It’s that time again, for one of our longest-running and most-read columns…And this year, emulating those “bests” and avoiding those “worsts” seems more important than ever.
So far in 2008 we’ve reviewed roughly 150 sets of Annual Meeting materials – up from our usual 100 or so – and we were involved in some way in over 50 Annual Meetings – up from our usual dozen or so – during a year, let’s remember, where the value of “printed matter” came under closer scrutiny than usual, thanks to N&A - even while companies themselves came under closer scrutiny than usual, due to the still unfolding financial reporting and risk-management failures we’ve been witnessing. So let’s lead off with some “bests” to begin on an upbeat note…
BEST ANNUAL REPORT: Hands down, we say, goes to SMUCKERS, whose Annual Repor t made you want to look…and to actually read the darned thing. Its eye-catching “Grandma Moses-style” cover - commissioned from Grandma Moses’s great-grandson Will, as we learned inside - “transports us to an earlier time, at J.M. Smucker’s Orrville home, where families are gathered to celebrate the goodness of the harvest”…What a welcome and reassuring message in itself in these parlous times! The financial results, while they didn’t blow off the doors (and maybe because they didn’t) were equally reassuring, at first glance…But one’s attention was immediately drawn to the opening right-hand page, outlining “Why We Are, Who We Are…Our Culture.” Talk about setting exactly the right “tone at the top” in unsettling times – this WAS the top. Other things that make this A-R stand head and shoulders above the pack: the Chairman’s letter that addresses “Purpose and Strategy” and “Serving Our Constituents”; the big focus on their brands…and on their branding; the very well-written MD&A – where the performance chart is prominently located on the facing page, not buried in the proxy statement (a particular ‘pet improvement’ of ours…and something we lobbied the SEC to allow)… plus the plain writing and the beautifully readable layout throughout. All of this within a very non-intimidating 66 pages! Anyone who has doubts about the continuing value of a well-done Annual Report – or about the impact that well crafted printed pages can make on a reader - should spend the few minutes it takes to review this report.
FIRST RUNNER-UP: YUM! BRANDS, INC…another company that understands and profits from the value of brands and branding – and one that obviously knows how much the printed page, with good captions and good visuals, contributes to “brand” and stock-price value. “Yum!…winning big around the globe” the cover proclaims. “YUM!” a big red cartoon-balloon exclaims - right above the delicious 2007 sales number on the inside cover-summary. Other plusses; they fully used every one of their “covers” – inside and out – to full advantage. (They sure know how skim readers read, and what they look for when they get a fat-looking booklet). And Yum! put its stock-price chart on the back inside-cover (facing page) where skimmers were sure to see it…and go “YUM!” (Another little detail that caught our eye right off; the KFC Logo, that appears with all the Yum brand logos on the Proxy Statement, has the Colonel saying Yum! too…via a big fat version of that cartoon-balloon).
BEST PROXY STATEMENT/BEST CD&A (how could you not combine the two awards in today’s environment?)… A DEAD-HEAT…BETWEEN CHEVRON (to whom we’d give a marginal advantage for the plainest and friendliest sounding English) and EXELON (to whom we’d give a marginal advantage for the especially thoughtful and inviting layout – helped mucho by using blue sub-heads, in all the right places too). Both companies do a truly excellent job of explaining and discussing their Compensation programs… and it will be well worth your time to read and compare the two very different approaches they take. Chevron, for example, focuses a bit more on “explication”, and on the “process”, while Exelon adopts a more declarative tone, leading off with its three numbered objectives, and then moves on to its three, numbered, primary components…then moves on to the finer details of stock options, performance units, restricted stock and RSUs, etc. But when all is said and done, it’s a dead-heat here.
BEST “TOTAL PACKAGE”: IBM: While neither the A-R nor the Proxy Statement was among the very best examples we saw, the “total package” was a big winner. In fact, a reader called us to say, “Best Chairman’s letter we’ve ever read” and to ask if we’d seen it. Having the Chairman begin his letter right on the cover page - as we’ve been advising for eight or nine years now…mainly to cut to the chase, helped hugely, we think – as did the very important message IBM had to impart: “ a superb year for your company”. Both the A-R and the proxy statement were very neatly laid-out, and written - and printed - in a very reader-friendly manner. We ESPECIALLY liked the way they cut straight to the chase by putting Item 1. - Election of Directors - with their picture and bios - right up front, on the first real page of the Proxy Statement. But IBM lost a few points with us for NOT using the glossy inside covers - OR the back cover – which they left essentially BLANK. And while both documents were easy to skim, once one got past the Chairman’s letter, they were not particularly compelling to read (which, now that we think about it, is not necessarily a bad thing in today’s environment).
BEST “NOTICE” RE: INTERNET AVAILABILITY OF PROXY MATERIALS: WELLS FARGO: If you are looking for a good model of the Notice you’ll need to send out if you choose N&A in ’09 - one that’s neat, well-thought-out, well-laid-out and basically un-confusing - go to the Wells Fargo website. They also posted a nice Q&A about N&A with their web-based proxy materials. (N.B. No matter how carefully one drafts this document it still confuses a lot of recipients, who think it’s a proxy. At least 12 companies at a recent conference reported that Notices were being “voted” and sent to the hotels where the meeting were to be held!)
NEATEST AND NIFTIEST RESPONSES TO SHAREHOLDER PROPSALS: CHARLES SCHWAB: Schwab had a proposal from the City of New York; the usual stuff on political contributions, and another from The Free Enterpr ise Action Fund,asking them to amend the bylaws so that precatory proposals could not be submitted without prior Board consent. They laid out the first resolution and statement of support on 1 . pages, then put their answer (twice defeated, minimal dollars spent anyway…and “concerned that stockholder proposals of this type are designed for political discussion rather than to advance shareholder value”) in a nice, neat, gray-shaded box…that took up less
but Schwab’s answer was even shorter…and sweeter, thanks to proposal 1: “…there are more effective means to communicate with us other than through non-binding proposals. As noted…we are concerned that some proposals are designed for purposes other than to enhance shareholder value…However, we also believe that there may be instances where it is appropriate to submit a non-binding proposal… this proposal goes too far by seeking …to eliminate that right, and therefore, we do not support it” Short, sweet and cogent …with none of the argumentative “over-lawyering” that so many corporate responses indulge in, and that always sounds to us like “protesting too much.” And a wonderfully effective use of typography to boot. Check it out.
MOST IMPROVED ANNUAL MEETING “PACKAGE”: RANGE RESOURCES: What a pleasure it is NOT to have to beat them up again this year, as we did for so many years, for squandering our good money on over-the-top printing and binding shenanigans…like oversize, over-thick pages, plastic covers, “peek-a-boo cutouts”, metal spiral bindings, to name just a few items that made their printing salesman richer and shareholders poorer. This year, however, they went totally to the other side – using their FORM 10-K as their only A-R…and not even bothering to insert the directors’ photos in their fat and forbidding looking Proxy Statement…Ouch! But when you look at their stock price chart, there seems to be a near-perfect correlation between what they spent on proxy materials and their total returns in any given year. Stinky docs this year, for sure…but performance that was literally “off the charts” vs. peers.
A FEW NOTEWORTHY “NOBLE EXPERIMENTS”: Several companies seemed to be re-thinking their approach to the paper-products they push to us…which seemed rather odd in the context of having a Notice and Access option…but hats off for trying something new: UNITED TECHNOLOGIES, which caught out attention earlier in the year when they vowed to improve their stock price by better highlighting their brands sent us TWO sets of “glossy reports” – an orange book with “Thinking” and “Results” sort of superimposed on each other…and almost slipping off the page, and a lime green one labeled “Financials,” where this word too literally teetered off the edge. But United Tech’s noble experiment with better branding sure worked well, just as the OPTIMIZER predicted it would: After modestly outperforming the Dow & S&P most years, the 2007 results ticked up big-time vs. both indices: $100 invested for five years yielded $267 - vs. a return of $177 on the DJIA and $182 on the S&P. CATERPILLAR, another company that blew by the S&P 500 big-time in 2007 (like $350 on $100 vs. $182 for the S&P) sent us one glossy called “BUILD”…another glossy labeled “SHAPE” (its ‘sustainability report’) and a big, fat, combined plain-paper Proxy Statement and A-R, where, oddly, its impressive chart was buried near the very end. This neatly tees up what we think is …
THE BIGGEST AND BEST “INNOVATION” IN A-R PACKAGE-CREATION IN A VERY LONG
TIME… (and something we’d like to claim a tiny bit of credit for advancing over many years)…PUTTING YOUR PERFORMANCE COMPARISON GRAPH UP-FRONT, where people can find it easily, and where management can address it as they should…UP FRONT…(Although admittedly, we did not find a single company that did so when their chart looked ‘not so hot’…but where ‘addressing it up front’ is even more important). In addition to the companies cited above, our friends at BROADRIDGE also got it right, placing the performance graph on the left-inside cover of their “Wrap”.
THE SCUMMIEST 2008 EXECUTIVE-COMP DISCLOSURE WE SAW: SONESTA INTERNATIONAL, which, in the course of explaining that they were no longer having to pay $100,000 a year to rent a home for their executive chairman, multimillionaire Roger Sonnabend, in Key Biscayne, said they’d continue to pay $1,200 a month to the executive’s wife, to “rent” some office space her hubby could use…in the very same town (Boston) where Sonesta has its headquarters.
THE SCUMMIEST DIRECTOR-COMP DISCLOSURE WE SAW: MORGANS HOTEL GROUP…where Director Lance Armstrongcollected over $70,000 in fees and stock in 2007…while failing to attend a single one of the 11 scheduled meetings. Peddling one’s arse off indeed…though clearly not to benefit the stockholders Lance was supposed to be watching out for. (He’s since stepped down, to peddle his arse elsewhere).
WIERDEST A-R COVER IMAGE… sad to say, from your editor’s alma mater, JPMorganChase: What were they thinking??? The caption read “Building a Strong Foundation” The image showed four ovoid rocks…with increasingly smaller rocks perched one upon another…to produce the shakiest ‘foundation’ one could possibly imagine… upon which to build ANYTHING! They should’a given this pic to WAMU!
OUR ANNUAL “FICKLEFINGER AWARD”… for an EVEN WIERDER PHOTO…from a company that makes half its money from technology…and that should have known better, based on previous mocking from the pr ess…GE…for the “group shot” of their Corporate Executive Council. Doesn’t anyone remember the ribbing GE took for the bad cut-and-paste job they did on their Board members last year…featuring over-and-undersized heads and disjointed limbs? Our nine year old nephew could do a better job at Photoshop than this year’s A-R crew managed to do with the GE top execs! Getting ‘fingered’ a second time for fuzzy-phony-photos in one’s expensive A-R seems really inexcusable…but OK, it did “make us look”.
And finally…the BEST ANNUAL MEETING – by a longshot - BERKSHIRE HATHAWAY (See the article below for the reasons why).
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