July 15, 2013

CEO Candor Key for Social Reports

Two-thirds of the 250 largest companies in the world now issue sustainability reports along with their financial reports. And like their more traditional cousins, the corporate annual report, these documents often include some type of letter from their chief executive.

Studies have shown that this letter is often the most read section of the report, sometimes the only read section. So how can you make the most of this opportunity?

L.J. Rittenhouse has been measuring the content, candor and efficiency of CEO communication in annual reports for the last 15 years. Rittenhouse is president of and BEYOND Communications, an investor relations firm that works with companies as diverse as GE and Ballard Power on developing high-performance candid and ethical communications.

Each year she publishes a ranking of annual report CEO letters from a cross-section of Fortune 500 companies and correlates these rankings with stock price performance. And each year she finds that CEOs who rank highest in candor typically run companies that have greater stock price performance. In each of the past four years, the 25 top-ranked companies in candid disclosure have outperformed the 25 bottom-ranked companies.

The explanation for this strong association is self-evident, says Rittenhouse. CEOs who communicate with candor are going to be more trustworthy, they offer clearer messages to employees, customers and investors.  Consequently, they can execute strategies more effectively.

Candor-advantaged CEOs also score high in social reporting in their annual report letters. Again the connection seems obvious. These CEOs have deeper and broader perspectives through which to view the world.  As a result, they are better at taking advantage of and defending against changes in their environments.  They know that economic success depends on fostering healthy civil societies that thrive on open and respectful dialogue.

Since the teams that write social reports are often not involved in the production of annual reports, we thought that social report writers might have much to learn from their annual report colleagues. Here are some of the key criteria Rittenhouse uses to evaluate excellence in annual report writing. See how you can apply it to your social reports:

  1. Know your audience: “It’s critical to know your audience; what they want and need to know,” says Rittenhouse. “Salutations in annual reports range from “Dear all with a vested interest in our company” to simply, “Shareholders.”  But after reading social reports, it’s difficult to discern whom writers want to reach.  Employees and directors are obvious targets.  But what about investors?  Individual and CSR investors read social reports, but most institutional investors have time horizons too short to care about social programs.  Customers may want to know how social issues affect product reliability and quality.  Once social report writers define their key audiences, they will more effectively penetrate reader skepticism and inertia.”
  1. Avoid corporate speak: The most successful annual report writing avoids clichés, confusion and unnecessary words.  It employs accurate and original words.  Executives with limited vocabularies are handicapped in their ability to see what’s going on around them. Warren Buffett, considered to be the smartest investor in the world, writes his annual report letter each year.  Its publication is a global news event.  Why bother?  He knows that writing is essential to developing and executing sound strategies. He writes to test the clarity of his thinking. If a CEO can’t produce clear and easy-to-understand reports, Buffett worries that he or she doesn’t understand the business.
  2. Excel in Transparency: The best annual report writing is transparent because it is intellectually and honestly rigorous. It digs deep and touches on the what, how and why of corporate priorities today and tomorrow. The ability to create sustained corporate value is measured by an awareness of the paradoxes that impact strategy: less is more; we are as strong as our weakest link; and the fact that failure is the twin of success.
  1. Write Energetically. The message will be easier to digest when the writing is constructed as a dialogue. Use verbs.  Don’t only use emotional words; write to create an emotional response.  The most potent annual reports are those in which the CEO is empathic; when he or she is able to step into the shoes of investors, customers, employees and others who care about the company’s success.
  1. Educate and Lead: Many companies write about their leadership goals and positioning in annual reports; the best reports lead when they educate the reader. For example, GE reports each year on how they invest in leadership businesses and describe the underlying dynamics that support growth in these businesses.  Writers that offer intellectual tools to understand and appreciate the depth of the corporate vision and social priorities will build the kind of trust essential for sound leadership.
  1. Tap into Strategic Narrative Power: The best companies describe strategies, as stories not power point checklists. Narratives engage readers and invite action. The best stories provide valuable context so readers can appreciate both the vision and the rationale of company plans and ambitions. They build brand identity because they are believable and memorable. 
  1. Map the Future: Smart CEOs provide insights into the corporate future. Some connect the underlying passion and purpose of a company with its value proposition, the corporate recipe for making money. Other CEOs offer detailed outlooks, expectations, goals and targets that reveal a more precise future vision.  Of course these will change as the future is revealed.  When readers are informed of these developments, they gain deeper appreciation for corporate continuity and constancy.
  1. Stewardship Indicators: The best annual reports and social reports are firmly grounded in attitudes of responsible ownership. Buffett invests in companies where managements believe they are entrusted, not entitled to corporate assets.  They treat investors like partners, not patsies.  Capital stewardship is evident when CEOs offer precise performance metrics of return on capital and detailed uses of cash. Social reports can also provide evidence of stewardship by linking social goals with results.

Understanding these criteria helps writers to produce trust and execution-building communications.  When readers learn to spot these candor clues they can better evaluate the strength or emptiness of a CEO’s persona and promises.  They will be able to see inside the corporate culture.  Is this a company that actually walks its talk?  Great writing will determine if readers get a clear or obscured view of this most strategic alignment.