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What Companies Can Learn From Amazon’s Shareholder Letter

29 April 2018  |  Oliver Schutzmann, CEO

This article originally appeared in IR Magazine.

Unusual approach holds lessons for long-term strategy

By any measure, Amazon CEO Jeff Bezos’ 4,300-word annual letter to shareowners, which was released last week, is a long document. But Bezos only devotes about half of his letter to report the company’s results. 

Interestingly, the other half of the letter is devoted to a treatise on customers and high-performing staff: what defines them, how high performance is manifested, whether this skill is learned or taught, and why and how a large company should continuously strive for the highest standards. 

In most large organizations, this type of analysis is the domain of the HR department. Rarely, if ever, is the thinking and philosophy behind a company’s hiring, training and retention policies delivered to investors. But that is precisely what Amazon does, and this counter-intuitive approach carries some important lessons for senior management, boards and IR professionals

The demanding customer

Bezos introduces the notion of high standards through the prism of the demanding customer. ‘One thing I love about customers is that they are divinely discontent,’ he states, before explaining how high standards can satisfy this. This leads him into a lengthy discussion of the value and application of high standards. He uses examples from within Amazon, and from outside the Seattle-based company. 

He reveals certain internal processes through the examples he offers, such as: ‘We don’t do PowerPoint (or any other slide-oriented) presentations at Amazon. Instead, we write narratively structured six-page memos. We silently read one at the beginning of each meeting in a kind of study hall.’ And he does all this in a folksy, plain-English language that engages the reader. 

Only when this is over does Bezos turn to the performance of the business units, including the announcement that Amazon Prime now has more than 100 mn users. Most companies would put this headline-grabbing material right at the front of their shareholder letter, not leave it to follow a 2,000-word musing on high standards. 

And yet the reader of the letter – the owner of the company – is left in no doubt as to what is important to Amazon. It is not the systems; it is the people. It is not the short-term gain; it is the long-term culture. It is not the last quarter’s P&L; it is the sustainability of the vision, the business model and the strategy. 

Sometimes, board members and senior executives can make the mistake of thinking the most important raw materials they have at their disposal to disclose information to investors are the balance sheet and income statement. Of course, these are crucial to any investor, but what Bezos seems to be saying with this letter is that the drivers behind these numbers – Amazon’s customers, and the people who serve them – are what take up most of the focus of senior management. 

There are five key takeaways from Bezos’ letter:

  1. If the disclosure is entirely numbers-based, the leadership is not telling investors the full story. Investors need to be reminded and updated regularly of the organization’s strategy, and the vision that informs board decisions and propels future progress. The numbers need to inform the investment case for the company, not the other way around 
  2. Only in this way can investors get the full picture of their investment, the world view of management and the bigger picture of the organization’s fortunes, in addition to the financials
  3. Offering this additional source of insight, investors are less likely to be blindsided into premature buy or sell decisions by potentially misleading short-term factors. It is a wonderful tactic to engage investors – and keep them engaged – for the long term   
  4. The risk of not communicating the strategy and vision to investors is that it will lead to short-termism, a lack of engagement, a misunderstanding of management actions and zero loyalty when times are tough 
  5. ‘High expectations’ are the norm today, and Bezos turns his attention to customer expectations in his letter, too. But substitute the word ‘investor’ for ‘customer’ and the echoes of how investors think are loud and clear. 

He writes: ‘[Customers’] expectations are never static – they go up. It’s human nature... People have a voracious appetite for a better way, and yesterday’s wow quickly becomes today’s ordinary. I see that cycle of improvement happening at a faster rate than ever before. It may be because customers have such easy access to more information than ever before... You cannot rest on your laurels in this world. Customers won’t have it.’ 

Of course, financial results will always remain critical for investors. But if we take away one thing from the Amazon approach, it is that numbers tell investors only half the story. If a company is not providing the strategic and operational highlights as context for the financials, investors will find a competitor that is. 

One more thing. Bezos’ letter to shareholders always comes with an accompaniment: the very first shareholder letter from 1997. This is Amazon’s way of reminding investors that the company had a vision, that the vision is long-standing, and that everything it does is to serve that vision.