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 E DOESN'T TRY TO HIDE
it: Sid Cato's an opinionated son-of-a-gun. In his "no-holds-barred" look at this key corporate communiqué, he frequently relies on a turn of phrase to make a memorable point, to provide a viewpoint from his unique, and solitary, catbird seat. From Chief Executive (for which he's a contributing editor) to the Wall Street Journal to Corporate Secretary to Institutional Investor to CFO Magazine to New York, USA Today, Newsweek, New York Times...a syndicated radio program of the American Stock Exchange...TV's "Wall Street Journal Reports"...PBS. CNN. CNBC.
The summary report
"A good idea only if you're into shortchanging the stockholder, ripping off the reader. This Pee-wee Herman of annual reports presents the potential for massive manipulation of the facts: Companies get to pick and choose what to include, what to leave out. I'm convinced it's too great a temptation for the average corporate chieftain to be freed of the restraints imposed by the more traditional report. That's why I oppose it."
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What makes his blood boil
"When you treat me as if I'm stupid. No financial highlights page up front (only 11, now, of 100 omit it), no specific numbers in the shareholder letter. Then I look at the income statement and find out earnings fell out of bed. That makes me furious. When you indulge in euphemisms, say 'It was a challenging year for our industry as a whole,' I know what I'm going to find: earnings flat at best."
Uninviting annuals
"I tell groups of investors: 'Prime job is to convert the recipient into reader. Those who ignore that should have their product heaved on receipt.'"
CEO participation
"Nothing beats forceful, first-person involvement by the CEO. My studies indicate that roughly half the corporate chieftains are involved in writing their letter, three of four actively involved in the overall process. I want a letter that smacks of the boss' participation. It's his or her responsibility, after all. And it's up to the board to hold the CEO's feet to the fire. That's its job."
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Independent auditors
"A contradiction in terms... similar to a federal judge and the U.S. Attorney, both paid by the same get-'em-at-all-costs government. Try telling a defendant they're not united against him or her. Same with auditors: Despite the fact that outside directors demand a private briefing from the outside auditors on how the company's doing, the CEO—Mr. (or Ms.) Inside—you can be sure will get a complete update on what the directors asked and what the auditors told 'em. If you don't think there's pressure brought to bear, you're living in a different world than I am."
Excessive CEO photos
"Megalomania in the corner office decidedly is on the decline. Still, we see instances of Lafarge's Michel Rose allowing seven vainglorious shots of himself to be used in the annual report, Kentucky Medical's Steven Salman an excessive six, the CEO of Washington Water Power allowing 10 pix of himself to be used! What's needed are more naysayers who'll tell the emperor what needs to be said—he has no clothes. Besides, he's a jerk, pure and simple."
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