Grilled or slow-roasted an annual report will always cook the figures

Generally bland at best, many annual reports are not only an offence to the senses (surpassed only by the planet's most horrible genre, the corporate video), they often conceal as much as they reveal.

Financial journalists and analysts take courses in how to read a set of accounts - and even then frequently find them impenetrable. 'The history of shareholder betrayal is littered with plausible numbers conveyed in reassuring annual reports,' says the Centre for Tomorrow's Company. Shorter, Sharper, Simpler, its report on the future of the annual report, notes that of 11 companies named as the UK's most profitable by Management Today between 1979 and 1990, four subsequently collapsed.

One cynical executive counsels reading all reports from the back, starting with the size and exercise date of executive options, then dividends, then details of investment and R&D policies. Only then, he says, will the chairman's carefully chosen words at the front make sense. 'All figures are cooked: it's just whether they are grilled or slow roasted,' says another senior former executive.

The annual report is many things: regulatory requirement, communications necessity and tangible symbol of a company's character, as well as a record of its progress during the past year. Unfortunately, it often misses some and occasionally all of these targets. Last week the Foundation for Performance Measurement, an industry think-tank, launched a discussion document, The Well-Rounded Annual Report,which, on the basis of a research study of last year's reports of the FTSE 100, judges that:

The information in most reports is shallow and unsystematic. No company in the FTSE 100 consistently proffers fully useful and informative data in its annual report. Only the best companies indicate trends over time as opposed to one-off historical data, and even they are bad at linking them to future targets.

'The majority of reports focus on the provision of good news, very rarely focusing on areas that may be detrimental to the business,' says the report. 'While this may be useful public relations, it tends to invalidate the fundamental objective of the annual report and accounts, of reporting performance to shareholders.'

The best information comes from sectors that are subject to media and public scrutiny: chiefly oil and chemicals and mining - where the environment is an important issue - and telecoms - where technological development is a concern for investors and users.

The breadth of annual report information is also poor. Apart from community relations and to a lesser extent environment, companies report non-financial measures of performance 'extremely badly'. This is especially the case for customer service, where even the otherwise good companies fall down.

Scored against 19 measures, the best FTSE 100 reports came from Orange, SmithKline Beecham and Sainsbury, with Orange standing out for showing trends rather than just individual figures. Other top 10 reports were those of Marks & Spencer, Rolls-Royce, Safeway, Asda, Shell, Tesco and Zeneca. Even the best performers, however, did less well than the foundation had expected.

Among the lowest scorers were Bass, BAT, Carlton, Energy Group, Next, Prudential, Rentokil, Scottish & Newcastle, and United News. Most of the low scorers were among pubs, restaurants and leisure, and financial and media groups.

Part of the trouble is that, despite the growing expense, it has often been unclear who annual reports are for. Traditionally, the primary audience has been shareholders, to whom the document is presented at the annual general meeting. (Even here it is an anti-climax, its thunder stolen by the preliminary results announcement several months before.) The financial measures are certainly the focus of most of the report's measurements.

Then during the Eighties companies discovered design. 'So you had a report that was financials at the back and a glossy corporate advert in front', says Bill Quirke, managing director of Synopsis Communication Consulting.

To this was added management-speak for the internal audience, the overall result being an 'uneasy hybrid covered with a layer of spray-on corporate design.'

Quirke believes that the recent emphasis on shareholder value has stripped out some of the design extravagance and refocused reports on the financials. At the same time, however, detail on corporate governance has grown hugely in the Nineties and many companies include in reports sections on environmental and social/ethical concerns.

The best companies are now striving to unify the mixed messages to get some return for the colossal, often disproportionate, effort that goes into the yearly reporting cycle. In particular they are trying to develop a document that clearly articulates what the company stands for, and at the same time educates employees.

This ties in broadly with the prescriptions of the Centre for Tomorrow's Company. The best few reports, it says, 'tell a story with a clear plot, containing characters readers can identify with, relationships they can "get inside" and outcomes they can judge'.

It sees a single core document, directed primarily at shareholders but also accessible to other stakeholders - customers, employees, suppliers and community. It would set out the company's purpose and values, and show how all the elements of its operation - including 'soft' aspects such as customers services and employee attitudes, and 'hard' ones such as cost control and capital investment - contribute to its success.

The core document would be supplemented by detailed reports on specific areas and clearly signpost sources of further information and opportunities for dialogue.

In due time, of course, all of this information should be available - as some is already - on the Internet. Good news for trees.