LEVERAGING THE INTERNET For Financial Reporting.

Leading-edge companies view the Internet as more than a low-cost means of distributing traditional information.

The Internet is having a significant impact on changing how companies provide external financial information to stakeholders -- shareholders and others who hold a stake in the outcome of their activities. Increasingly, shareholders expect companies to go beyond traditional periodic reporting by providing continuous information that's timely and for ward-looking. At the same time, companies are recognizing the importance of effectively communicating performance and strategy to stakeholder groups such as community and environmental organizations, employees and the media.

Studies conducted by Arthur Andersen tap the knowledge of firm experts, industry leaders and CEOs from the world's most progressive companies that excel in providing external financial information. The companies that apply best practices embrace stakeholders' new expectations and growing demands for financial disclosure practices. By marshalling internal resources to leverage the Internet's capabilities, these companies disseminate targeted information in a timely, cost effective and creative fashion.

The best practices companies focus on five key areas. They are:

1. Develop communications that address stakeholder needs.

Leading companies recognize the powerful impact that effectively telling their stories can have on their ability to capture and retain capital investments, attract talented employees and valued customers and win the support of community groups. The first step is to identify the target audience. Best practices companies understand shareholder demographics and determine which stakeholder groups demand focused attention. The next step: crafting disclosure materials tailored to each group's needs and level of financial literacy.

Tying all materials to a central message ensures that all stakeholders develop a common understanding of the company's identity and strategy. The leaders also solicit user feedback to improve content, as well as bolster stakeholder services.

For example, Basking Ridge, N. J. based AT&T ties an interactive survey to its online annual report and mails two types of surveys to a random sample of institutional and individual investors. The questions ask whether or not investors understand the company's strategy and vision for the future.

2. Leverage Internet technology to present and distribute information through the new media.

Leading-edge companies view the Internet as more than a low-cost means of distributing traditional information. Indeed, creating and delivering innovative media content helps to level the playing field among investors by granting equal access to rich information. However, the degree to which they leverage the Internet depends on their level of comfort with technology in general. Companies typically establish an online investor relations presence on their home page. They work with either internal resources or third-party service providers to post links to core annual, interim and summary financial statements.

Netherlands-based Royal Philips Electronics uses the Internet to send tailored messages to different investor segments, while Santa Clara, Calif.-based Yahoo! conducts live, publicly accessible Internet broad-casts of quarterly investor conference calls and Q-and-A sessions.

In order to maintain the integrity of all online reporting efforts, the best companies carefully adhere to a consistent style and framework of presenting information, and they show vigilance in presenting a true and fair view of their financial performance.

3. Strive to achieve real-time reporting.

Real-time reporting enables the ability to "stop the clock" at any time and get accurate, current information on performance. Those companies intent upon achieving real-time reporting embark on what is often a long, difficult journey to marry technological innovations with business process improvements. Efforts to automate the close-the-books process are coupled with critical management negotiations about which performance measures to track, daily or weekly. Managers also work to create a company culture that promotes full disclosure, even when results are disappointing.

Although real-time reporting today primarily supports internal decision making, there are also positive implications for investors, who stand to gain a deeper understanding of company performance -- and more accurate forecasting abilities. Moreover, those companies that track financial performance continuously are well-positioned to discuss events with investors in an intelligent, frank and timely manner even when sudden bad new strikes.

The finance department at Cisco Systems Inc. has shortened its close-the-books cycle to three days and can obtain accurate figures for key metrics within an hour's notice. This ability helps Cisco seize opportunities and deal with the earliest indications of problems. CFO Larry R. Carter says if sales soar overnight in Latin America, the "virtual close" allows Cisco to analyze and exploit the situation immediately -- rather than react to it three to four weeks later, when it might be too late. Behind Cisco's enviable position lies eight years of hard work streamlining the finance organization and creating an electronic infrastructure that shares information "almost instantly."

4. Address non-financial and strategic issues in the external reports.

Many companies expand financial reports to include measures of progress toward strategic goals, as well as "softer" information on social and environmental, performance and intangible assets. These efforts help mitigate risk and build a reputation for integrity and responsible corporate citizenship. Omaha, Neb.-based Berkshire Hathaway Inc. has earned the trust of shareholders, in part, through the dedication of chairman Warren Buffett, known for writing candid and illuminating annual shareholder letters. The company maintains an online archive of the widely acclaimed letters dating back to 1977.

The leaders develop key performance indicators -- or KPIs -- to measure and communicate how well they're doing in critical strategic areas. Because good information supports good decision-making for managers and investors alike, many companies also devise credible methods of measuring and reporting on intangible assets, which continue to replace many traditional physical assets as key value creators.

For chemical and engineering company mg technologies ag, formerly Metallgesellschaft AG, the ability to innovate is a critical intangible asset. Based in Frankfurt, Germany, mg makes this asset "tangible" for investors by measuring it annually, using three indicators: expenditure on research and development, the number of employees devoted to R&D activities and the number of patent applications processed that year. To underscore the importance of innovation to long-term financial success, mg also offers investors evidence of the impact on sales of product innovations during the previous five years.

5. Tap company-wide resources to develop financial information.

Leading companies augment the external reporting activities of their finance professionals by tapping the talent of their workforce, top management and boards of directors. Companies craft high-quality investor relations information by coordinating content through a team, often including representatives from marketing, public relations and information systems, with active oversight from the audit committees.

Savvy companies also involve top managers in developing fresh, insightful and forward-looking narrative information. In all Internet publishing endeavors [including financial reporting], companies should seek the advice of legal experts, who track and interpret developing standards in this new reporting arena in efforts to minimize liability associated with disclosure.

Clearly, companies that are committed to improving the timeliness and quality of financial disclosures and investor relations communications will reap the benefits of increased shareholder commitment and stakeholder trust.

Jeffrey Berk, a CPA, is a Manager of Benchmarking Services for Arthur Andersen Global Best Practices who's developed a methodology for conducting benchmarking studies and frequently gives presentations and workshops.