Examine Sainsbury's annual report for impression management

Published:

Introduction:

Corporate management like use the impression management to communicate with shareholders. Impression management is a process that people attempt to influence the image others have of them (Graen, 1990). Thus, Impression management is purposeful and goal directed behavior. The aim of this article is to analysis the Chairman’s Statement and the financial graphs for illustrate the manifestation of impression management in the annual report.

Sainsbury's Supermarkets was established in 1869 by John and Mary and is Britain's longest-standing major food retailing chain.

 Table 1

Current Year(2012)

Prior Year(2011)

Sale ( £m)

25,632

24511

Profit(£m)

829

789

Earning Per Share (pence)

30.7

28.1

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The above table shows Sainsbury is a profitable corporation. Thus, this research analysis the Sainsbury’s Annual Report and Financial Statements 2013 as research object.

Regulation:

The table 2 demonstrates the ratio of voluntary is 57% and mandatory is 43%. Voluntary means less regulated, less reliable, and therefore more susceptible to impression management. Mandatory means regulated by company law, accounting standards, corporate governance codes. Thus, the ratio of voluntary always more than mandatory’s. The FRC published Louder than Words: Principles and actions for making corporate reports less complex and more relevant in June 2009 (FRC, 2009: 5). Comparing the proportion of voluntary and mandatory in Sainsbury’s annual report 2013, the cutting clutter of Sainsbury plc is well done.

Table 2:

M= mandatory

V= voluntory

W= word

N= number

Total Pages

Business Review

Finacial highloghts

1

V

W

Chairman's letter

2

V

W

market Over view

3

V

W

Our strategy

3

V

W

Great food

2

V

Vis

Developing new business

4

V

W

Financial Review

2

V

W

Governance

47

M

W

Finacial Statements

Independent Auditors'Report

1

M

W

Group income statement

1

M

N

Balance sheet

2

M

N

Cash flow statement

1

M

N

Group statement of changes in equity

1

M

N

Notes

34

V

W

Five year financial record

8

V

W

Additional shareholder information

2

V

W

Financial calendar

2

V

W

Glossary

1

V

W

Number of page

Percentage

Mandatory

55

43%

Voluntory

73

57%

total pages

128

N

5

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3.90%

W

121

94.50%

Vis

2

1.60%

Total

128

The analysis of the chairman statement:

Firstly, this research examines impression management in the chairman’s statement. Focus on the result of the chairman’s statement in Sainsbury’s Annual Report and Financial Statements 2013, and the article will analysis the chairman’s messages by four aspects. The four main aspects include Readability, Variability, Good & Bad news and Textual characteristics.

Readability:

Readability is what makes some information more legible to read than others. Readability measured ‘scientifically’ through the use of indices. The article use three statistics (LIX Index, Flesch Index and Fog Index) to analysis the readability of the Sainsbury’s chairman statement.

LIX INDEX:

LIXis areadability measureindicating the difficulty of reading a text.

The LIX Formulate:

LIX = W/S + (100*LW)/W

Where W Means the Number of words; LW means the Number of long words (7+ characters); S means the Number of sentences.

Focus on the Sainsbury’s chairmen’s statement, the number of words is 841; the number of long words is 194; the number of sentences is 38. So, the calculation of LIX is 41.62

According to the LIX Index Table (see table 1):

Table 3: LIX Index Score

0-24

Very easy

25-34

Easy

35-44

Standard

45-54

Difficult

55 and above

Very Difficult

According to the distinction of LIX Index score, the readability of the Sainsbury’s chairman statement belongs to the standard index.

Flesch Index:

Klare (1974-1975) used two variables that word length as measured according to number of syllables and sentence length as measured according to number of words to define the Flesch formula. The Flesch Ease formula is:

=206.835 – 1.015 * (Total words / Total sentences) – 84.6 * (Total syllables / Total words)

The grade level is calculated with the following formula:

= 0.39 x (Total words / Total sentences) + 11.8 x (Total syllables / Total words) – 15.59

Where Total words / Total sentences measures the Average number of words per sentence; Total syllables / Total words measures the average number of syllables per total words.

The flesch measure produces a numerical reading (Courtis, 2004a) that the degree readability range from “very easy” to “very difficult” a higher score indicates easier readability and scores usually range between 1 and 100 (‘Description of Style’, table 4).

Table 4:

Focus on the results of calculation, the total words is 873; the total syllables is 1364; the total sentences is 45; So the Flesch Reading Ease Score (FRES) = 53 and the grade level = 10.68. According to description of table 2, the degree of readability attributes to Fairly Difficult and it also tends to standard degree.

Gunning Fog Index:

The Fog index is developed by Robert Gunning. Fog measures clarity, but also simplistic (R. Gunning, 1969).

The Fog Index is calculated as follows:


0.4\left[ \left(\frac{\mbox{words}}{\mbox{sentences}}\right) + 100\left(\frac{\mbox{complex words}}{\mbox{words}}\right) \right]

Where words/sentences measures the Average number of words per sentence and complex words/ words measures the Percentage of words of three or more syllables.

The relationship between the Fog Index and the degree of readability is as follows:

Table 5

Fog score

Degree of readability

more than 18

Unreadable

14 to 18

Difficult

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12 to 14

Ideal

10 to 12

Acceptable

8 to 10

Childish

The result of fog index is 13.1 and it belongs to Ideal degree.

To sum up, the results shows me the degree of the readability of the Sainsbury’s chairman statement attribute standard after three methods’ analysis.

Variability:

Variability of readability was measured statistically using the coefficient of variation (Courtis, 1998). Variability can be used three Flesch scores and the standard deviation to analysis. Through calculate the Flesch scores of each part; thereby facilitate direct comparability across the sample.

According to the information of the Sainsbury’s chairman statement, we can calculate the Flesch scores about the first 100 words; the middle 100 words and the last 100 words are as follow:

Flesch scores 1st 100 words = 67 = ‘Standard’

Flesch scores Last 100 words = 34.3 = ‘Standard’

Flesch scores Middle 100 words =61.3 = ‘Difficult’

The result of calculation tells us the readability of the first 100 words and the middle 100 words are standard. Because the first two parts described the good news and good development, so the message need use simple and easy words to make readers understand Sainsbury’s superiority. The last part uses some long and complicated words to portray the nice future for readers. Moreover, I think difficult readability can confound readers understanding and make readers are full of confidence for Sainsbury’s future.

Good and Bad news:

In accounting, the favorable news belongs to internal corporate efforts and unfavorable news belongs to external events (Clatworthy & Jones, 2003: 177). Focus on the statistics of sentences, the number of sentence of good and bad news is shown below:

Table 6: Sentence coding of Good and Bad news in Sainsbury’s Chairman’s Message

No. of sentence

Good news

31

Indifferent

8

Bad

0

Ambiguous

7

Total

45

The chairman’s message used 31 sentences to describe good news. Significantly, there are no words for devoting bad news. The good news presents more improving performers than bad news. On the basic on the research of Clatworthy & Jones (2003), this behavior attributes concerns self-serving human behavior. It serves the basic psychological human need of presenting oneself in such a way as to gain favorable reactions from others (Turner, 1991). My finding is suitable for the verdict of Clatworthy & Jones and Tumer.

Textual characteristics:

In 2006s, Clatworthy & Jones said, “more and more companies use the narrative disclosures, especially the chairman’s statement, to report news in a manner consistent with impression management”. It is true across a range of textual characteristics. Profitable companies’ chairman’s statements significantly contain personal references and report more good news than unprofitable companies’. In the Sainsbury’s chairman statement, I find a large number of personal references and good news. Compare with the annual report and the research of Clatworthy & Jones, I conclude Sainsbury plc is a profitable company.

The analysis of Graphs:

Graphs are discretionary disclosures in annual reports. According to the different categories and characteristic, the types of graph are divided into bar chart; pie chart and line chart. In the research of Beattie and Jones (1992), they found “Graphs introduce distortions into the communication process which mislead the recipient”. The principal reason of distortion: selectivity of some form, and non-compliance with the principles of graph con-struction. Measurement distortion can be attributable to specific causes, such as: a non-zero axis, a broken axis, a non-arithmetic scale and so on.

Focus on the Sainsbury’s Annual Report and Financial Statements 2013, my finding is show below:

Table 7

Graph Types

Number

Percentage

Line Chart

5

16.60%

Pie Chart

2

6.70%

Bar Chart

23

76.70%

Total

30

100%

The above table shows us the bar chart occupies the most percentage and the other type of graphs only occupies 23 per cent in the annual report. Base on the types of graph and the result of the table 5, I analysis the graphs from Bar chart, Line chart and Pie chart. Then, base on the reason of distortion, I analysis the selection and distortion in the process of analysis each kind of graphs.

Column chart:

Column Chart is a chart in which data is visually represented by vertical or horizontal bars. Column chart is particularly useful for highlighting trends (Wright, 1989). Look the Sainsbury’s financial highlights, we can find all of graphs was shown by bar chart. In the line of the research of Beattie and Jones (1992), they defined the four most frequently graphed financial variables (turnover, profit before tax, earnings per share, and dividends per share). In 1997s, Beattie and Jones used six countries as the sample to calculate the number of years graphed for the KPVs, the result shows 5 years was the most popular, followed by 10 years and then by 3 years across the six countries (Beattie and Jones, 1997).

Key performance indicators

In the above table (Sainsbury’s financial highlighting), it includes: Total sales; Like-to-like sales; Underlying operating profit; Underlying profit before tax; Return on capital employed; Underlying basic earning and Full year dividend per share. Compare the four standard key financial variables, the Sainsbury’s key performance indicators posses all of basic variables. In the number of years graphed for the KPIs, we can find Sainsbury use 5 years-trends to analysis date. But there is a significant measurement distortion: A non-zero axis and a broken axis. A non-zero or broken vertical axis will exaggerate an upward trend (Beattie and Jones, 1992: 298).

According to Tufte's lie factor first suggested by Taylor and Anderson (1986), the formula of index of measurement distortion is as follow:

Graph Discrepancy Index = (A/B - 1) X 100%

A = percentage change (in cms) depicted in graph, i.e.

(Height of last column - height of first column) / Height of first column X 100%.

B = percentage change in data.

Table 8 Graph Discrepancy Index

Total sales graph

6.40%

Trading intensity per sq ft

1927.78%

Underlying profit before tax

6.70%

Dividend per share

10.30%

Operating margin

1111.96%

The Graph Discrepancy Index from 2008 to 2012, the results of table 6 shows us the GDI of Total sales, Profit before tax and Dividend per share is between 6% and 10%. The report of Beattie and Jones (2000: 171) shows the average GDI rang of UK is more than 86%. The ratio of Sales, PBT and DPS is less than 86% and the GDI rang conform the average GDI rang of UK. The ratio of Trading sales and operating margin are far more than the average GDI. In this case, it changes reader’s perception of corporate performance.

Line Graph:

A line chart or line graph is a type of chart which displays information as a series of data points called 'markers' connected by straight line segments. There are 5 Line Graphs was applied in this annual report. The line chart can use more than one line in a line graph is that you are able to monitor more than one output using a single graph. The advantage of using line graph saves our time because we do not have to create multiple graphs.

In the CEBR economic indicators’ graph from April 2007 to March 2014, it use one graph shows 3 dates’ trends. This graph uses the different colours on the behalf on the different line’s names and uses the line’s fluctuation on the behalf on trends.

The Pie Graph:

A Pie Graph is divided into sectors, illustrating numerical proportion. In a pie chart, the arc length of each sector is proportional to the quantity it represents.

The pie chart of market share shows Sainsbury’s market share in the UK. This graph emphasizes the Sainsbury’s market shares with the yellow colour. It provides an easily understood visual breakdown of information for readers.

Conclusion:

To conclude, this article is analysis the impression management of Sainsbury to communicate with their shareholders. The expression of impression management is from narrative and graphs. Firstly, the article uses the narrative method to analysis the chairman’s statement. The results of analysis show the degree of the readability of the Sainsbury’s chairman statement attributes standard. The readers can read the information easily. Then, much good news gives shareholders a strong cardio tonic. Secondly, the results of graph analysis shows Sainsbury’s annual report adopt distortion to confuse some information, it maybe give a distortional understood visual breakdown of information for readers. All in words, the Sainsbury’s annual report is successful. Of course, the Sainsbury also is a fantastic corporation.

Reference:

FRC, published Louder than Words: Principles and actions for making corporate reports less complex and more relevant (FRC discussion Paper, June 2009) (hereafter FRC Louder than Words), P5.

Graen, G. B., Wakabayashi, M., Graen, M. R., & Graen, M. G. (1990). "International generalizability of American hypotheses about Japanese management progress: A strong inferenceinvestigation”, Leadership Quarterly 1, 1–23.

Klare, G.R. (1974).Reading Research Quarterly,10(1),pp. 62-102.

Courtis, J. K. (2004). “Corporate report obfuscation: Artefact or phenomenon?British Accounting Review,36(3),pp. 291-312.

R. Gunning. 1969. The fog index after twenty years. Journal of Business Communication, 6(2):3-13.

Courtis, J. K. (1998), “Annual report readability variability: tests of the obfuscation hypothesis”, Accounting, Auditing and Accountability Journal, Vol. 11 No. 4, PP. 459-471.

Clatworthy, M and M Jones. (2003). “Financial reporting of good news and bad news: evidence from accounting narratives”, Accounting and Business Research, Vol. 3, pp. 171-185.

Turner, J. C. (1991). Social Influence. Milton Keynes: Open University Press.

Clatworthy, M and M. Jones. (2006). “Differential patterns of textual characteristics and company performance in the chairman’s statement”, Accounting, Auditing and Accountability Journal, Vol. 19 No. 4, PP. 493-511.

Beattie, V. A and M. J. Jones. (1992). “The Use and Abuse of Graphs in Annual Reports: Theoretical Framework and Empirical Study”, Accouniing and BusineS'f Research, Vol. 22. No. 88, pp. 291-303.

Beattie, V and M.J. Jones. (2000). “Impression Management: The Case of Inter-Country Financial Graphs”, Journal of International Accounting, Auditing and Taxation, 9, 159-183.

Appendix 1:

Chairman statement:

Finical statement:

Appendix 2:

Text Statistics

Character Count

4,102

Syllable Count

1,384

Word Count

873

Sentence Count

45

Characters per Word

4.7

Syllables per Word

1.6

Words per Sentence

19.4

LIX = 873/45 + (100* 194) / 873

= 42.46

The Flesch Reading Ease Score (FRES) :

= 206.835 – 1.015 * (total words / total sentences) – 84.6 * (total syllables / total words)

= 206.835 – 1.015 * (873 / 45) – 84.6 * (1384 / 873)

= 206.835 – 19.691 - 134.12

= 53

The Flesch grade level = 0.39*(873 / 45) + 11.8*(1384 / 873) – 15.59

= 7.56 + 18.71 – 15.59

= 10.68

The Fog Index is calculated as follows:

=0.4 * ((Total words/Total sentences) + 100(Complex words/ Total words))

= 0.4 * ((873/45) + 100*(116.55 / 873)

=0.4 * (19.4 + 100* 0.1335

=0.4 * 32.75

= 13.1

Graph Discrepancy Index = (A/B - 1) X 100%

A = percentage change (in cms) depicted in graph, i.e.

(Height of last column - height of first column) / Height of first column X 100%.

B = percentage change in data.

Table 8 Graph Discrepancy Index

Total sales graph

6.40%

Trading intensity per sq ft

1927.78%

Underlying profit before tax

6.70%

Dividend per share

10.30%

Operating margin

1111.96%