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Reimagining the 10-K — Disclosure as a Tool for Good Governance

With a graphic, layered, and more forward-looking approach to the annual SEC filing, GE is seeking to create a more engaging, effective form of disclosure for its shareholders.

 

Compared to the release of earnings, the annual 10-K release is traditionally an anticlimactic event for publicly traded companies. The filing generally consists of lengthy, dense narrative that is notoriously hard to understand, and often overwhelms the average investor.

Regulators and CFOs alike are exploring ways to improve the effectiveness of disclosures as they seek to rein in some of the complexity brought on by governance reforms and provide a great consumption experience for their stakeholders.

“Disclosure documents have dramatically increased in length over the last 15 years as a result of the Sarbanes-Oxley Act and other legislation,” says Christoph Pereira, GE’s chief corporate, securities and finance counsel. “Yet in today’s age, everyone’s attention span seems to be getting shorter by the day.”

To provide a clearer picture of GE’s financials and to engage ever-connected investors hungry for more forward-looking information, Pereira and his team have spent the past year reimagining the 10-K as a visual-rich document that more effectively communicates the company’s strategy.

In an interview, he discusses the importance of quality over quantity when it comes to disclosure and how a “layered” approach can more effectively provide shareholders with the information they need:

 

The new 10-K certainly looks different than your traditional annual filing. What should investor’s expect?

The new 10-K is more forward-looking, extensively uses graphics to enhance readability, and is tailored to sync up with what we know are key areas of investor interest. You can see it for example in the two pages below that explain GE’s unique capabilities as a multi-business company, where each business contributes to what we call the “GE Store.”

GE_2014_10K_sum_9

What’s the impetus behind the redesigned 10-K?

Disclosure documents have dramatically increased in length over the last 15 years as a result of the Sarbanes-Oxley Act and other legislation. Yet in today’s Twitter age, everyone’s attention span seems to be getting shorter by the day.

I think quality of disclosure is not about the amount of information, but rather about meaningful, well-presented information that is tailored to fit the needs of the audience. While hundreds of people worked extremely hard on our 10-K from last year, it was very disappointing to see how few investors accessed the document on our website. So whenever your effort is inversely proportional to the output, it’s time to hit the pause button and think about what you can do better. That’s exactly what we did on the 10-K project — we are trying to better meet the needs of our shareholder audience.

The new 10-K, especially the 10-K Introduction and Summary section, gives readers a more bite-sized view of GE, while still allowing the reader to delve into all the details by referring to the full 10-K. This layered disclosure approach has been very successful for us on the Proxy Statement, and we hope it will be equally well received on our 10-K.

GE_2014_10K_sum_10

How does the new 10-K fit into GE’s efforts to continually improve corporate governance?

Good governance is about management being accountable to the board, and the board being accountable to shareholders. In order for that equation to work, investors must have good information about the company.

This is where our new 10-K comes in. Some of our large investors own as many as a few thousand companies for which they have to cast an annual vote in a short period of time. These investors are not necessarily following all these companies on a day-to-day basis because they may, for example, own them passively as part of an index. Yet, these investors are required to cast a vote for each company. It is therefore critical to provide them with clear and concise information, so they can make informed voting decisions.

The new 10-K, especially the 10-K Summary and Introduction section upfront, is a great tool to bring investors quickly up to speed on some of the topics we cover in our investor discussions, such as board-level strategy and capital allocation choices.  We therefore think that the new 10-K will enhance the quality of the dialogue with investors and, ultimately, lead to better voting decisions and governance.

(Top image: Courtesy of Thinkstock)

 

Christoph Pereira is GE’s Chief Corporate, Securities & Finance Counsel.

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