How to Write Your Annual Letter to Shareholders
Warren Buffet makes the news each year for his letter to Berkshire Hathaway shareholders. By employing his uniquely wry and contrarian style and covering many topics that have little direct bearing on Berkshire’s results or prospects, Buffet has taken one of the staple obligations of a public company CEO, and turned it into something much larger — a kind of State of the Union from the desk of one of our most important business leaders.
It’s impressive. And as you get ready to release your own annual letter, you may be tempted to take a page from the Buffett playbook and offer your shareholders a bit of your own wit and wisdom.
But don’t be afraid to take a different approach: simple, clear, and concise.
The shareholder letter is an important piece of communication with your investors. The letter certainly gets less attention than your financial results. And in truth, it is often overlooked by ordinary investors and media covering your company, who may perceive it as puffery.
But it is read with interest by professional investors and analysts, because it’s an opportunity for the CEO to clearly lay out his or her vision for the company, align employees and other stakeholders around that vision, and highlight its current progress toward long-term goals, including key milestones achieved.
The letter is obligatory. Take seriously the responsibility of writing (or least reviewing) it by following these simple tips:
- Make sure it’s accurate. The first objective of your letter is to correctly describe the state of your business. Perhaps it should go without saying that the letter cannot include any errors. But things change quickly in every business, and it’s easier than you think to fail to update your letter with the most recent information on an important development, or to get a small data point wrong. That’s why you must…
- Put the letter through a rigorous review process. The same process you use when you issue a press release or other public statements should be deployed here. The stakes are even higher: A press release can be corrected or amended. Your letter to shareholders will be included in your Annual Report and printed by the thousands. The credibility damage of a letter that includes mistakes or typos will endure. Make sure all appropriate parties — especially your CEO, CFO, general counsel, and head of investor relations — review and approve every iteration of the letter.
- Focus on clarity. Even if all your facts are accurate, the value of your letter is diminished if it is poorly written. All business communication must be clear, and your shareholder letter is no exception. Investment analysis is often a very complicated process. Simplify it with liberal use of bullets and cut out the business jargon. Most importantly, stick to what matters to your investors: your recent successes, your immediate prospects, and your long-term objectives.
- Keep it brief. Brevity is the soul of wit. Warren Buffet can get away with a sweeping letter that that tops 18,000 words and stretches more than 30 pages. You can’t. Many of the best letters to shareholders are a page or two.
- Cut the baloney. Some executives see the letter to shareholders as an exercise in PR spin. It isn’t. Your letter should be dense with important information about your business. It’s fine to paint your company in a positive light, but not a false light. Make sure you carefully review last year’s letter before drafting this year’s, and update readers on your progress on the expectations you laid out then. Your letter should help get your investors excited about your prospects, but it’s only as valuable as it is credible.
- Keep it consistent. Try to follow the same format for the letter each year to make it easy for readers to compare. Here’s a basic outline to follow:
- Your opening paragraph should set the tone and characterize the year. Admit to what went wrong. Highlight the challenges the company faced and the path to overcome them in the current year and beyond.
- Next comes an overview of your financial benchmarks (revenues, earnings, research and development progression, etc.). Make clear the benchmarks the company is held accountable to and how the company executed against those benchmarks during the year.
- Now, review the balance sheet and measures of financial health.
- Move on to a discussion of your important achievements, milestones, progress, and other key business.
- Finally, provide your outlook. What do you hope to achieve in the current year, and what are the longer-term goals? What differentiates your company from your peers?
The annual letter to shareholders isn’t the sexiest part of your investor relations arsenal, but it’s an important one, so take the task seriously. For an easy-to-reference version of these tips, download the checklist, 6 Tips for an Effective Annual Letter to Shareholders.
Peter Vozzo is a Managing Director on Westwicke's life sciences, healthcare services, and healthcare technology teams. He has extensive experience in investor relations. He has a BS in chemistry and an MBA in finance/accounting, both from the University of Connecticut.
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