Backwards Reports Annual Read: Experts
Jennifer Caplan, CFO.com June 23, 2003
Despite mounting pressure to improve corporate governance and provide more transparent disclosure to investors, a good number of executive annual letters to shareholders still are misleading, according to a report in Reuters. Those letters contain phrases -- jargon like "robust growth" and "best in class" -- that cloud true performance, the article noted. "On average, most letters have not improved," Laura Rittenhouse, president of andBEYOND Communications, a New York investor relations firm, told Reuters. "I don't believe the climate for investors will get better until companies are encouraged to stop the hyperbole." Some corporate governance experts are warning investors not to rely too much on the CEO letter because it is often used as a marketing tool. "My tip to people looking at annual reports, start from the back and read forward. Read the letter last," said Patrick McGurn, senior vice president at Institutional Shareholder Services. Although many investors would concede that financial statements and footnotes are more important measures of corporate performance than letters to shareholders, Rittenhouse and some others say the shareholder letter is a key indicator of corporate attitudes. They claim investors may equate acknowledgement of shortcomings with more transparent financial disclosure.
© CFO Publishing Corporation 2003. All rights reserved.

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