annual as the company's strategic communications document.

The Annual should communicate:
The Annual provides a central place where you can communicate:

• the overall strategic positioning of the company,
• the CEO's vision for the company, looking out over the next three to five years,
• the direction the company is trying to take, and
• key messages used throughout the year

To simply talk about what you did last year – the approach taken by the old-style annuals – will not inspire confidence – that as the marketplace continues to experience transformational change – your company has a clear sense of where it's trying to go and how it will achieve its goals.

The Annual also provides an opportunity for the Senior Communications Officer to influence how the company positions itself … and the language it will use to frame its key messages …

…I don’t see my role in this process as “client-driven”…I see my role as being a catalyst for change. I don’t go to my CEO and ask what her vision is. I draft the vision…and the messages that I think are strategically important for us…and then I ask the CEO and senior management to react and revise, if necessary.

It is through this exercise that the Senior Communications Officer can help the CEO articulate a unified set of strategic messages.

Once we have established the vision and messages for the Annual, we look to include them in all subsequent communications activities throughout the year, e.g., speeches, press releases, newsletters, Web sites, marketing collateral, etc.

How do we decide which messages are the right messages?
Well, by trying to understand marketplace trends and developing messages that are shaped by the perceptions of our stakeholders. In this process, we look to address a range of strategic questions:

• Why do we exist? Purpose and Mission
• How do we see our markets and the world changing? CEO’s Vision
• Who are we as a company? How do we serve our markets and customers? Philosophy/Approach
• What do we believe in? Values
• Where are the land mines and opportunities? Customers/Market Focus
• Do we have the capacity to stay ahead of the curve of change? Leadership/Innovation
• Are we technologically resilient and reliable? Operational Excellence
• Does the company empower and reward? Employees, Staff
• Has financial management and performance established credibility? Shareholders

What makes a good Annual?
I don’t have a magic formula to answer that question.

I do believe, however, that our success is tied to whether we have a strong conceptual framework, whether we take personal ownership of the process and the degree of research and planning we commit to the process.

As I alluded to early in my remarks, in many organizations … the Annual Report has become a project few of us want to give the attention it deserves.

The writing is often assigned to a mid-level communicator, or outsourced to a freelancer writer, who then works through a committee of lawyers, auditors, etc ...

And by the time it’s completed, few readers find any clear message or corporate personality. In truth, the Annual Report has become homogenized to the point where it has no taste, no feel and no real impact.

As the Senior Communications Officer at DTCC, one of my most important responsibilities is to develop the Annual report’s theme, storylines and visual concepts.

This is based on research and my own leadership vision – which comes from working closely with the CEO. At various junctures along the way, I also use the creative talent and substantive knowledge of my communications team as a sounding board.

But Annual Reports require a singular point of view – and vision to be successful. The more these tasks are dispersed and delegated, the less cohesive, coherent and impactful the Annual will be

At the beginning of each Annual Report cycle, the questions I always ask myself: “How do we know what we know? How do we know what’s a good annual report?”

The starting point at DTCC is to look at “best practices,” by collecting highly rated annual reports from different organizations globally and to benchmark the approaches and techniques that are used … in writing, design and photography. [download examples from Annual Reports]

We look at over 100 Annuals a year – across many industries … even before we begin developing our approach. Believe me, this is an exhausting process. But it helps us identify innovative design concepts that bring a new level of excitement to what we are trying to communicate … and that support the annual’s themes and messages.

We’ve actually found some wonderful, creative ideas and graphic design models looking at retail and product companies. These companies tend to be more aggressive than other industries in the use of color and in the use of breakthrough graphics.

As an infrastructure organization, talking about back office and clearance & settlement activities is not terribly exciting. So rather than conform to the approach of other organizations in our industry, we look to graphic design to help us create a higher level of interest in what we do, and, at the same time, differentiate DTCC from similar organizations

This takes time, and a lot of research, but that can put you on a creative springboard to new, "out-of-the-box” conceptual ideas.

For example, have I ever considered using a reference to nature in a financial services annual report? Do I want to use references to technology? Or make reference to one of the art world’s most brilliant minds? The possibilities are endless, but you’ve got to do the research first.

How to choose a theme:
Another strategic decision we make early on in the process is the development of a theme. In my judgment, theme is the most critical part of the book. It establishes the story line we want to tell…and we use it to provide the ties that bind together the essays covering the businesses throughout the Annual.

In choosing a theme, we look at a number of variables. The theme has to reflect what’s going on externally in your industry sector. And it has to reflect your internal goals and priorities, as well.

• Industry trends
• Media Coverage
• Corporate Goals
• CEO’s Perspective

Clearly, you try to choose a theme that is closely aligned with the CEO’s vision of the company.

In my case, it’s trying to think like the CEO. And if you are involved with the CEO on a regular basis, and crafting messages for the CEO – whether it's through media activities or executive communications – all these interactions offer an opportunity to try out thematic language.

Choosing the right theme also requires listening, at group meetings with senior management … at smaller meetings with a few execs … to hear if there are key phrases being used to characterize where the company is trying to go. Sometimes, there may be a phrase or a frame of reference that you can build on, and expand.

I may informally try out different themes with different senior executives. And it’s not unusual for me to weave the theme into a memo that I'm writing for the CEO, six months before the Annual Report concept is presented to management. If the CEO takes to the wording of the theme, as a way of positioning the company, we know we’re on pretty solid ground.

The theme is intended to help you create an overarching message, communicate a sense of direction, and establish a continuity of story line for your company…

…There's a certain image that companies tend to project. Some might call it a corporate persona or personality. In today's media environment, shareholders don't necessarily distinguish individuals in an organization from the organization itself. And so a theme can help communicate your company’s vision, values and philosophy toward customers. And set the stage for how you want the world to perceive you, and the sort of reputation you want to project.

Why consider a secondary theme?
In addition to the primary theme for the Annual, at DTCC, there's something else we like to experiment with … which is a secondary theme … or what I call a secondary story line.

This secondary storyline can have both a business purpose and enhance the entertainment value of the Annual. Annuals can contain so much detail that’s it’s a challenge to keep someone’s attention. How do you draw the reader in? How do you keep them engaged?

The secondary storyline increases reader interest in the Annual – and it can be used to support our overall theme.

Let me give you an example.

Following the consolidation of National Securities Clearing Corporation and The Depository Trust Company under the DTCC umbrella in 1999, we chose "The Power of One as a primary theme to underscore the synergies that would result from this consolidation and the benefits it would bring to the financial services industry.

Our second storyline involved featuring six famous historical figures who helped change the course of the world through their unrelenting commitment to the pursuit of one idea.

This secondary storyline increased readership of the Annual and it gave readers a new perspective on DTCC.

One supporting message we wanted to communicate was that beyond the size of DTCC’s settlement activity, which exceeded $923 trillion last year, we recognized that a key point of differentiation as we moved toward a global financial services community would not be size alone – but the power of our ideas … and our ability to respond to changes sweeping through the industry.

And so we introduced this gatefold to signal our plans for the future.

Let me give you an example of how we use themes at DTCC. In 2000, the primary theme for our annual was “2005, more than just a dream.” This was meant to demonstrate to our owners and customers in the U.S., the progress we had made, and the progress we were continuing to make against an aggressive mission statement...

…At the same time, we wanted to communicate that DTCC was becoming more globally focused ... both in our understanding of global issues and our interest in providing a wider range of services. How do you do that without seeming to be patronizing, by showing, for example, typical pictures of foreign Stock Exchanges, or foreign flags?

So we searched for a secondary theme that was creative and different, and we came up with the idea of folklore tales. But we didn't want just any folklore tales, we wanted to find folklore tales from around the world that would be recognized and that would resonate with people who lived in those countries. Let me just say that this was not easy; it took months of research. And the project became even more aggressive when we decided to print the stories in both English and the native language of the folklore author.

Nothing could be more satisfying…or illustrate the value of this effort more…than a letter my CEO received from a senior official at the Tokyo Stock Exchange complimenting DTCC and saying he remembered one of our folklore tales, the story of the Peach Boy, from when he was a young boy.

Another example from an earlier Annual for our subsidiary, National Securities Clearing Corporation, featured the work of Leonardo da Vinci as a secondary story line to show how we try to create solutions for the financial services industry.

An innovator and a genius, Leonardo conceived the use of parachutes, underwater travel, invented springs that could be used in clocks and methods of creating power from controlling the flow of water.

This was a wonderful story line to support our theme of NSCC looking to create new solutions for the financial community.

I should point out that there was some healthy skepticism, from the CEO at that time, when I first proposed full-page pictures of da Vinci’s work in an annual report about back-office processing. But six months after the Annual was distributed, Bill Gates had bought Leonardo’s notebooks. And as the notebooks went on tour at museums around the U.S. you began to see more and more references to him in advertising. Suddenly, my CEO thought that using Leonardo in the annual was a brilliant concept, and decided that it, in the end, it was really his idea.

Without a doubt…themes can make your Annual more compelling and interesting. And it’s true -- you get out of the Annual Report process, what you’re willing to invest in it.

Why think of the Annual as a marketing document?
The last point I’d like to make is the importance of thinking about the Annual as a marketing document. In my view, every communication we put out on behalf of our company…is an opportunity to sell something. And this is especially true of the Annual Report.

In planning each book, we look to build into the design an insert, an illustration, a gatefold or some other device that compliments our theme but more importantly, helps market our products and services.

In some instances, we’ll design a pocket and insert for the Annual…and then we’ll have extra copies of the insert printed…so they can be used by our relationship managers as handouts or as targeted new-business mailings.

Last year, we used a gatefold to support our theme of “Leading change in financial services” and to demonstrate that DTCC links virtually all trading parties in the U.S. through our network. In 2003 we renamed this network SMART, which stands for Securely Managed and Reliable Technology, and introduced it for the first time in our annual.

The use of this gatefold…supported our theme of “leading change in financial services” …and it is helping sell customers on the use of our network to access services they don’t currently use.

Conclusion:
In conclusion, there has never been a more critical period for redefining and elevating the importance of the Annual Report.

If the three "Cs" of effective communication are clarity, consistency and constancy, the Annual should be used as the battle plan. It puts a stake in the ground against which multiple communication strategies can flow, while reinforcing a continuity of message that can be heard above the din of competing and conflicting messages.

Each year we have the opportunity—through the Annual—to win the hearts and minds of millions of stakeholders, potential stakeholders…and those who influence stakeholders.

Good communicators will seize this opportunity, and unleash the power of the annual as a strategic communications tool.

I believe, if we do so--and we succeed at it, the Annual can serve as a powerful method of shaping and sustaining our company’s image.

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About the Author:
Stuart Z. Goldstein is Managing Director, Corporate Communications at The Depository Trust & Clearing Corporation in N.Y. His 20+ years of experience cuts across the disciplines of corporate communications and public affairs, including serving as a spokesperson at two Fortune 500 companies. He also spent a decade running political campaigns in New Jersey. He can be contacted at sgoldstein@dtcc.com.

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