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User-Friendly 10-Ks–The Next Step in Shareholder Engagement

    Client Alerts
  • March 09, 2015

Much has been written about the dramatic increase in shareholder engagement from both sides of the relationship. For example, financial and governance roadshows have become mainstream not only among large-cap companies, but increasingly among mid-caps, as well. (See this Doug’s Note.) In addition, many companies have overhauled their proxy statements in an effort to better convey their values, philosophies and financial results.

Next in line is the dusty, data-intensive, boilerplate-dependent Form 10-K, which companies are beginning to see as another effective tool for conveying their message to shareholders. The most recent example is General Electric’s striking revamp of its 10-Kfiled with the SEC in late February and accompanied on its web site by a short video introduction by its CEO, Jeff Immelt.

It is obvious that GE invested a ton of time and resources into making its 10-K a cutting-edge, visually appealing, readable description of GE’s operations, financial performance and corporate priorities. Their goal, according to Mr. Immelt, is that:

 “everybody that owns GE stock can be inside the company…know what we’re doing….”,

which fundamentally is what good disclosure is all about.

Here are a few highlights from GE’s 10-K that caught my attention:

  • It is chock-full, from front to back, of graphs, charts, photos and vivid colors, much like a melding of an old-school glossy annual report with the bone-dry data of a 10-K;
  • Following the SEC-mandated cover page, which looks just like you would expect, it jumps into a 15-page “10-K Introduction & Summary,” which first directs the reader’s attention to key sections in the 234-page document and then highlights GE’s performance results, strategic plans and choices, mission statements and competitive advantages;
  • A five-page “Risk Management” section that precedes the traditional risk factors section diagrams GE’s risk management structure and describes in plain English how GE attempts to manage risk across four identified risk categories;
  • The MD&A, also replete with charts and graphs, is actually readable and informative; and
  • Even GE couldn’t bring much creativity to their financial statements and notes.

We will, no doubt, see more of this sort of thing from the GEs of the world as time goes by. Such companies are fortunate to have the financial resources and personnel to invest in this level of shareholder outreach. Yet, even companies not so fortunate can glean from GE’s 10-K a variety of communication techniques that can be scaled and adapted to their own circumstances.

GE’s effort dovetails nicely with the SEC’s recent initiative to update and improve disclosure in general. (See this Doug’s Note.) It would not be surprising, therefore, to see 10-Ks follow the recent evolution of proxy statements toward something akin to GE’s model.