GE might seem an unlikely company to take a lead in the push to simplify financial disclosures and investor reports. As one of the world’s largest companies, a multinational conglomerate with a long list of business lines, its inherent complexity might seem to make it ill-suited for such a task.
And yet, since 2013, GE has aggressively taken a lead in the growing effort to simplify, streamline, and modernize disclosures. On March 14, the company released its first “Integrated Summary Report,” linking strategy, performance, board oversight, compensation, and sustainability within a single document. The report, in just 66 pages, condenses the data buried within hundreds of pages in its 2015 annual report, sustainability report, and proxy statement into a more investor-friendly, graphics-heavy format.
“Public company reporting has become so complicated that what matters to investors can get lost,” GE Chairman and CEO Jeff Immelt said in a statement. “For investors to make investment and voting decisions, we don’t believe that more information is necessarily better. Instead, we’ve challenged ourselves to provide better information.”
Lest an outsider think producing this summary—diligently linked back to its original source material—was an easy task, the new report was years in the making and the process holds lessons for other companies looking at similar efforts. “This is a journey,” says Chris Pereira, vice president and chief corporate, securities, and finance counsel. “We started seriously looking at our disclosures in terms of how we could make them a lot more user-friendly about six or seven years ago, starting with the proxy statement, and made improvements over the years.”
Incremental changes were well received, encouraging GE to dig deeper. “We calibrated our proxy over the years and it has really become one of our most successful disclosure documents based on the feedback we get both externally and internally,” Pereira says.
Lessons learned from proxy statement improvements were carried over to the company’s earnings releases. “We revamped it to make it a lot more visual,” Pereira says. “The next project was the 10-K and revamping the entire document to make it a lot more user-friendly. And then, this year, we thought there was probably a lot more we could do because we had already created pieces that we could probably separate to create a standalone document.” Wrapping in a summary the company’s 350-page-plus sustainability document, aimed at European investors but nevertheless important to a growing segment in the United States, was an important piece of the puzzle.
“For investors to make investment and voting decisions, we don’t believe that more information is necessarily better. Instead, we’ve challenged ourselves to provide better information.”
Jeff Immelt, Chairman & CEO, GE
“The idea behind the report is that communication has become more visual, with fewer words, but traditional disclosures have all words and no visuals,” Pereira says. “We were on divergent paths and wanted to be relevant with our communications. Obviously, our shareholder base, like everybody else’s shareholder base, is getting younger, so you want to create something where there is a better chance they will actually pick it up.”
Simplicity and a commonsense ordering of data was an important consideration. “You really need to organize around topics,” Pereira says. “There is a page on capital allocation in the summary report. If you had to go through regulatory filings, it would take you a long time to tease out that information.”
While companies may list as many as 100 risk factors in their 10-K, the new report focuses on a handful the company sees as vital, among them cyber-threats. “If you are an investor and you get 60 risk factors, it is hard to determine what’s really keeping management up at night,” Pereira says. “When we put this report together, our CEO and CFO challenged us to really ask, ‘As an investor what should I really be worried about?’ In our 10-K we make reference to all the risk factors that have come up through our enterprise risk management reporting, but ultimately there are just four that we highlight in our report that truly make it to the macro level.”
Web traffic to GE’s re-imagined disclosures has been “up dramatically,” Pereira says. Investors downloaded the Integrated Summary Report nearly 2,400 times within 24 hours of its release, more than three times the number of downloads for last year’s 10-K and proxy statement combined.
Pereira credits a large part of the success to buy-in from senior executives and directors. As he sold them on the merits of the Integrated Summary Report, he displayed past Management Discussion and Analysis disclosures, dense paragraphs of small text, to illustrate the readability challenge. Executives and employees were then shown that traditional format alongside a revamped version that was condensed into a single graphic. “The information in the chart was absorbed in about 10 seconds,” he says. “You knew what was going on. You probably had to read the paragraphs three times to know what was going on.”
PICTURES WORTH A THOUSAND DISCLOSURES
An example of the graphics-heavy approach GE uses in its new Integrated Summary Report.
GE is not alone in seeking ways to improve how it conveys material information to investors. Rethinking disclosures with an eye toward making them more user-friendly is encouraged by the SEC, which is (alongside a similar effort by the Financial Accounting Standards Board) in the midst of a highly anticipated review of its Regulation S-K and Regulation S-X disclosure regime. That initiative, congressionally prodded by the JOBS Act and FAST Act, seeks to streamline and modernize disclosure documents.
Keith Higgins, director of the Division of Corporation Finance, has used multiple public appearances to encourage companies’ own disclosure reviews. “We want to encourage companies to make similar strides with their periodic reports, experiment with the presentation, reduce duplication, and eliminate stale information that is both outdated and not required,” he said in an October 2014 speech.
Easing the fears of companies that, like GE, want to develop multimedia presentations, a Compliance and Disclosure Interpretation issued last year by the SEC’s Division of Corporation Finance addressed the question: “May a Commission filing contain graphics that include information that is not text-searchable?” The guidance confirmed that, regarding required disclosures, a filer may present required information using graphics that are not text-searchable and still be in compliance with Regulation S-T, the rules governing electronic filings, if they also present the same information as searchable text or in a searchable table within the filing. The searchable information could be included, for example, together with the related graphic in the filing or in an appendix to the filing. Any additional information that the filer chooses to include in the filing and that is not required to be disclosed may be presented graphically without a separate text-searchable presentation.
The advice to other companies heading in a similar direction as GE: The process is not an easy one. “If your CEO and CFO are not on board you can forget it, it would be too much of an uphill battle,” Pereira says. “We were also fortunate to have a very supportive board and very supportive general counsel. You need to make sure everyone feels comfortable with the document at the end of the day.”
“You have to build disclosure controls and procedures around information that you disclose to the same standards as you do with all the other 10-K information,” he adds. “The board wants to have confidence that we treat this as a serious SEC filing and all the disclosures we make are balanced and have gone through those controls and procedures. That will take some time and is not something you can do in a couple of weeks. It is not just about the disclosures; it is also what you built on the backend.”
Next up for GE: a new proxy website that may launch as early as this week. Plans also call for migrating more data to its website with interactive tools and, possibly, video. “At the end of the day, it is all about engaging people,” Pereira says.