Writing shareholder communications is a thankless task. Most shareholders throw away the reports, and even the ones who keep them won't read the fine print. This apathy results because most companies do a terrible job communicating with their small shareholders. With the exception of Berkshire Hathaway (aka Warren Buffett), no company seems to invest much time in producing creative or thoughtful shareholder communications. I know this because I read all my annual reports. I don't claim to understand everything I read, but I love reading them. Here are some highlights so far:
1. GE's 2008 annual report was excellent. Mr. Immelt continues to do a great job re-building his own and his company's reputation. When Mr. Immelt states, "I assure you that we will work hard to restore your trust, and we will continue to work hard to build GE for the long term," I believe him. Here are some other notable sections from the letter:
On government's expanding role: The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.
On Wall Street: The financial industry will radically restructure. There will be less leverage, fewer competitors, and a fundamental repricing of risk. It will remain an important industry, just different.
On America's future: I run a global company, but I am a citizen of the U.S. I believe that a popular, thirty-year notion that the U.S. can evolve from being a technology and manufacturing leader to a service leader is just wrong. In the end, this philosophy transformed the financial services industry from one that supported commerce to a complex trading market that operated outside the economy. Real engineering was traded for financial engineering. In the end, our businesses, our government, and many local leaders lost sight of what makes a nation great: a passion for innovation.
You can read the full letter here.
2. Other companies also took their duty to communicate to shareholders seriously. Kudos to Dominion Resources, Inc. (D) for its transparent, detailed 2009 proxy statement. I've always believed companies should be as transparent as possible when it comes to compensation and other issues, and Dominion did a fantastic job this year. It even managed to do a decent job defending the indefensible--supplemental executive pension plans. You would think after being paid millions of dollars, executives could manage their retirements without further shareholder assistance, but most companies pay executives millions of dollars after their executives leave.
Dominion stated that much of its executive compensation is based on long-term goals, so it needed an extra carrot to attract top performers. In addition, it argued its supplemental pensions are tied to restrictive covenants such as non-competes, dissuading retired executives from working for competitors. (Some states, such as California, won't enforce non-competes, but Dominion isn't a California corporation.) Elsewhere in the report, Dominion supported its arguments with charts showing that most of its executives' compensation was tied to long-term goals rather than base salaries. I'm not saying I was convinced, but at least I can clearly understand Dominion's point of view.
So far, only Dominion and Walmart have caught my eye when it comes to outstanding shareholder reports. They deserve recognition for their outstanding work.
Dominion isn't perfect. Page five of its "2008 Summary Annual Report" has a picture of a television screen showing what appears to be a generic basketball game. No one but a huge basketball fan would notice anything unusual about the picture, and even then, you'd need a magnifying glass to notice anything non-generic. Now, I happen to be a huge basketball fan, and I recognized Grant Hill and Joe Dumars from their Detroit Pistons days. What's the problem? Grant Hill hasn't played for Detroit since 2000. Joe Dumars hasn't played for Detroit since 1999. That means Dominion used a picture that is at least nine years old. Do'h!