William Dunk's 2000 Annual Report On Annual Reports


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When Caesar crossed the Rubicon in 44 B.C., he proclaimed "Alea iacta est." The die is cast, he said, for   there was no turning back. Either he would take over Rome, or he and his legions would be trampled under foot by the old guard. It was the moment of truth.

In last year's Annual Report on Annual Reports, we said that America's leading corporations had come to see that their salvation was bound up in innovation. Not just product innovation. But innovation in every nook and cranny of the company, leading to a transformation of all processes, structure, and leadership.

Well, in their 1999 reports, many corporate Caesars have crossed their Rubicons, or at least, put their feet in the water. They are buying a particular formula for innovation. In more than 1/3 of reports we surveyed, they have cast their lot with the Internet and e-commerce, either because they see it as an elixir for their stock price, regard it as a market space they can't avoid, or see it as a transforming technology that will equip their companies with a new business model that can flourish in the 21st century. This enthusiasm for the Internet amounts to a seismic shift in attitude. Even two years ago, both innovation and the Internet were very minor concerns for major chief executives around the globe.

As of 1999, UPS (UPS; www.ups.com) is no longer an incredible package delivery company but "a recognized leader in e-commerce and one of the world's premiere technology companies." Knight-Ridder, Inc. (KRI; www.kri.com) has moved its headquarters from Miami to Silicon Valley to be in the thick of innovation where "the passion and pre-occupation with the Internet" is "inescapable." “1999 was the year Allstate Corporation took bold steps to reposition itself for industry leadership -- marked by a major commitment to technology and the Internet ....." (ALL: www.allstate.com). Cisco Systems (CSCO; www.cisco.com) claims to be "the world-wide leader in networks for the Internet," and repeats the word -- Internet -- on almost every page of its report. Naturally, Intel does the same, with the mantra-Internet -- plastered everywhere. Texaco (TX; www.texaco.com) and Kronos (KRON; www.kronos.com) use web language slogans for their reports ("minds@work" for Texaco and "standing@part" for Kronos), so that we can understand that they are part of the web generation.

As we have said, a few of these corporate Caesars are ahead of the others. They are Web zealots. Proud to be named America's most innovative company by Fortune, Enron (ENE; www.enron.com) brags about how it trades energy and does a host of other things over the Internet: it includes a special section on its fiber optic broadband services. Ken Lay, the Chairman, says he is kneedeep in the New Economy, "We are participating in a New Economy, and the rules have changed dramatically. What you own is not as important as what you know. Hard-wired businesses, such as energy and communications, have turned into knowledge-based industries that place a premium on creativity."

Probably it is old economy companies (such as Enron) which have made a total commitment to the Internet (rather than the host of newish dot-coms) that investors should follow closely in 2000. This includes the Washington Post (WPO; www.washpostco.com) which devotes its whole annual report to "The Washington Post Company and the Web," and which says the Internet has forced a fundamental rethink of the company asking “Who Am I? (What's my goal?.....What do I need to be great at?) and What is the Essence of the Value I add?” (see pages 7-24). We point to the Washington Post even though industry sources generally think Gannett's USA Today (GCI; www.gannett.com) has made the most Web progress.

Herman Miller’s annual report (MLHR; www.hermanmiller.com) is entitled "Make Connections" and has a huge pullout section showing how it is multi-connected to the Web.

GE (GE; www.ge.com) dedicates only 2 pages of John Welch's over-long letter to e-business, but Chairman John wants you to know he's e-passionate, nonetheless. This letter is a semi-swansong for Welch, so he has to replay all the themes of the business reengineering he has done at GE during his tenure. That aside, he shows how the Web has up-ended GE, recounting how "we took the top 1,000 managers in the Company and asked them to become "mentees" of 1,000 "with- it," very bright mentors ......" Virtually Socratic, we see young web-wise men teaching their executive masters the shape of things to come.

If the nation's leading companies are making an ideological commitment to the Web that resembles a spiritual experience, the other principal topic of this year's batch of reports is much less other-worldly. America's chairmen are not only obsessed with the price of their stocks but they are also nakedly at ease talking about this monomania. Report after report talks about stock price -- or the lack of it, to a degree never seen before in reports.

So Cognex (CGNX; www.cognex.com) brags, "our stock has provided more than a 3,000% return on investment since going public." Feeling very liquid, Connecticut Water (CTWS; www.ctwater.com) points out that "our stock price ended the year at $32, a gain of 18.5 percent over the 1998 closing price of $27," not too shabby for a utility. Vulcan Materials “produced an annual return to shareholders of at least 15% over the past 5-year, 15-year and 30-year periods." (VMC; www.vulcanmaterials.com).

And the list of CEO's who are depressed about their stock prices is just as long. Genuine Parts (GPC; www.genpt.com) is "disappointed and concerned with the drop in value of our shares." Under the sub-head "stock price," Texaco (TX; www.texaco.com) grieves that, "despite these robust results, we are disappointed with.... our stock, which generated a total return to shareholders of 5.6%." Tony Ridder of Knight-Ridder (KRI; www.kri.com) owns up that even though he was up 16.0%, “we did not do as well as I think we deserved." Jack Greenberg of McDonald's (MCD; www.mcdonalds.com) shares his melancholy about his stock with us in the first paragraph of his president's letter.

Oddly enough, this focus on "stock price" does not translate into a focus on shareholders. Over the past twenty years, institutions have come to dominate the stock market, and major companies have given up on individual shareholders. This is ironic in the current marketplace where individual shareholder activity has made all the difference for small and midsize companies, and a considerable difference for large caps. Twenty percent of stock activity occurs because of day traders, many of them very small folks, indeed.

Most recently we have had ample evidence of this lack of regard for the small shareholder. With only one notable exception which outdid itself in serving us (Home Depot -- HD; www.homedepot.com), corporate personnel have been indifferent or mildly hostile to our requests for 1999 reports when we check how responsive Fortune 1000 companies are to shareholders. Typical answers: "You'll have to call back." "Why don't you look at our report on the Internet?" "I don't know when you should call for the next report." Usually we get no reply when we send an e-mail request for a report. Alas, just when small shareholders could make a difference in stock price, they are very, very neglected. Other aspects of corporate service are declining just as badly.

Shareholders are being slighted in other ways. The corporate annual report, which still ranks high in credibility amongst all corporate audiences, has generally deteriorated in appearance and readability. This breakdown has occurred even though the printed report is still an important tool with individual shareholders. Companies that once produced visual works of art now generate costly nondescript productions. Dow Jones (DJ; www.dowjones.com), Corning (GLW; www.corning.com), Heinz (HNZ; www.heinz.com), and Champion (CHA; www.championpaper.com) have gone from the beautiful to the pedestrian and mildly competent. The handsome, bold reports of the '60's and '70's, back in the era when shareholders and retail investor markets really counted, are very much a thing of the past.

Part of this decay stems from the lust of corporate communicators to become part of the New Economy. They want to look different. This is a difficult task for them because they don’t know where they are headed, whom they most need to talk to, or what channels to use to deliver the message. For them the New Economy is still a vague abstraction. So, blindly, they try to do simulations of Internet pages in print. The trouble with the Internet look, as one old guru puts it, is that “web design” is an oxymoron. Web architecture and Web pages are the confused outpourings of geeks and nerds whose visual and literary powers are meager at best. We could charitably call the dense, over-loaded, splotchy result on the Internet “information design.” But the wry among us will surely call the Internet and Internet knock-offs in print “graffiti graphics,” not worthy of anybody’s attention.

Make no mistake about it, there is and will be a new way of communicating in the New Economy, stemming from the new market structure it imposes. In this year’s Interpublic (IPG; www.interpublic.com) annual report – a truly unremarkable report incidentally – there is one very remarkable line. Phil Geier, who’s been a smart enough chairman of this advertising Goliath says, “In all honesty I’d have to say that, yes, we’ve definitely reached the end of advertising as we know it…. The time of the traditional ‘advertising agency’ – or, indeed, media company – has passed, and the age of the ‘communications advisor’ has well and truly arrived….” We have entered, says Geier, the new realm of personal communication.

He’s right and wrong. Old advertising is dead. But the new communications – digitized and data-based and virtual – is the penultimate in low touch: it is extraordinarily impersonal. And digital communications have been accompanied by corporate incoherence on the telephone. Try to reach someone personally in a corporation these days for anything and you will fail. Lord help you if you do anyway, because the corporate staffers don’t know how to respond meaningfully, when they get back to your call 3 days later.  The reality of the New Economy is impersonal communications.

Nonetheless, we are headed towards a new form of corporate communication. The best evidence lies well outside the dot.com community in Silicon Valley, Silicon Glen, or wherever. Anaren (ANEN; www.anaren.com), of East Syracuse, NY puts “Buzz” on its cover to symbolize its vigor and new style. Even at this out-of-the-way $50 million component company, “buzz” is its new call to action. This report comes packaged in a “static shield bag.” The New Economy is full of buzz.

One of the more original reports of the year comes from Jack In the Box (JBX; www.jackinthebox.com) in San Diego, the very revived hamburger chain. One-half of its report is poetry or, at least, clever doggerel. Like Anaren, the look is informal, and the language conveys the internal culture, which seems very accessible and friendly in both cases.  In some senses, “MSNBC’s Don Imus,” the captain of one of America’s most influential programs, exemplifies the new style.  Now all news is entertainment:  all entertainment is news:  personal detail is as important as global thoughts.

These companies are getting wherever we are going by instinct without knowing where we are headed. They have adopted the language of the New Economy. Strangely enough, the best investors of the last century are neither getting it nor getting there. This includes Julian Robertson who just closed down his key investment fund, George Soros who had a lousy quarter, and Warren Buffett, chairman of Berkshire Hathaway (BRK; www.berkshirehathaway.com), who realizes his “one subject is capital allocation, and my grade for 1999 most assuredly is a D. “ They are not just having a bad year or years. Temporarily, at least, they have lost their feel for the markets, financial and otherwise. Even the titans of investing look like amateurs in the New Economy.

Where are we headed? What is buzz all about? Why do we need a new communications style in business?

It is an association – not a company – that gives us the best hint in its 1999 report. The Conference Board (www.conference-board.org) invited the sage Peter Drucker to author an article called “The Real Meaning of the Merger Boom.” Incidentally, we could argue that all companies should use such outside thinkers to write their reports. Two quotes from him say it all:

“Everybody knows that we are engulfed by the biggest merger boom in history and one that is totally unprecedented. But this is simply not true. There have been many earlier merger booms and some exceeded anything happening today, both in volume and importance.”

“Almost unnoticed by the public, and almost totally ignored by the business press and  financial analysts, is that the real boom has been in alliances of all kinds, such as partnerships, a big business buying a minority stake in a small one, cooperative agreements in research or in marketing, joint ventures and, often, ‘handshake agreements’ with few formal and legally binding agreements behind them.”

In other words, we have entered the age of collaboration (strategic alliances) where separate business entities act as one in all respects, and bigness becomes less rewarding since smaller units are inherently more efficient if you can eliminate inter-business transaction costs. Broadband information technology thrusts us into a world where deep collegial activity between separate economic entities becomes an imperative for all concerned.

Which is why, for instance, that supply chain alliances – in oil, aerospace, and a host of other industries – have become the most economically meaningful Internet economic development in 1999 and 2000. While all this will require some fruitful rethinking of anti-trust law, broad cooperation among similar manufacturers in all aspects of purchasing promises to eliminate huge, wasteful costs in the world economy.

In fact, the very dynamics of the Internet -- internet speed --  have made it impossible for senior managers to go it alone.  As Max Wallace, Chairman of Cogent Neuroscience (www.cogentneuroscience.com), a genomics company focused on brain diseases and aging, remarks:

“The ever-compressing time frame of 21st century business prevents us from re-inventing the wheel.  We don’t have time to build all the things we need to build.  So we have to import skills, technology, and processes -- the right ones today.  This means scalpels, not Swiss Army knives -- just right skills at just-the-right time.”

The marketplace will not wait for a company to invent the right software or develop the correct distribution channel.   The New Economy company obtains these resources from alliances.

Collaboration, we would argue, is the model everybody is stumbling towards. We are trying to learn the language of collaboration.  Years ago, Japan’s Keidanren (www.keidanren.or.jp) said alliances and collaboration were the only way for the developed world to go. But Japan, obviously, could not get this job done. With the Internet, collaboration no longer is an option, but an imperative.

Which brings us to Microsoft (MSFT; www.microsoft.com). In its 1999 report, it brags about “its Web-based collaboration tools” as a way to achieve knowledge management. Unfortunately, right here, lies the most powerful argument for Microsoft’s break-up. Collaboration is dependent on totally ‘open’ systems, and that ain’t Microsoft. When you own the whole enchilada, you just aren’t inclined to collaborate. In the age of collaboration, Microsoft, as presently structured, is archaic. It is already the most outdated technology company  in the New Economy. Microsoft is an impediment to managing knowledge across industries. It is part of the old Empire on which today’s corporate Caesars will have to trample. So it is no accident that Cisco (CSCO; www.cisco.com) is beginning to achieve a higher market valuation.

A few companies -- often part of the retail distribution chain -- have realized that close, interlocking alliances will drive their future profitability. Smart purchasing and cross-linked electronic data operations have made Wal-Mart (WMT; www.walmartstores.com) the colossus it is. Tandy Corporation (TAN; www.tandy.com) cites Sprint (FON; www.sprint.com), Compaq (CPQ; www.compaq.com), RCA (TMS; www.rca.com), Microsoft (MSFT; www.microsoft.com), and NorthPoint Communications Group (NPNT; www.northpointcom.com) as critical to its future, saying that it is its “powerful, emerging web presence” and its “current and future alliances” that makes it relevant to the consumer. Just a few years ago, a faltering RadioShack (aka Tandy) felt increasingly irrelevant and profitless. Intense collaboration has made it a different company today.

An old-line company that is clearly remaking itself has best articulated the inter-relationship of the Internet, the knowledge economy, e-commerce, and strategic alliances. DuPont (DD; www.dupont.com) has put a stake in the ground around ‘knowledge intensity’:

“We are applying knowledge intensity to our traditional businesses, as well as using our scientific strengths to build new businesses along new economic models. But the biggest near-term payoff from our knowledge intensity thrust is going to be in e-commerce, a major tool to realize value from our market knowledge. DuPont is rapidly building a set of strategic alliances with leading companies, such as yet2.com (intellectual property) and CheMatch.com (commodity chemicals). We have six such ventures in operation or development, and five more are in the concept stage. Our recently announced alliance with the Internet Capital Group should allow us to “step change” our implementation and leadership in business to business e-commerce, creating new wealth from our industry sector expertise.”

This very modern thinking is housed in the first modern-looking and modern-sounding report we have ever seen produced by DuPont.

Certainly, as DuPont says, the New Economy is a knowledge-intensive economy.  In the knowledge game, you have to share if you are going to win.  As Patrick Flynn, Chief Executive Officer of Phios (www.phios.com), a start-up in Cambridge, Massachusetts, that electronically codifies corporate knowledge and business practices in very accessible formats, remarks:  

“The Internet allows for easy 2-way communication.  To be competitive today, you have to share knowledge across all sorts of boundaries inside and outside the corporation, or your competitors will leave you in the dust.”

In the New Economy, the essence of competition is relentless cooperation.

It is no coincidence, we think, that the same year the Internet took hold throughout corporate America saw the creation of the Association of Strategic Alliance Professionals in May 1999 (see www.strategic-alliances.org). While a huge amount of this association’s activities are now clearly focused on cooperative supply chain activities, we would expect its agenda to address more complex aspects of economic cooperation going forward.

During his long and varied political career, Lyndon Baines Johnson taught the whole political fraternity “to go along” if it wanted “to get along.” We can turn this on end in the New Economy. Now we must “get along” (relate collaboratively) in order to “go along” (achieve sustained profitability and viability). Get along in order to go along: that is the lesson suggested in 1999’s most forward-looking of annual reports. Otherwise, you will go away.

William P. Dunk

May 2000


Companies cited in this report:


Alliance Professionals

Allstate Corporation

Anaren Microwave, Inc.

Association of Strategic

Berkshire Hathaway Inc.

Champion International Corporation

Cisco Systems, Inc.

Cogent Neuroscience

Cognex Corporation

Compaq Computer Corporation

Connecticut Water Services

Corning, Inc.

Dow Jones & Company, Inc.


Enron Corporation

General Electric

Genuine Parts Company

H. J. Heinz Company

Herman Miller, Inc.

Home Depot, Inc.

Interpublic Group of Companies, Inc.

Jack in the Box, Inc.

Knight-Ridder, Inc.

Kronos, Inc.

McDonald’s Corporation

Microsoft Corporation

NorthPoint Communications Group



Sprint FON Group

Tandy Corporation

Texaco, Inc.

The Conference Board

United Parcel Service

USA Today

Vulcan Materials Company

Wal-Mart Stores, Inc.

Washington Post Company

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