Confessions of an Annual Report

Down through the ages, mankind has been able to cling to but a few certainties: death, taxes, the Cubs never [...]

November 1 1998 by Joe Queenan


Down through the ages, mankind has been able to cling to but a few certainties: death, taxes, the Cubs never winning the pennant, and the defiantly uninformative, diabolically uninteresting style of the corporate annual report. Sadly, this fourth cornerstone of predictability is starting to slip away from us.

Things started to take a turn for the worse when outfits began including mission statements and fulsome poetry in their annual reports. Then came the “social audits,” where ostensibly independent do-gooders came in and gave companies clean bills of ethical health, even in years when sales and profits were down. Obviously, most of this material was pompous, pedantic, and, in a very real sense, idiotic. But it still made the annual reports stand out from the generic blather most companies issue each year.

Now, however, the landscape is changing dramatically. As reported in The Wall Street Journal, the 1997 UAL annual report contains a series of bizarre “testimonials” from the airline’s customers. An executive for Paramount Pictures compares the carrier’s West Coast shuttle service to the treatment he could expect on “the worst of the bargain-basement airlines,” and says he was insulted by the offer of a $25 voucher in recompense for a delayed flight. Another miffed traveler says he no longer uses UAL to ship flowers across the country because the airline is too unreliable. And a third disgruntled customer wrote in to lampoon the carrier’s latest ad campaign, reporting that he has switched to American.

The annual report reprinted the angry customers’ complaints, juxtaposing the vituperative remarks with the airline’s apologies, explanations, and heartfelt vows to do better in the future. This could be a watershed moment in the history of annual reports. Should other companies choose to follow UAL‘s lead and engage in the public donning of sackcloth and ashes, we might see such spectacles as car makers apologizing for recreational vehicles that flip over when turned at too sharp an angle, and motion picture studios saying: “We apologize for those last three Kevin Costner films. We promise it won’t happen again.”

Printed contrition is not the only format change we can expect to see in annual reports in years to come. Recently, the Financial Accounting Standards Board voted 7-0 to formally add a new research project to its agenda. Specifically, the accounting rule-making body is investigating whether shareholders would be better served by annual reports that go beyond the usual charts and graphs and also provide a significant amount of non-financial information about the company’s current health. According to The New York Times, this would include “statistics on employee turnover,” “measures of consumer loyalty to defective products,” and even details about “such touchy subjects as company executives’ criminal convictions and the details of disagreements that the company has with its auditors, bankers, or lawyers.” In fact, the committee that came up with this revolutionary idea has even gone so far as to suggest that auditors “involve themselves in confirming the accuracy of this non-financial information.” This moonlighting work, The Times adds, could be a source of additional income for accountants of all stripes.

Personally, I can’t wait for these new rules to go into effect. This could lead to terrific new material in annual reports, such as the part where the auditors say: “We have audited the accompanying consolidated balance sheets of X Corporation and subsidiaries as of December 31, 1998, and in our opinion, the financial statements referred to above present, fairly, in all material aspects, the financial position of the corporation and subsidiaries in the time frame discussed.

“However, certain members of senior management did seem to be hitting the sauce pretty hard at the Pro-Am held in West Palm Beach last July, and CFO George Tibbets could be out of action for a few months after that dud landing while skydiving in Nevada last summer.

“The auditors additionally feel it incumbent to note that Ron Bertrand, VP of HR, has been seen ducking out the back exit of company headquarters every Friday afternoon to avoid meeting with a man identified only as ‘Vinnie the Scooch,’ who has repeatedly demanded an entity he cryptically refers to as ‘the vig.’ While Mr. Scooch has been reluctant to specify the nature of ‘the vig,’ it is our considered opinion that Mr. Bertrand’s failure to meet with Mr. Scooch has impacted negatively on company morale by creating a persistently insalubrious environment in the company parking lot.

“Finally, the auditors feel constrained to point out that rank-and-file employees secretly refer to CEO Henry Weatherspoon as ‘The Mad Hatter,’ ‘The Wacko from Waco’ and ‘The Human Blowtorch,’ and that his wife recently ran off with a circus act. Other than that, the company is in fine shape.”

FASB, get cracking!


Joe Queenan is a regular contributor on business issues, corporate culture, and financial follies to Barron’s and The Wall Street Journal.