Dear Shareholder: It was a great year. Really. Well, sort of...

This is the new era of accountability, right? So why are most annual reports still exercises in obfuscation and evasion?

Douglas Daft, Scott McNealy, and Edward Breen, Annual reports to shareholders

You'd think companies would have figured it out by now. Dudes! This is the new era of accountability, remember? Crystal-clear financials, openness, honesty--these are the business bywords of the day. Yet here we are again, mired in annual-report season, suffering the same old surfeit of glib, PR-tested, lawyer-approved corporate missives.

For companies whose performance has been less than stellar, the annual report represents the most important communication that many shareholders will get all year. So what will it be? An authentic, unvarnished assessment of the company's standing? Plain, Warren Buffett-like talk? Or a carefully calculated love note?

For most executives, the choice is all too easy. Take Douglas Daft, chairman and CEO of Coca-Cola Co. Coke's stock is down 20% over five years, and the company announced a $197 million charge in February. Daft's take: "I am pleased to report that our Company earned a record $1.77 per share in 2003." Gee, that's brutally frank. (More telling is Daft's obligatory mention of the "particularly challenging business environment." That's CEO-speak for "Our year sucked.")

Later, in a breezy Q&A, Daft does address slowing sales growth in North America, war in Iraq, and the obesity pandemic. One crucial event, however, goes starkly unmentioned: Daft's own retirement. The surprise announcement came two weeks before the report went into the mail, but there's no hint of it anywhere. (A spokesperson says the presses were already running when the news broke.)

Then there's Scott McNealy, chairman and CEO of Sun Microsystems. Once-flourishing Sun had endured nine quarters of falling sales, declining market share for its servers, and the loss of key execs. How to explain? "Tell me the good and the bad. I can handle it. I don't need my financial information sugarcoated," says Michelle Leder, author of Financial Fine Print (John Wiley & Sons, 2003). Get to the point, she says, and let investors make their own calls.

In his letter (available online in seven languages, including Korean!), McNealy does concede that "we did not grow revenues or reach profitability for the year." He confronts criticism that Sun's systems are overpriced and points to a revamping of its low-end servers and storage devices. What's missing? Acknowledgement of two more profound problems: increasing competition from Windows and the free Linux operating system; and customers' growing impatience with so many incompatible products.

Edward Breen, of course, is all smiles. There he is, smack above his letter to Tyco shareholders, grinning madly. As he writes, "What a difference a year makes." Well, really, Tyco had nowhere to go but up: How much worse does it get than a $9.2 billion loss and indictment of your CEO and CFO?

Breen doesn't dwell morosely on the past. Why would he, after Tyco rang up profits of $980 million? Instead, he describes what Tyco investors (and not a few regulators) want to hear: exactly how Tyco has been cleaning up its ethical act. New board. New leadership team. New mechanisms for transparency and integrity. Works for us. Straight-shooting that assumes investors are, mostly, grown-ups. Really, that's the only letter worth writing.

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