Student Replies
Jonathon
Classmates,
I looked up a 2016 annual report on Texas Roadhouse from http://annualreports.com/. This
report broke down all of the information I think would be asked by shareholders or anyone who
had a form of investment within the organization. The document is shorter than I thought it
would be (137 pages) for a business with a lot of moving pieces. The report is broken down into
chapters that focus on shareholders, proposals, financial information, and statistical analysis data.
I think that each section breaks down the information in a manner that is simple to understand to
a person who might not have knowledge on technical terms or financial references. The
beginning of the annual report introduces the reader to senior leadership and primary participants
in annual corporate meetings. This information can guide individuals with questions to the
appropriate person that can possibly solve the issue.
There is no fluff writing throughout the report and focuses only on facts and quantifiable
information. There are also previous years covered to show long term growth of the organization.
Response to proposals are given with an answer to the issue and how the answer was determined
with a course of action for moving forward. I think that it is important to give questions more
than a yes or no answer so that investors truly understand the direction of the organization.
Something that I would want a little more information on would be how the company plans to
move forward based on the financial results from the previous year. I think the statement does a
very good job with the financial statistics, but does not really focus on some basic numbers like
adding restaurants.
I have added the report as an attachment and highlighted information that I would want to know
about if I was an investor within the company.
Thank you J
Texas Roadhouse.pdf
Robert
Hello Class,
I figured for this week I would take a look back at the annual report I used in week two to see if I
could shed some different insight on the report now that we have learned much more in class.
The annual report I used was from Johnson & Johnson yes, the baby shampoo company.
However, Jonson & Johnson is seen as a pharmaceutical company that makes over the counter
products. The 2017-2018 annual report they published and developed in house, it is 124 pages
long and broken down into four main categories with subcategories in each section.
A huge compliment I have for their annual report is naming and giving a little bio of
some of the shareholders. Also, there are little anecdotes like this along with the margins of the
report “a culture of collaborative innovation has been the basis for every achievement, every step
and leap forward since our inception as a company” (Corporate Report, n.d.). This one particular
sentence lets the readers known that Johnson & Johnson's successes were because the company
worked together as a whole to include cultural differences and diversity. The report also talks
about how sharing of best practices and collaboration has helped increase their market in the eye
care world on a domestic and global scale. Per the report, Johnson & Johnson seem to have a
diverse workforce that is having success globally due to an increase in globalization and
communication. Here is a quote to solidify my previous statement: “the success we achieve for
patients, consumers, stakeholders, and shareholders would not be possible without the
commitment of 134,000 diverse and talented J&J employees in sixty countries around the world”
(Corporate Report, n.d.). The article is filled with anecdotes like this, and another section of the
report sets positive expectations for the company for 2018-2019.
The first time I read this report, I did not really understand the analytical data, but now
after reading the article for a second time, I have a better grasp over the information. Think if
you were the average person, the information might be a little confusing. However, if you work
in the business, and are familiar with the contents of an annual report, there should be no
problem dissecting the information. The annual report was so well written that employees and
consumers would have no trouble understanding 90% of the article. The report was written in a
way that it was professional enough for the stakeholder but simple enough for outsiders to
understand what type of company J&J is.
After reading how diverse the company and how including they are I had no questions
whatsoever. The authors of this report drove home that J&J is a diverse company looking to
improve people lives throughout the world.
References
Corporate Reports. (n.d.). Retrieved December 11, 2018, from https://www.jnj.com/aboutjnj/annual-reports
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1356-3289.htm
The extent and patterns of
multi-stakeholder
communications in annual
report letters
The extent of
multi-stakeholder
communications
Roger W. Hutt
Received 5 September 2011
Revised 13 December 2011
Accepted 22 March 2012
Morrison School of Management & Agribusiness, Arizona State University,
Mesa, Arizona, USA
323
Abstract
Purpose – The purpose of this paper is to determine whether CEOs use multi-stakeholder
communications in their annual report letters and to describe any patterns observed in those
communications.
Design/methodology/approach – Annual report letters of the ten largest US companies were
examined using content and text analysis procedures.
Findings – CEOs made little use of multi-stakeholder communications in their annual letters. Some
variations were found among the sample companies’ letters, including differences in word counts,
reading ease scores, and number of word types.
Research limitations/implications – A small sample of companies and one medium of
communication were used in carrying out the study. Increasing the sample size, the array of
industries represented, and the variety of media may yield more robust results.
Practical implications – Recommendations for communicating with a multi-stakeholder audience
are proposed.
Originality/value – The paper examines how stakeholders relate both to the organization and to one
another, a focus not examined in great depth elsewhere in the literature.
Keywords Annual reports, Chief executives, Corporate communication, Multi-stakeholder approach,
Text analysis, Communication, Large enterprises, United States of America
Paper type Research paper
Introduction
To understand a business is to understand the relationships with and among its
stakeholders – - the groups having a stake in the activities making up the business
(Freeman et al., 2007). Stakeholders can pave the way and make it easier to execute a
strategy. They can also create resistance and make it difficult or impossible for the firm
to realize its mission. Establishing communication with them is critical and is one of
the CEOs major responsibilities. Stakeholders abound. It would be a rare firm, indeed,
where only one relevant stakeholder group was identified. Identifying the target
groups from among the many possibilities is an essential prelude to communication.
One-way CEOs carry out this communication task is to address, specifically, the
interests and needs of each individual stakeholder group. Another way, the
multi-stakeholder approach, involves finding the commonalities in behaviors and
interests among a complete set of stakeholders and then communicating to them as one
audience. Customers, suppliers, employees, communities, and financiers – all those in
Corporate Communications: An
International Journal
Vol. 17 No. 3, 2012
pp. 323-335
q Emerald Group Publishing Limited
1356-3289
DOI 10.1108/13563281211253557
CCIJ
17,3
324
the value creation process – would typically comprise that set. This study examines
both of these ways of viewing and communicating with multiple stakeholders through
annual report letters.
Descriptions of stakeholder groups
The corporation’s role as a social institution, with responsibilities extending beyond its
shareholders to include other stakeholders, has been discussed in the management
literature for decades (Davis, 1960; Drucker, 1946; Fassin, 2009; Johansen and Nielsen,
2011). In 1984, Freeman defined stakeholders as “any group or individual who can
affect or is affected by the achievement of the organization’s objectives” (Freeman,
1984). The concept has evolved over the years and has attracted the attention of an
increasingly larger set of interested parties and volumes have been written about it.
Fassin (2009) reported that several academic journals have dedicated special editions to
the stakeholder concept. On a similar note, Johansen and Nielsen (2011) pointed out
that policymakers, regulators, non-governmental organizations (NGOs), and the media
are paying more attention to stakeholders. Researchers have also noted the impact on
the stakeholder concept of the social media, which not only allows stakeholders to
express their opinions and build constituencies, but also shifts the center of
communication from organizations to issues and topics (Luoma-aho and Vos, 2010).
While proposing a rethinking of both stakeholder theory and ethical theory, Freeman
and his co-authors offered the definition that “... stakeholders are moral agents as well
as members of groups such as ‘customers,’ ‘communities,’ ‘shareholders’ etc... (Freeman
et al., 2010). Also suggesting a refinement of the definition, Fassin (2009) proposed that
stakeholder activities can be divided into three groups “...the stakeholder who holds a
stake, the stake watcher who watches the stake, and the stake keeper who keeps the
stake.”
Some of the different ways of thinking about and describing stakeholders are
normative classification when the extent of agreement is not considered, normative
classification when the extent of agreement is not assumed, multiple roles, and the
multi-stakeholder approach.
Normative classification when the extent of agreement is not considered
According to this classification method, people or other entities are categorized
normatively into stakeholder groups and are separated from each other by neat, rigid
boundaries. Employees, customers, suppliers, and communities and other groupings
are common members. The classification scheme is useful to firms, particularly when
trying to understand and describe how various constituencies (i.e. stakeholders) might
react to a particular corporate initiative. A firm’s decision to use only recycled
materials in the manufacturing process may delight environmentalists. The same
decision might raise the ire of shareholders fearing reduced dividends.
Normative classification when agreement is not assumed
It is clear to some observers that normative assignment to a group is convenient but
does not ensure that members agree on the pertinent issues. Investors, for example,
may not agree with each other and different employees will have different needs. From
the above example, just because they are environmentalists does not necessarily mean
that all in that group will be as supportive of the initiative. People may not even know
they are identified with a particular stakeholder group.
Multiple-roles
People and groups, depending on their roles, can occupy more than one stakeholder
classification at the same time. Boundaries between groups have blurred, as corporate
relationships with stakeholders have grown more complex (Goodman, 2006; McVea
and Freeman, 2005). Employees might also be shareholders. In this role they might
view a corporate cost-cutting proposal differently than shareholders who are not
employees.
Multi-stakeholder approach
Communicating with multi-stakeholders is a matter of understanding what appeals to all
relevant groups simultaneously. Attention is paid to the commonalities rather than the
differences among a complete set of stakeholder groups. As Johansen and Nielsen (2011)
pointed out, “...corporations should be aware of discursive practices and conventions
within the various stakeholder groups they address.” Borrowing from nature, a school of
fish bears enough of a resemblance to the more abstract multi-stakeholder concept that
it’s a useful analogy. The common element, which is discussed further below, is that
communication and action can occur quickly, without the impediment of a hierarchical
structure. A complete set is a collection of readily-identifiable stakeholders involved in the
entire value creation process (Freeman et al., 2007). At a minimum, customers, suppliers,
employees, communities, and financiers are included. This set might be somewhat
different in different organizations or at different times in an organization’s life cycle, but
most likely only slightly different. Whatever the case, the organization’s commitment and
communication must take the interests of all members of the complete set into
consideration. The approach, resembling Adam Smith’s ideas of producing the greatest
good for the greatest number, depends heavily on the connections and networks among
the complete set (Freeman et al., 2007).
Annual report letters
The annual report letter, often called the shareholder letter, is generally written once a
year and is included in the beginning of the corporation’s annual report. Written by one
or more top executives, and providing a broad overview of the firm’s operations and
basic financial results for the year, the letter also generally discusses its current
position in the market, and some of its future plans (Bowman, 1984). The letter is not
required, nor are there standards, or content requirements (Geppert and Lawrence,
2008). As Bowman (1984) observed, CEOs consider annual reports to be a major
communication channel to reach many constituencies. An understanding of language
and ideology are important in this process of written communication as noted by Fox
and Fox (2004):
Through the medium of writing a [corporate public discourse] CPD communicative event is
given precision . . . writing gives both the producer (a corporation) of a CPD communicative
event and the receiver (stakeholders) of a CPD communicative event an increased awareness
of the social context of their interaction (relations of power), of the importance of a community
of writers (the corporate management discourse community), and of an exclusive language of
that community (CPD).
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Annual report letters have become a multi-objective, multi-audience medium of
corporate communication and could be considered elements of the mass media
(Anderson and Imperia, 1992). They are often directed to large audiences as is the case
of Procter and Gamble (see Table I) with more than two million stockholders. And they
deliver their messages without personal contact or immediate feedback. Objectives
include communicating the company’s philosophy and its personality; announcing
new product introductions, executive appointments and resignations; justifying
mergers and acquisitions; and reporting earnings, dividends, and new stock issues.
Based on their study, Geppert and Lawrence (2008) suggest that executives use the
letter as a tool of reputation management. Significant, high-profile topics, are typically
introduced by the CEO in the letter accompanying the report, with further details
included elsewhere in the report. Audiences include stockholders, for whom the report
was originally intended, as well a variety of others including potential customers,
prospective investors, and financial analysts to name just a few.
Who actually wrote the letter can make a difference when examining them down to
the level of the actual words used and their frequency. Are they written solely by the
CEO, by the staff, or a combination of the two? Without answering the question
directly, Bowman (1984) observed that CEOs typically provide the outline for the
report’s contents followed by proofreading and changes. It is assumed in this study
that the letters were written by CEOs. CEOs’ use of multi-stakeholder approaches in
communicating is examined in this paper. Patterns discerned in the approaches will be
noted.
Research questions
The contents of CEOs’ annual report letters for ten of the world’s largest corporations
were analyzed. The specific research questions addressed were:
RQ1.
Do CEOs recognize more than one group of stakeholders in their annual
report letters?
RQ2.
To what extent do CEOs use a multi-stakeholder approach in corporate
communications?
RQ3.
What patterns, if any, are noticeable when CEOs communicate with more
than one stakeholder group, but outside the parameters of the
multi-stakeholder approach?
Methodology
The sample in the study, as shown in Table I, consisted of the ten largest US
companies in 2009, ranked according to market value, publishing an annual report
letter. Market value or capitalization is determined by multiplying the per share stock
price by the number of shares of stock outstanding. Apple Inc., which would have
ranked fifth, is not included in the sample because the company does not publish an
annual report letter. IBM, which would have ranked eleventh, was added to round out
the list. Table I also includes shareholder and employee numbers for each company.
Berkshire Hathaway Inc. was included in the study because it is the fifth largest US
firm based on market value. The company’s letter stands apart from the others in the
sample. Written by Warren Buffett, it is one of the best-read, and most-quoted, and
167.01 to 308.77
Market value
Range
179.69
Med
1,547
525,529
135,568
292,983
27,900
2,311,000
185,121
598,000
2,811
257,307
543,807
n
2,811 to 2,311,000
Shareholders
Range
275,145
Med
45,300
80,700
89,000
2,100,000
222,000
127,000
115,500
304,900
19,835
284,000
437,776
n
Med
174,500
Employees
Range
19,835 to 2,100,000
Sources: Available at: www.forbes.com/lists (accessed January 11, 2011). Apple Inc., which would have ranked fifth, is not included on this list because it
does not publish an annual report letter. IBM, which would have ranked eleventh, was added to round out the list. Available at: www.mergentonline.com
(accessed January 11, 2011)
6.23
308.77
254.52
205.37
190.86
184.47
174.90
169.65
169.38
167.63
167.01
ExxonMobil
Microsoft
Wal-Mart Stores
Berkshire Hathaway
Procter & Gamble
Johnson & Johnson
General Electric
Google
Bank of America
IBM
Sample
Whole foods
($bil)
Company
The extent of
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Table I.
Ten largest US
companies in 2009, in
market value, with an
annual report letter
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most-anticipated documents each year. How popular is the letter? The banner across
the top of the Business and Finance section of The Wall Street Journal included
Buffett’s photo with the phrase “Online Today: Buffett’s Annual Letter at WSJ.com”
(The Wall Street Journal, 2011). It is also the longest. Containing more than 10,000
words (see Table II), it is five times larger than the median. Buffett is known for his
successful investing and his billionaire status. He is also known for his writing ability,
a way of making ordinary people think they, too, could learn the investing principles he
uses. Buffett’s letter attracts a following far beyond the shareholder ranks of the
company.
Whole Foods Market was the model against which sample companies were
compared. Its selection was based on the company’s identification by R. Edward
Freeman and his colleagues as “a prime example of this multi-stakeholder approach”
(Freeman et al., 2007) and not because it was comparable on any significant measures.
The company’s market value (see Table I) at $6.23 billion is considerably smaller than
IBM’s, the smallest firm by that measure in the sample. With 45,300 employees and
1,547 shareholders, Whole Foods is smaller than all but one sample firm, Google, where
the comparable numbers are 19,835 and 2,811 respectively.
For RQ1 (Do CEOs recognize more than one group of stakeholders in their annual
report letters?), content analysis was used to determine the presence of references to
stakeholders and stakeholder groups by name within the annual report letters of the
ten companies in the sample. The analysis was aided by AntConc (Anthony, 2007) text
analysis software, which was used to scan the letters. The Keyword List feature of this
tool shows which of a target document’s words are unusually frequent (or infrequent)
in comparison with the words in a reference corpus. Comparisons were made between
the ten target companies’ (that is, the sample companies) letters one at a time and
Whole Foods Market’s letter, which was the reference corpus letter. Names of
stakeholders and stakeholder groups comprised the resulting keyword list. Keywords
were ordered according to Keyness, indicating statistical significance of their
frequency in target files compared to the corpus. The statistical measure used to assess
Keyness is log likelihood where G 2 is the value calculated. References to groups,
organizations, and individuals reaching statistical significance at p , 0.01 or p , 0.05
are considered stakeholders (Hutt, 2010) for purposes of this study.
To answer RQ2 (To what extent do CEOs use a multi-stakeholder approach in
corporate communications?), stakeholders identified for the first research question for
each company were compared to Freeman’s (2007) minimum list for a
multi-stakeholder approach: customers, suppliers, employees, communities, and
financiers. A company is considered to be using a multi-stakeholder approach if
significant references to all stakeholders on the minimum list are identified in its letter.
The Flesch Reading Ease measure was also used (Flesch, 2011). This measure was
used by researchers in their recent study of the readability of mission statements of
companies of approximately the size of those in the present study (Sattari et al., 2001).
Flesch scores range from 0 to 100; the higher the number the easier the text is to read.
College graduates should be able to understand text with scores from 0.0 to 30.0.
Eighth- and ninth-graders find text easy to understand when scores are in the 60.0 to
70.0 range. For this study a ten-point range bracketing the Whole Foods, because it’s
the model, score of 50.6 was used. Therefore, 45.6 to 55.6 were used as the standard
range (neither difficult, nor easy) for purposes of the analysis. Readability formulas
50.6
819
1,277
1,275
1,013
586
1,085
40.3
45.4
65.1
54.4
40.6
4,8.55
2,652
740
55.4
51.7
22.3 to
65.1
406
721
529
n
38.6
22.3
64.1
Note: See Table III for the complete list
a
ExxonMobil
Microsoft
Wal-Mart
Berkshire
Hathaway
Procter & Gamble
Johnson
& Johnson
General Electric
Google
Bank of America
IBM
Sample
companies
Whole foods
Companies
Flesch Reading Ease
n
Range
Med
406 to
2,652
876.5
Word types
Range
Med
2,078
3,832
4,797
3,232
1,521
3,112
10,866
2,187
859
1,984
1,181
859 to
10,866
2,132.5
Word count in letter
n
Range
Med
39.4
33.3
26.6
31.3
38.5
34.9
24.4
33.8
47.3
36.3
44.8
24.4 to
47.3
34.4
Word types/word
count (%)
n
Range Med
3
1
0
1
0
1
2
1
1
1
1
References to
complete lista
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Table II.
Data from annual report
letter analysis
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have flaws and must be used with caution (US Securities and Exchange Commission,
1998). The Flesch Reading Ease measure, in particular, is computed from a count of the
numbers of syllables and words in a sentence and the number of sentences in a
document yet it does not take into account the content of the text material itself. Word
types offer another method of analysis within the context of multi-stakeholders. Each
uniquely different or separate word according to AntConc is a word type. A generic
message for a mass audience, it is assumed, would contain fewer word types while one
directed to a narrowly-defined group might be filled with jargon and technical
language; that is, contain many word types. Additional information can be gleaned
from the data when combined with word counts to calculate word types as a
percentage of word count, also in Table II. Geppert and Lawrence (2008) referred to this
as the variety index, useful for determining the heterogeneity of wording in a text,
when they compared the annual report letters of high corporate reputation firms with
those of low corporate reputation firms.
In addressing RQ3 (What patterns, if any, are noticeable when CEOs communicate
with more than one stakeholder group, but outside the parameters of the
multi-stakeholder approach?), a particular methodology was not employed. Results
of the study will be viewed from an overall perspective and observations will be noted.
Results and discussion
Regarding RQ1 (Do CEOs recognize more than one group of stakeholders in their
annual report letters?), analysis of the ten companies’ annual report letters found that
some CEOs recognized more than one group of stakeholders as shown in Table III.
Beyond merely acknowledging stakeholder groups, however, there is a need to address
a complete set of stakeholders, readily identifiable, with a direct and vital interest in the
firm’s value creation process. The purpose is to satisfy multiple stakeholders
simultaneously rather than summing initiatives for individual stakeholder groups.
Thus, finding commonalities for appealing to and communicating with multiple
stakeholders is important. As shown in Table II, one company’s letter referred to two
stakeholder groups in the complete set, seven referred to one of the set, and two made
no references at all. Those references did not confirm a multi-stakeholder approach in
their corporate communications.
Table III.
Stakeholders identified in
sample
Companies
Stakeholders
ExxonMobil
Microsoft
Wal-Mart Stores
Berkshire Hathaway
Procter & Gamble
Johnson & Johnson
General Electric
Google
Bank of America
IBM
Industry, shareholders
Industry, companies, employees, students
Associates
Businesses, companies, industry
Consumers
Consumers
Businesses, companies
Users
Clients, industry
Clients, industry
Note: Stakeholders identified were significant at p , 0.01 or p , 0.05. Stakeholder references in italics
are a form of those found in the complete list
With respect to RQ2 (To what extent do CEOs use a multi-stakeholder approach in
corporate communications?), and as shown in Table II, annual report letters in the
study exhibit some noticeable contrasts among the companies. Word counts ranged
from 859 to 10,866, with a median of 2132.5 for the ten firms. A Kendall’s Tau ¼ -0.24
correlation statistic indicates a weak negative relationship between firm size and word
count; that is, the larger the firm the fewer the words. Large ranges were also observed
in other measures, such as 22.3 to 65.1 in Flesch Reading Ease scores. The spread in
word types was from 406 to 2,652. Unlike any of those in the sample, the salutation of
the Whole Foods Market’s 2009 annual report letter was “Dear Fellow Stakeholders.”
Reading ease measures and word type counts provide additional ways of looking at
the multi-stakeholder approach. They also help frame the discussion of commonalities
as well. This study uses 45.6 to 55.6 on the Flesch scale as the standard range (neither
difficult nor easy). The assumption is that text in that range would be read with ease,
by the diverse group of stakeholders. Higher numbers indicate that the text is easier to
read. A total of three companies were within that range as shown in Table III, while
two were above and three were below. This may indicate that the annual report letters
were not written with multi-stakeholders in mind. Again, the point is that the target
audience is comprised of a diverse and complete set of stakeholders. If it’s too easy to
read it may not be capable of addressing financial, technical, or related issues. If it’s too
hard it may cause some readers to skip over important content. As shown in Table III,
the number of word types ranges from 406 to 2,652.5, with a median of 876.5 words.
Whole Foods Market’s letter contained 819 words. Whole Foods as the model is rated
at 39.4 percent while the median for the sample is 34.4 percent. That comparison may
suggest that the sample firm’s letters may contain too few word types for addressing
multi-stakeholders. More variation among groups in terminology used could be
expected given that a complete set consists of customers, suppliers, employees,
communities, and financiers.
Observations prompted by RQ3 (What patterns, if any, are noticeable when CEOs
communicate with more than one stakeholder group, but outside the parameters of the
multi-stakeholder approach?) highlight some of differences among sample members. A
multi-stakeholder approach targets a complete or minimum set of stakeholders for
communication. Does this describe CEOs? The present study looked at one medium of
communication – annual report letters – and found that the answer is no. CEOs
mentioned relatively few stakeholders to a level of significance in their letters. For
example, for ExxonMobil the focus was on the industry and shareholders, for Procter
& Gamble it was consumers, and for Wal-Mart it was associates (employees). Given
that its large number of shareholders (more than a half-million) comprises a mass
audience, it would be expected that ExxonMobil’s letter would be easy to read and
relatively free of jargon. The company is also the largest in the country in market
value, so it seems reasonable that communications would be read by a wide audience of
prospective investors, and other interested parties. The letter, however, is difficult to
read, the word count is low while the ratio of word types to words is high indicating the
presence of jargon and technical language. Clearly, the letter was not written with a
multi-stakeholder audience in mind. Procter & Gamble, with more than two million
shareholders, publishes a letter that is easy to read and relatively free of jargon yet
without a multi-stakeholder focus. Wal-Mart’s letter, which is one of the easiest to read
in the sample, seemed to be speaking to and about its employees, with little attention
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paid to other stakeholders. In other words, there is no evidence to date of the use of a
multi-stakeholder approach in corporate communications. It should be noted, however,
that this study’s focus on only one medium and the small sample are limitations. The
possibility that CEOs are addressing stakeholder groups through other channels, such
as social media, occasional mailings, or meetings, should be considered.
332
The multi-stakeholder approach and the school of fish
Few scenes in nature are more serene than a school of fish in cool waters. Adults and
children alike watch in amazement as dozens of individual fish move, en masse, as one
organism, speeding up, slowing down and swimming together in any direction they
seem to choose. How do they do it or why do they do it observers often ask. Researchers
say this wonder of nature is made possible by a type of communication coming into
play among the fish, especially when faced with opportunities or threats (Tu and
Sayed, 2010). “Messages” are transmitted through the school, functioning as a network,
to each individual fish. The movement of a single fish toward food or away from
predators is the signal for adjacent fish to follow, and to follow immediately. Likewise,
fish adjacent to those fish follow accordingly (Miller, 2010). Instantly, the entire school
moves in a new direction, a process to be repeated again seconds later. It’s a network,
not a hierarchy, and operates without a ‘boss fish’ that might actually slow the school’s
reaction time.
The “what’s good for one is good for all” behavior of the school is analogous to the
desired behavior of multi-stakeholders when assembled into a complete set. Finding
commonalities that appeal simultaneously to multiple stakeholders – consumers,
suppliers, communities, employees, and financiers – is the key (Freeman et al., 2007).
Value is created by guiding and coaching joint stakeholder interests into roughly the
same direction. Corporations are finding ways of putting this network approach into
practice and without involvement of the management hierarchy, which, as is true in a
school of fish, could slow reaction time. It’s a decentralized group of self-directed
individuals, acting on very localized information that can react very quickly to the
environment. Like the fish in a school, each member of a complete set keeps an eye on
the close-by member. The collective abilities of these individuals – none of which can
see the big picture, contribute to the group’s success.
In its published stakeholder philosophy, Whole Foods Market speaks to the
commonalities among its stakeholders as, “Our goal is to balance the needs and desires
of our customers, Team Members, shareholders, suppliers, communities and the
environment while creating value for all. By growing the collective pie, we create larger
slices for all of our stakeholders.” (Whole Foods Market, 2010). Similarly, a DuPont
CEO stated, “We have traditionally identified four stakeholder groups important to
DuPont – shareholders, customers, employees and society . . . that set provides us with
an enduring template for identifying and engaging the people and groups who are vital
to the continued success of our enterprise.” (Holliday, 2006). As a third example, Nestle
describes its position as, “To create value for our shareholders and our company, we
must create value for people in the countries where we are present. This includes the
farmers who supply us, the employees who work for us, our consumers and the
communities where we work” (Nestle, 2011).
Implications
Companies desiring to maintain communication with stakeholders in an environment
of close and frequent communication may well consider a multi-stakeholder approach.
The approach resembles a school of fish in that it operates as a network rather than as
a hierarchy, thereby allowing communication and quick action among stakeholders.
The appropriate annual report letter in this case should be focused on the broader
audience relying on it for information and knowledge about the company. Mostly, this
involves writing to consumers, suppliers, communities, employees, and financiers in
the one letter, a departure from the practice of writing a letter presumably only for
shareholders. Identification of the groups making up the target audience should be
clear to the reader, as should be the reasons why each is included. It is recommended
that a company desiring to implement a multi-stakeholder approach should:
.
articulate its values and principles, and what it stands for;
.
identify the long list of stakeholders;
.
narrow to a short list of those most directly related to the value creation process,
realizing that it would be a relatively small yet complete set, and most likely
including consumers, suppliers, communities, employees, and financiers;
.
confirm the commonalities in interests and behaviors among those on the short
list;
.
ensure that the desires and needs of the complete are kept in balance while
informing each stakeholder who the others are and their importance to the
mission;
.
recognize that stakeholders are interdependent, with the flexibility to function
without corporate oversight; and
.
use a variety of media, including social media, in company-to-stakeholder
communication and facilitate stakeholder-to-stakeholder communication.
Summary and conclusions
Annual report letters have been described as a multi-audience medium of corporate
communication. Evidence to support that claim, however, was not found in the present
study. Even though the letters may have been widely-read, they appear to be directed
to a narrowly-defined audience. A number of stakeholders were acknowledged, but in
most cases only one was mentioned with significant frequency. The lack of recognition
of more than one group also means that the study’s CEOs were not using the
multi-stakeholder approach. This would have required finding commonalities in
behaviors and interests among customers, suppliers, employees, communities, and
financiers and then communicating to them as one audience. Clearly, something they
were not doing. Two companies did not give significant recognition to any of the five
stakeholder groups, and none of the companies recognized suppliers or communities.
CEOs may have used the multi-stakeholder approach in conjunction with multiple
channels of communication, and it’s possible that they did. However, that was not a
focus of the study.
A recommendation of the study is that annual report letters should be focused on
the broader audience relying on it for information and knowledge about the company.
Mostly, this involves writing to consumers, suppliers, communities, employees, and
The extent of
multi-stakeholder
communications
333
CCIJ
17,3
334
financiers in the one letter. To be most effective, the writer should refer frequently to
the individual groups while also acknowledging what they have in common.
Future research on the topic should include the redesign and replication of this
study to produce more robust results. The sample size should be increased, the number
of different industries should be expanded, and communication channels should be
added to the single medium (i.e. annual report letters) used in the present study. The
firm’s growth, development, and changes in its environment are sure to impact its
stakeholders. Finally, more needs to be known about how different stakeholder groups
relate to each other as members of a complete set and how the complete set interacts
with the company. A context, analogous to a school of fish, for thinking about the
multi-stakeholder approach, was discussed and recommendations for implementing it
were proposed.
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24, 2011).
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shareholders’ letter”, Corporate Reputation Review, Vol. 11 No. 4, pp. 285-307.
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millennium”, Corporate Communications: An International Journal, Vol. 11, pp. 196-213.
Holliday, C.O. (2006), “Thought Leader Commentary”, in Freeman, R.E., Velamuri, S.R. and
Moriarty, B. (Eds), Company Stakeholder Responsibility: A New Approach to CSR, Business
Roundtable Institute for Corporate Ethics, Charlottesville, VA, pp. 12-15.
Hutt, R. (2010), “Identifying and mapping stakeholders: an industry case study”, Corporate
Communications: An International Journal, Vol. 15, pp. 181-91.
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relationship building”, Corporate Communications: An International Journal, Vol. 16,
pp. 204-17.
Luoma-aho, V. and Vos, M. (2010), “Towards a more dynamic stakeholder model: acknowledging
multiple issue arenas”, Corporate Communications: An International Journal, Vol. 15,
pp. 315-31.
McVea, J. and Freeman, R. (2005), “A names-and-faces approach to stakeholder management:
how focusing on stakeholders as individuals can bring ethics and entrepreneurial strategy
together”, Journal of Management Inquiry, Vol. 14, pp. 57-69.
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January 11, 2011).
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Corresponding author
Roger W. Hutt can be contacted at: roger.hutt@asu.edu
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com
Or visit our web site for further details: www.emeraldinsight.com/reprints
The extent of
multi-stakeholder
communications
335
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.
DEVELOP VIEWPOINT
Gizelle
Willows
Clive Lotter
The amazing shrinking annual report
Obese annual reports hit the treadmill as
the IASB and new reporting standards
crack the whip.
Self-insurance is
often best
A
nnual reports are probably the most expensive
publications ever produced that never get read. Each
year, listed companies spend months preparing their
glossy ‘flagship’ reports in a tedious process often called ‘the
annual migraine’. Banks are notorious for their encyclopaedic
annual reports, with the 2012 HSBC annual report running to
546 pages and the Royal Bank of Scotland’s shelf-bender at
543 pages. Until recent years our own ABSA was infamous for
the size of its big red annual tome. How many shareholders
have the time and interest to wade through all that?
As a result annual reports - meant to enlighten – are just
plain confusing, as investors get lost in a maze of company
intricacies, pretty pictures and page after page of pie charts.
A South African industrial giant recently published an annual
report in which its environmental graphs had accidentally
been placed with completely unrelated text. Although copies
were distributed by the thousands, not a single reader,
investor, analyst – or environmentalist - commented on
the error. Which begs the question: besides the highlights,
financials and possibly the CEO's statement, how much of the
annual report is actually read? How many trees had met the
axe before this truth dawned?
In South Africa, the new Companies Act allows
summarised financial statements, while the King III code
encourages concise and plain reporting on just those issues
most material to the business.
The IRC of South Africa commissioned a research survey
of the 2011 IR of the JSE top 100 companies. Professor
Mervyn King noted that the average length of these reports
was 179 pages, but for the 18 companies in the survey that
published summarised rather than full financial statements,
this total dropped to 124 pages. Summarised financials
ranged from one page to 34 pages, averaging at 11 pages. This
compares to the 70 page average for full financials, which now
may be published on the company website.
International pressure is also being brought to bear. In
June 2013 Hans Hoogervorst, chairman of the International
Accounting Standards Board (IASB), said that a new
framework is needed to get rid of the multiple disclosures that
submerge material financial information, saying: “The risk is
that annual reports become simply compliance documents,
rather than instruments of communication.”
With the front-end narrative and back-end financials
under pressure to trim down and shape up as useful investor
and stakeholder tools, are we seeing the advent of the
genuinely informative annual report?
Reports for the real world that are 40 pages maximum,
linked to detailed information on company websites, offering
transparently analytical narrative with crisp infographics,
complemented by digital versions optimised for screens and
tablets?
Then annual reports will no longer be much ado about
nothing. ❐
22
ACCOUNTANCY SA | October 2013
Don’t spend on unnecessary insurance
and grow your own insurance
fund investments.
L
et me start by saying that
this piece is not about a
stokvel. While the principles
might be similar, I can’t say I
have family and friends that I
trust enough. However, if you
do live in a community where
you are able to pool resources,
why not do so?
Last month I encouraged
you to insure only what you
can’t afford to lose and to stop
paying unnecessary insurance
premiums on luxuries and
immaterial items. If you’re bold
enough to do so, keep track of
how much you’re now saving
every month by not paying
these premiums anymore.
What you should really be
doing with that saving every
month, is saving it!
Which saving vehicle you
choose is entirely up to you,
but make sure you’re putting it
away somewhere and keeping
track of it.
Let’s use a round number
and say you’re now saving
R500 a month, across all items
you’ve chosen to stop insuring.
At the end of one year you have
saved R6 000, without interest.
If you had lost your cellphone,
you could replace it. At the end
of two years, you would have
R12 000. If you’ve invested it
wisely, you could probably be
past R13 000 at this point. If
you lost your laptop, you could
replace it. And so on and so on.
Now Murphy would say
that you’d lose your cellphone,
your laptop and your watch
within the first two months,
but I’m saying the chances are
slim. On the other hand though,
theft is a real concern in our
society for most of us, so you’d
need to assess your own risk
and weigh up the cost-benefit.
The items I have mentioned
are usually specific inclusions
within household insurance, so
you’d need to pay an additional
amount to have them covered.
Provided you don’t have a
bout of insane bad luck, you’d
probably do okay. And after ten
years, you might even reach
the point where you can just let
your investment lie and work
for you, without needing to add
R500 every month.
The alternative is being a
slave to insurance premiums
for the rest of your life, which,
ten years from now, taking a
6% inflationary increase into
account, would amount to a
monthly payment of closer to
R900. ❐
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.
Volume 18, number 2, 2015
Accounting, Accountability & Performance
What can we learn from the chairmen’s statements of
Australian companies: a textual difference study
Dr. Zilan Cen
Xiamen University of Technology
Dr. Rongchang Cai1
Xiamen University of Technology
Abstract
The purpose of this study is to contribute to research on impression management in
corporate annual reports in an Australian context. A research question is investigated:
do the most profitable Australian companies, assessed by percentage change in profit
before tax, organise the chairmen’s statements of their corporate annual reports and
disclose information in a way that is significantly different from the least profitable
companies? The results of this study are indicative that impression management had
occurred in chairmen’s statements of Australian corporations.
Keywords: Australia, chairmen’s statements, impression management,
narrative disclosure
Corresponding Author: Dr Rongchang Cai, Xiamen University of Technology, 600 LiGong Rd,
Xiamen, Fujian Province, China; Email: rongchang.cai@xmut.edu.cn
1
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Accounting, Accountability & Performance
Volume 18, number 2, 2015
Introduction
Corporate annual reports are widely recognised as an important medium of
communication between organisations and stakeholders (McQueen, 2001;
Bartlett & Chandler, 1997; Healy & Palepu, 2001). Over the past decades, many
researchers have worked to clarify the strategies adopted for preparation of those
reports (e.g. Bettman & Weitz, 1983; Dierkes & Antal, 1986; Neu et al., 1998;
Preston et al., 1996). Deliberately adopted strategies, which aim to portray a
positive corporate image and control the impressions formed by outsiders of a
company, are described as impression management (Leary & Kowalski, 1990).
Researchers have been keen to learn about the application of impression management
in organisational settings so as to facilitate more efficient capital allocation decisions.
Much research to this effect has focused on corporate annual reports. This paper
investigates the textual characteristics of chairmen’s statements published in corporate
annual reports of the most and the least profitable Australian companies.
Impression management
Many studies explored the application of impression management in accounting
narratives. Not only is the chairman’s statement the most widely read part of a
corporate annual report (Courtis, 2004; Bartlett & Chandler, 1997), it is also likely
to be the most reviewed section. Perhaps the most frequently used review strategy is
content analysis. As an example of research of this kind, Smith and Taffler (2000)
related selfpresentational narrative disclosures to future corporate solvency. They
identified 33 failed companies, paired them with financially sound companies in the
same period and performed both form (objective) and meaning (subjective) oriented
content analysis. The results showed that it is possible to use the chairman’s statement
alone to classify, with a high degree of accuracy, firms as likely to become bankrupt
or financially viable in the future. However, as Smith and Taffler (2000) restricted
analysis to the time period between 1978 and 1985, it is possible the findings may have
limited external validity for current times.
In another UK study, Clatworthy and Jones (2006) focused on the textual characteristics
of information disclosed in the 1997 chairmen’s statements of the 50 top and bottom
performing UK companies. Clatworthy and Jones identified a series of variables to
measure the textual characteristics of the chairmen’s statements, including the total
length of the statement, number of passive sentences used, number of personal
pronouns employed, number of references to key financial indicators, number of
quantitative references and the amount of discussion regarding the companies’ future.
They found that unprofitable companies were more reluctant to give lengthy chairmen’s
statements, focused less on key financial indicators, quantitative references or personal
pronouns in their discretionary disclosures, but tended to use more passive sentences
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Accounting, Accountability & Performance
and included more discussion about the future. These results partially coincide with
those from their 2003 study (Clatworthy & Jones, 2003).
The readability of narratives is another area of study in impression management.
Some academics working in the area have taken a macro view to focus on variations
in the readability of corporate annual reports across multiple countries (Courtis, 1995;
Jones, 1996; Courtis & Hassan, 2002). A common problem faced by research of this
kind was the small sample size used, which resulted in a lack of generalisation power.
Other researchers adopted a micro view where they tried to identify the determinants
of obfuscation and clear communication through study of readability, usually within
a particular region (Smith & Taffler, 1992; Courtis, 1998; Gist et al., 2004; Linsley &
Lawrence, 2007). As Courtis purported, linking readability to other corporate elements
such as performance, size and industrial classification was important to further explore
the issue of obfuscation.
Investigation into the presentation of financial figures has been a popular topic for
scholars in business-related research as reflected in the earliest studies on impression
management. Steinbart (1989) may be the earliest study in this area. He examined the
auditor’s responsibility for the accurate use of graphs in corporate annual reports.
The importance of research into impression management stems from several reasons.
Firstly, impression management is a process that is initiated by one party (the report
preparers) with an aim to influence the other party’s (the report users) perceptions and,
in turn, their subsequent decisions. Consequently, the study of impression management
can facilitate an understanding of certain decision-making patterns of report users.
From a preparer’s standpoint, impression management research will help identify
the presentation format that is the most favourable for the company, which should be
addressed at the report designing phase.
Secondly, it is important to know whether the subsequent decisions made by the report
users as a result of reviewing the documents were severely distorted or misled. Studies
can help provide this information. If an effect does exist, and it significantly violates
widely accepted ethical practices as well as the financial market, legislation may need
to be developed. Subsequently, the study of impression management can also benefit
stakeholders at large.
Thirdly, as more indepth studies of impression management are conducted, it is possible
that some other reasonable disclosure strategies may be proposed or discovered. As
in the development of accounting theory, where the research focus has shifted from
normative theories in the 1960s to positive theories in the 1980s, a similar trend may
be anticipated in the realm of behavioural accounting.
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Accounting, Accountability & Performance
Volume 18, number 2, 2015
Theories
In business research, top-level managers (the report preparers) have been identified
as acting opportunistically to maximise their personal benefits (Staw et al., 1983;
Abrahamson & Amir, 1994). These findings are supported by the positive accounting
theory (PAT). PAT assumes that individuals behave to advantage themselves. Every
incident is driven by self-interest rather than for the good of society. Possibly the
most widely applied theory among PAT is agency theory, which raises the concept of
agency cost that occurs whenever there is an agency relationship (e.g. Fogarty
et al., 2009). Such a relationship is an implication of the conflict of interests between
owners and managers.
Agency theory is based on the assumption that information asymmetry exists between
different interest groups. It is this gap in knowledge that results in problematic
performance only likely to be realised in the future, and it renders the opportunistic
behaviours of managers unidentifiable at least in the short term.
While the application of agency theory concentrates on poorly performing
corporations, signalling theory, which was first proposed by Smith and Taffler (1992)
and further discussed by Rutherford (2003), tends to focus on managers’ behaviours
in positively performing companies. Managers in prosperous companies utilise
impression management in such a way that they signal their superiority through greater
transparency in their disclosure of information (Merkl-Davies & Brennan, 2007).
Signalling theory has gained increasing attention in reputation management, where
firms seek to signal their commitment to shareholders to create a better corporate
image (Toms, 2002; Branco & Rodrigues, 2006). Signalling theory may be viewed
as an extension of agency theory, because it is also based on the notion of personal
interests, and it predicts that people take advantage of information asymmetry.
As agency theory and signalling theory both work as the theoretical background for the
realisation of self-interest through opportunistic behaviour, they are useful in explaining
the managers’ motivation to carry out impression management as an ‘everyday
occurrence’ (Merkl-Davies & Brennan, 2007, p. 125). In contrast, another focus of
impression management is on the non-routine reporting context, where information
not related to corporate financial performance is strategically disclosed. For instance,
Deegan et al. (2000), Milne and Patten (2002) and O’Donovan (2002) considered
pollution and environmental information. Ogden and Clarke (2005) investigated the
disclosure strategies adopted by the privatised water industry in the UK. Instead of
proposing agency theory, the authors of the latter four papers found that legitimacy
theory underlies the strategic disclosures of this nature.
Because the disclosure (or concealment) of financial achievements and quantitative
statistics of chairmen’s statements are the main issues considered in this study, agency
theory and signalling theory were applied to the theoretical framework of this study.
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Accounting, Accountability & Performance
Research question and methodology
The ASX 500 index as at 30 June 2011 was used as a data source for the current
study. The ASX 500 index contains information on the leading 500 listed companies
and is available publicly. Profit margins after tax were used to differentiate between
profitable and unprofitable companies. After identifying the best performing 50
companies and the worst performing 50 companies, an additional sample of 50
companies was randomly selected from the rest of the population of the ASX 500
index to comprise a third subgroup (a middle-range group). This group, together with
the most and the least profitable group, were then analysed to find any significant
differences proposed in the below hypotheses. The use of a middle-range sample
aimed to strengthen the validity of the study by testing whether any trends found
were continuous. Corporate annual reports were sourced from the Aspect Huntley
Annual Reports Online Database (2011).
To answer the initial research question of whether the reporting strategies of Australian
listed companies differ significantly between the most and the least profitable
companies, the following general null hypothesis was generated:
H0: There is no systematic difference in the textual characteristics of information in
the chairmen’s statements for the year ended 2010 between the most and the least
profitable Australian companies.
This general hypothesis was tested using a variety of measures, which required the
development of six secondary null hypotheses.
Based on the findings of Kohut and Segars (1992) and Clatworthy and Jones (2006),
companies may provide narrative reports of different lengths according to their
financial performance for the reporting year. Profitable companies tend to provide
lengthier reports than unprofitable ones, because presumably they are more confident
in discussing their past year’s operations. Therefore, the length of the report constitutes
a means of evaluating impression management. However, apart from Godfrey et al.
(2003) who investigated impression management surrounding CEO changes, very little
evidence exists on the issue of impression management in relation to firm performance
in Australia. To investigate this issue further, the following hypothesis is proposed:
Ha: There is no significant difference in the length of chairmen’s statements in corporate
annual reports between the most and the least profitable Australian companies for the
year ended 2010.
To test Ha, the length of the chairmen’s statements was measured by counting the
number of words as well as number of pages of each document.
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Accounting, Accountability & Performance
Volume 18, number 2, 2015
Narratives of companies that experience poor financial performance tend to present in
a style that distracts the reader away from this message (Thomas 1997). Some followup studies have further recognised that such rhetorical device works as a ‘proxy for
obfuscation’ (Merkl-Davies & Brennan, 2007, p. 139; Pennebaker et al., 2003). The
use of passive voice is one example; however, whether this is true in the Australian
context needs to be examined:
Hb: The chairmen’s statements in corporate annual reports of the most and the least
profitable Australian companies will contain a similar percentage of passive sentences
for the year ended 2010.
The proportion of passive sentences in the chairmen’s statements was measured as a
percentage of the total number of sentences.
Another issue recognised by Thomas (1997) is that there tends to be a positive
relationship between company performance and use of personal pronouns. This is
not surprising because more profitable companies are motivated to organise their
narratives in corporate annual reports in a way that engages readers to feel the success
the corporation has attained. However, less profitable companies are more likely to
divert the readers’ attention by making less use of the personal pronoun ‘we’. Further
investigation of whether Thomas’s (1997) conclusion has generalisability is necessary.
Therefore, a third hypothesis was developed for testing:
Hc: The chairmen’s statements in corporate annual reports of the most and the least
profitable Australian companies will contain a similar number of personal pronouns
for the year ended 2010.
As in the study by Clatworthy and Jones (2006), we counted the use of first person
singular pronouns (i.e. I, me, my) and first person plural pronouns (i.e. we, us, our) in
the chairmen’s statements.
Some prior studies indicated that references to quantitative information including
financial tables, trend graphs and general descriptions of market developments can also
be used as means for impression management (e.g. Beattie & Jones, 1999; Arunachalam
et al., 2002; Clatworthy & Jones, 2006). For the current study, quantitative information
was defined as performance-related numbers, either in absolute or percentage form
following the assumptions of Clatworthy and Jones (2006). This includes any reference
to key financial indicators such as earnings per share (EPS), profit, sales and dividends.
Hd: The chairmen’s statements in corporate annual reports of the most and the least
profitable Australian companies will contain a similar number of references to key
financial indicators for the year ended 2010.
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Accounting, Accountability & Performance
The number of references to key financial indicators was counted and recorded for
each of the chairmen’s statements.
To further explore the use of quantitative information in the chairmen’s statements
in corporate annual reports of the most and the least profitable companies, another
hypothesis, He, was developed. While Hd focuses on the number and type of key
financial references employed within the chairmen’s statements, He is concerned
about the overall frequency of monetary references within the chairmen’s statements.
A closer look at the frequency might be an indicator of how willing firms were to
disclose their performance. The references were counted in two categories: monetary
and percentage. As predicted by Skinner (1994), profitable companies are more likely
to use intuitive quantitative references than unprofitable ones. It is thus reasonable to
make such a prediction here:
He: The chairmen’s statements in corporate annual reports of the most and the
least profitable Australian companies will contain a similar number of quantitative
references for the year ended 2010.
The number of quantitative references (monetary and percentage references) were
counted and recorded for all chairmen’s statements.
Another possible difference in discretionarily disclosed information lies in the level of
emphasis companies put upon future development. This was first raised and examined
by Kohut and Segars (1992). Since that time, numerous other studies have investigated
the use of forward-looking information in chairmen’s statements of corporate annual
reports. For instance, Aljifri and Hussainey (2007) found that the extent of information
disclosure regarding the company’s future was correlated with corporate debt ratio;
thus the following hypothesis is proposed:
Hf: The chairmen’s statements in corporate annual reports of the most and the least
profitable Australian companies will focus equally on the future for the year ended 2010.
We examined the chairmen’s statements and recorded the number of references in
relation to future prospects of the companies.
Results and discussion
Table 1 below presents descriptive financial statistics on the three sample groups. As
expected, financial performance, in the form of percentage increase in profit after tax,
differed significantly across the three groups for the fiscal year 2010. Therefore, the
three sets of companies reported on markedly different performance backgrounds. It
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Accounting, Accountability & Performance
Volume 18, number 2, 2015
is also noticeable that companies with performance at each end of the spectrum had a
smaller scale of market capitalisation on average ($1413m and $681m), whereas the
middle range group had a significantly higher average market capitalisation ($2453m).
Table 1: Descriptive statistics for the three groups of companies sampled
Company
No.
Avg.
Min.
Max.
($m) Market
Groups
Profitability
Profitability
Profitability
Capitalisation
Most Profit. 50
728.59%
86.65%
12256.60%
1413
Random
50
3.35%
-67.46%
80.07%
2453
Least Profit. 50
-289.78%
-1776.54%
-86.89%
681
Length of chairmen’s statements
Table 2 presents descriptive statistics for the length of chairmen’s statements for the
most profitable, least profitable and randomly selected companies. Both, the mean
number of words and pages of the most profitable firms are higher than those of
the least profitable firms (910 words and 817 words, and 1.8 pages and 1.58 pages
respectively). The p values of the independent two-sample t-tests for the variable
length are summarised in Table 3.
Table 2: Descriptive statistics for the length of chairmen’s statements
Most Profitable
Least Profitable
Random
Length
Length
Length
Length
Length
Length
(Words)
(Pages)
(Words)
(Pages)
(Words)
(Pages)
Min.
345
1
330
1
254
1
Max.
2680
5
3216
6
3188
6
Mean
910
1.8
817
1.58
980
1.78
Std. dev.
500
0.97
502
0.91
513
0.97
Table 3: Significance-test results for Ha: Length
Length
Most profit.
Most profit.
Words
Pages
Least profit.
Words
Pages
Random
Words
Least profit.
.355
.244
Random
.494
.918
.112
.290
It can be seen from Table 3 that no significant relationship was identifiable across
the three groups relating to the length of the chairmen’s statements, and Ha is
therefore supported.
40
Volume 18, number 2, 2015
Accounting, Accountability & Performance
Use of passive voice
Table 4 below presents the descriptive statistics for the percentage of passive sentences
across the three groups of companies. While the mean result for the use of passive
voice of the most profitable companies was 11.92 per cent, the figure for the least
profitable companies was 15.90 per cent or roughly 33 per cent higher. The average
percentage of passive sentences in the random group of companies was 11.58 per
cent, the lowest of all three groups. Possible reasons for the discrepancies from the
anticipated outcomes, and their statistical significance will be discussed in the next
section. It is noteworthy that the overall percentage of passive sentences across the
three categories was much lower than was found by Clatworthy and Jones (2006).
Although the Clatworthy and Jones paper did not find any significant difference for
the percentage of passive sentences in chairmen’s statements between the most and the
least profitable companies, the results of this study reveal that significant differences
do exist as Table 5 suggests. Thus, Hb is rejected.
Table 4: Descriptive statistics for the percentage of passive sentences
Most profit.
Least profit.
Random
Mean
Std.dev
Mean
Std.dev
Mean
Std.dev
Passive sentences (%)
11.92
8.95
15.90
8.88
11.58
5.94
Table 5: Significance-test results for Hb: % Passiveness
Passiveness
Most profit.
Least profit.
Most profit.
.028
Least profit.
Random
Random
.823
.005
Note: Bold figures indicate significance identified under 0.05 level of confidence.
Personal pronouns
Table 6 below summarises the data for references to personal pronouns. Across the
three categories, the use of the personal pronoun in the first person plural subjective
case (i.e. we) is higher than that for the first person singular subjective case (i.e. I).
Such a high usage of the plural personal pronoun signals an attempt to engage readers
and make them feel they share some responsibility in the corporate success/failure.
When the number of singular and plural pronouns was combined and compared across
the three categories, the total number of personal pronouns used did not differ much for
the three groups. On average, the most profitable companies employed 20.72 personal
pronouns in the chairmen’s statements as opposed to 19.24 for the least profitable
ones. However, the random companies again have demonstrated some distributional
abnormality with only 17.48 incidences of personal pronouns.
41
Accounting, Accountability & Performance
Volume 18, number 2, 2015
Table 6: Descriptive statistics for personal pronouns in chairmen’s statements
Personal
Most profit.
Least profit.
Random
Pronouns (no.)
Mean
Std.dev
Mean
Std.dev
Mean
Std.dev
First person
singular
I
2.74
1.93
3.12
2.68
3.14
2.10
Me
0.02
0.141
0.08
0.27
0.04
0.2
My
0.7
1.129
0.56
1.01
0.74
1.01
Total singular
3.46
N/A
3.76
N/A
3.92
N/A
First person
plural
Our
10.24
10.20
8.20
7.49
7.90
7.32
Us
0.68
1.41
0.46
0.65
0.44
0.76
We
6.34
7.22
6.82
6.61
5.22
5.21
Total plural
17.26
N/A
15.48
N/A
13.56
N/A
Total personal
20.72
N/A
19.24
N/A
17.48
N/A
references
No significant relationship was identified across the three groups (see Table 7 below).
This outcome is inconsistent with that of Clatworthy and Jones (2006). In their study,
the authors found the number of references to the pronoun ‘our’ was significantly
different between the most and the least profitable firms, and that the most profitable
companies were significantly more likely to use personal pronouns overall. However,
the 10% level of confidence used in the 2006 study might be of concern to the reliability
of the test results.
Key financial references
Table 8 below presents the descriptive statistics for references to key financial
variables in the chairmen’s statements. Looking vertically, profit before tax was the
least disclosed variable in all categories, despite its relative importance in valuing a
company’s performance as recognised by Beattie and Jones (1992). However, it is
interesting that profit after tax, which is directly derivable from profit before tax, was
among the most disclosed variables regardless of the financial performance of the
company. This result is inconsistent with the findings of the UK study (Clatworthy
& Jones, 2006), where profit before tax was the most widely disclosed performance
indicator and reference to profit after tax was not accounted for at all.
Considering the fact that some South Pacific companies prefer using profit after tax to
profit before tax as revealed in Warn (2005), such a discrepancy may derive from some
cultural differences between the UK and Australia/New Zealand. Dividend is another
42
Volume 18, number 2, 2015
Accounting, Accountability & Performance
variable that corporations are more willing to disclose in the chairmen’s statements of
annual reports. This might be because the main target audiences of the statements are
shareholders who are interested in their investment returns. This is also the case with
Clatworthy and Jones’s (2006) study.
Table 7: Significant-test results for Hc: personal pronouns
Personal
Most profit.
Least profit.
pronouns
Most profit.
I
.417
Me
.172
My
.516
Our
.257
Us
.317
We
.729
Total singular
.609
Total plural
.573
Total personal
.652
reference
Least profit.
I
Me
My
Our
Us
We
Total singular
Total plural
Total personal
reference
Random
I
Me
My
Our
Us
We
Total singular
Total plural
Total personal
reference
Random
.323
.562
.852
.190
.291
.376
.406
.230
.308
.967
.405
.375
.840
.888
.182
.788
.449
.520
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Accounting, Accountability & Performance
Table 8: Descriptive statistics for references to key financial variables in chairmen’s
statements
Most profit.
Year(s)
None
10 & 09
Least profit.
2010
None
10 & 09
Random
2010
None
10 & 09
2010
No.
%
No.
%
No.
%
No.
%
No.
%
No.
%
No.
%
No.
%
No.
%
PBT
34
68
12
24
4
8
47
94
2
4
2
4
40
80
3
6
7
14
Sales
32
64
11
22
7
14
45
90
4
8
2
4
30
60
13
26
7
14
EPS
31
62
14
28
5
10
45
90
4
8
2
4
39
78
5
10
6
12
Divid.
17
34
20
40
13
26
33
66
10
20
8
16
26
52
10
20
14
28
PAT
19
38
24
48
7
14
35
70
8
16
8
16
21
42
18
36
11
22
As shown in Table 9 below, Hd could be rejected with confidence. Significant differences
were present across all financial indicators in the chairmen’s statements of the most
and the least profitable companies.
Table 9: Significant-test results for Hd: key financial variable
Key financial indicators
Most profit.
Least profit.
Most profit.
.001
Profit before tax
.003
Sales
.001
EPS
.002
Dividend
.000
Profit after tax
Least profit.
Profit before tax
Random
Sales
EPS
Dividend
Profit after tax
Profit before tax
Sales
EPS
Dividend
Profit after tax
Random
.042
.640
.032
.024
.382
.110
.001
.175
.314
.003
Quantitative references
The descriptive statistics for quantitative references in chairmen’s statements for the
period ended 2010 are summarised in Table 10. For the most profitable companies,
the average number of monetary references was 8.36 per statement, while the average
44
Volume 18, number 2, 2015
Accounting, Accountability & Performance
number of percentage references was much lower at 3.42 per statement. However, the
large standard deviations suggest that the frequencies of quantitative references varied
considerably in different chairmen’s statements. The same statistics for the random
companies were lower than those of the most profitable companies in every respect,
indicating fewer references to quantitative performance-related information. Overall,
the frequencies of quantitative references in this study were lower than those of
Clatworthy and Jones (2006). Such a systematic difference might again be attributable
to nation-specific report-organising strategies.
Table 10: Descriptive statistics for quantitative references in chairmen’s statements
Most Profit.
Least profit.
Random
Mean
Std.dev
Mean
Std.dev
Mean
Std.dev
Monetary
8.36
11.82
3.50
4.23
4.64
4.08
references (no.)
Percentage
3.42
4.13
1.44
3.37
2.40
2.66
references (no.)
The results in Table 11 below show that He was supported. However, analysis of the
chairmen’s statements of the randomly selected companies shows that the quantity of
monetary references was significantly different from both the most and least profitable
companies.
Table 11: Significant-test results for He: quantitative references
Quantitative reference
Most profit.
Least profit.
Most profit.
Monetary ($)
.173
Percentage (%)
.117
Least profit.
Monetary ($)
Percentage (%)
Random
Monetary ($)
Percentage (%)
Random
.038
.145
.007
.010
Emphasis on the future of the company
Table 12 below reveals that the most profitable companies used approximately
68 words to describe their plans for the future in their chairmen’s statements. This
number rose to 110 words for random companies and reached the highest level of 114
words per statement for the least profitable companies. The small standard deviation
of the most profitable companies indicates that the data do not vary greatly within the
group, whereas the much higher standard deviations for the other two categories (least
profitable 72.30 and random 95.33) signal a much more scattered data distribution.
The results displayed in Table 13 below do not support Hf.
45
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Accounting, Accountability & Performance
Table 12: Descriptive statistics for emphasis on the future in chairmen’s statements
Most profit.
Least profit.
Random
Mean
Std.dev
Mean
Std.dev
Mean
Std.dev
Future words (no.)
68.5
31.64
113.66
72.30
109.58
95.33
Table 13: Results of tests of significance for Hf: emphasis on the future
Ref. to future
Most profit.
Least profit.
Most profit.
.000
Least profit.
Random
Random
.005
.810
The test results for the current study are summarised in Table 14 below. The existence
of the three rejected secondary hypotheses is powerful enough to show what was
proposed in H0 does not always hold. In other words, there are only some systematic
differences in the textual characteristics of information in the chairmen’s statements of
the most and least profitable companies in Australia.
Table 14: Summary of hypotheses testing
Hypotheses
Ha
Hb
Current study
Support
Reject
Hc
Support
Hd
Reject
He
Support
Hf
Reject
Perhaps one of the most profound results of this study is the identification of the trend
that as profitability increases, companies do tend to disclose more financial indicators
to emphasise positive outcomes.
By telling readers how positive the year has been through the disclosure of multiple
performance indicators, chairmen are also signalling higher transparency in corporate
information. This strategy thereby convinces the readers that there is a larger chance
of getting rewarding outcomes by investing in those companies, because they get told
expressly what is going on backstage and how their investments have been managed.
Such a strategy of signalling all good news is a clear application of signalling theory.
It appears that the reason why those companies with suboptimal performance chose
not to disclose as much performance-related information was because they believed
the company (or themselves if agency theory is assumed) would be disadvantaged
if they did so. Such disadvantage may take the form of a decreased number of
shareholders, reduced market capitalisation, damaged company reputation or,
ultimately, diminished financial returns for management-level employees. The more
unsatisfactory performance indicators were disclosed, the more the interests of the
parties would be harmed. It also appears that the chairmen of those companies would
rather sacrifice the stakeholders’ rights to know what has happened in exchange for
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Volume 18, number 2, 2015
Accounting, Accountability & Performance
more acceptable potential future returns. In other words, it is reasonable to assert that
both agency theory and signalling theory can help explain the impression management
efforts in chairmen’s statements.
Conclusion
The purpose of this study was to determine if textual differences in chairmen’s statements
between the most and the least profitable Australian companies were apparent for the
year ended 2010. In addition, the study investigated whether companies changed their
information disclosure preferences as their performance levels vary.
With three out of six hypotheses being rejected that related to the major research
question, the null hypothesis that there is no systematic difference in the textual
characteristics of information in the chairmen’s statements between the most and the
least profitable companies was rejected. Although the results failed to reject all of
the null hypotheses underlying the major research question, strong and consistent
differences were demonstrated for Hb, Hd, and Hf.
From a theoretical perspective, the significant test results have provided further
evidence that information concealment or exaggeration does occur in chairmen’s
statements of Australian companies, and that it is explainable by agency theory and
signalling theory.
This study highlights the ubiquitous trend of impression management in corporate
annual reports, especially in the chairmen’s statements, which is the discretionary
disclosure section. This study serves to encourage horizontal comparisons with other
similar international studies such as Clatworthy and Jones (2006). Also, considering the
timing of the related studies, this study also enables longitudinal comparisons which
may provide some evidence of how trends in disclosure and application of impression
management are developing in the discretionary section of corporate annual reports.
Another contribution of this study is the introduction of a middle group for comparison
purposes. Consider the study of Clatworthy and Jones and other studies of this kind,
only samples at the two extremes of profitability were compared and analysed.
Therefore, although such an analysis is more likely to lead to significant outcomes,
there is no way to assess whether such a difference was a result of gradual changes that
occurred systematically across the companies or whether it just happened randomly.
By introducing the randomly selected middle group, this problem can be addressed.
The results indicated that at least some variables exhibited clear trends along the
profitability axis. However, in some other areas (i.e. He) it does look as though
significant differences occurred in an unexpected way.
47
Accounting, Accountability & Performance
Volume 18, number 2, 2015
Concerning the limitations, unlike Clatworthy and Jones’s (2006) approach where
almost all UK registered companies were considered, the population of this study
consisted of the ASX500 companies only. Thus the study results may not have enough
representability to generalise to the wider ASX population especially to those companies
with a smaller scale. Another possible restriction to generalisability is the time period
for the data. In the current study, data were collected for only one year. However, what
held in one period may not hold for another. Therefore, better generalisability could be
achieved by taking a longitudinal study to expand the time period concerned.
Finally, data for the selected samples were primarily sourced from the Aspect Huntley
DatAnalysis and Aspect Huntley Annual Report Online Databases (2009). Full
reliance has been placed upon the two databases. It was only assumed that the data
collection methods, and therefore the data available in the databases were appropriate
and rigorous—no investigation was carried out to test their reliability.
To conclude, at least from this study, it was possible to infer instances where agency
theory and signalling theory were in operation when Australian chairmen were writing
their statements for corporate annual reports.
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50
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[Your Business Name]
Balance Sheet
[Mmmm Dd, 200X]
Assets
Current Assets:
Cash
Accounts Receivable
Less: Reserve for Bad Debts
Merchandise Inventory
Prepaid Expenses
Notes Receivable
Total Current Assets
$0
$0
0
0
0
0
0
$0
Fixed Assets:
Vehicles
Less: Accumulated Depreciation
0
0
0
Furniture and Fixtures
Less: Accumulated Depreciation
0
0
0
Equipment
Less: Accumulated Depreciation
0
0
0
Buildings
Less: Accumulated Depreciation
0
0
0
Land
0
Total Fixed Assets
0
Other Assets:
Goodwill
Total Other Assets
0
0
Total Assets
$0
Liabilities and Capital
Current Liabilities:
Accounts Payable
Sales Taxes Payable
Payroll Taxes Payable
Accrued Wages Payable
Unearned Revenues
Short-Term Notes Payable
Short-Term Bank Loan Payable
Total Current Liabilities
$0
0
0
0
0
0
0
$0
Long-Term Liabilities:
Page 1
[Your Business Name]
Balance Sheet
[Mmmm Dd, 200X]
Long-Term Notes Payable
Mortgage Payable
Total Long-Term Liabilities
0
0
0
Total Liabilities
0
Capital:
Owner's Equity
Net Profit
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0
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Total Liabilities and Capital
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Page 2
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The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1356-3289.htm
The extent and patterns of
multi-stakeholder
communications in annual
report letters
The extent of
multi-stakeholder
communications
Roger W. Hutt
Received 5 September 2011
Revised 13 December 2011
Accepted 22 March 2012
Morrison School of Management & Agribusiness, Arizona State University,
Mesa, Arizona, USA
323
Abstract
Purpose – The purpose of this paper is to determine whether CEOs use multi-stakeholder
communications in their annual report letters and to describe any patterns observed in those
communications.
Design/methodology/approach – Annual report letters of the ten largest US companies were
examined using content and text analysis procedures.
Findings – CEOs made little use of multi-stakeholder communications in their annual letters. Some
variations were found among the sample companies’ letters, including differences in word counts,
reading ease scores, and number of word types.
Research limitations/implications – A small sample of companies and one medium of
communication were used in carrying out the study. Increasing the sample size, the array of
industries represented, and the variety of media may yield more robust results.
Practical implications – Recommendations for communicating with a multi-stakeholder audience
are proposed.
Originality/value – The paper examines how stakeholders relate both to the organization and to one
another, a focus not examined in great depth elsewhere in the literature.
Keywords Annual reports, Chief executives, Corporate communication, Multi-stakeholder approach,
Text analysis, Communication, Large enterprises, United States of America
Paper type Research paper
Introduction
To understand a business is to understand the relationships with and among its
stakeholders – - the groups having a stake in the activities making up the business
(Freeman et al., 2007). Stakeholders can pave the way and make it easier to execute a
strategy. They can also create resistance and make it difficult or impossible for the firm
to realize its mission. Establishing communication with them is critical and is one of
the CEOs major responsibilities. Stakeholders abound. It would be a rare firm, indeed,
where only one relevant stakeholder group was identified. Identifying the target
groups from among the many possibilities is an essential prelude to communication.
One-way CEOs carry out this communication task is to address, specifically, the
interests and needs of each individual stakeholder group. Another way, the
multi-stakeholder approach, involves finding the commonalities in behaviors and
interests among a complete set of stakeholders and then communicating to them as one
audience. Customers, suppliers, employees, communities, and financiers – all those in
Corporate Communications: An
International Journal
Vol. 17 No. 3, 2012
pp. 323-335
q Emerald Group Publishing Limited
1356-3289
DOI 10.1108/13563281211253557
CCIJ
17,3
324
the value creation process – would typically comprise that set. This study examines
both of these ways of viewing and communicating with multiple stakeholders through
annual report letters.
Descriptions of stakeholder groups
The corporation’s role as a social institution, with responsibilities extending beyond its
shareholders to include other stakeholders, has been discussed in the management
literature for decades (Davis, 1960; Drucker, 1946; Fassin, 2009; Johansen and Nielsen,
2011). In 1984, Freeman defined stakeholders as “any group or individual who can
affect or is affected by the achievement of the organization’s objectives” (Freeman,
1984). The concept has evolved over the years and has attracted the attention of an
increasingly larger set of interested parties and volumes have been written about it.
Fassin (2009) reported that several academic journals have dedicated special editions to
the stakeholder concept. On a similar note, Johansen and Nielsen (2011) pointed out
that policymakers, regulators, non-governmental organizations (NGOs), and the media
are paying more attention to stakeholders. Researchers have also noted the impact on
the stakeholder concept of the social media, which not only allows stakeholders to
express their opinions and build constituencies, but also shifts the center of
communication from organizations to issues and topics (Luoma-aho and Vos, 2010).
While proposing a rethinking of both stakeholder theory and ethical theory, Freeman
and his co-authors offered the definition that “... stakeholders are moral agents as well
as members of groups such as ‘customers,’ ‘communities,’ ‘shareholders’ etc... (Freeman
et al., 2010). Also suggesting a refinement of the definition, Fassin (2009) proposed that
stakeholder activities can be divided into three groups “...the stakeholder who holds a
stake, the stake watcher who watches the stake, and the stake keeper who keeps the
stake.”
Some of the different ways of thinking about and describing stakeholders are
normative classification when the extent of agreement is not considered, normative
classification when the extent of agreement is not assumed, multiple roles, and the
multi-stakeholder approach.
Normative classification when the extent of agreement is not considered
According to this classification method, people or other entities are categorized
normatively into stakeholder groups and are separated from each other by neat, rigid
boundaries. Employees, customers, suppliers, and communities and other groupings
are common members. The classification scheme is useful to firms, particularly when
trying to understand and describe how various constituencies (i.e. stakeholders) might
react to a particular corporate initiative. A firm’s decision to use only recycled
materials in the manufacturing process may delight environmentalists. The same
decision might raise the ire of shareholders fearing reduced dividends.
Normative classification when agreement is not assumed
It is clear to some observers that normative assignment to a group is convenient but
does not ensure that members agree on the pertinent issues. Investors, for example,
may not agree with each other and different employees will have different needs. From
the above example, just because they are environmentalists does not necessarily mean
that all in that group will be as supportive of the initiative. People may not even know
they are identified with a particular stakeholder group.
Multiple-roles
People and groups, depending on their roles, can occupy more than one stakeholder
clas...
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