Is it just me? Am I the only one that finds having to decipher a load of graphics in a proxy statement to be somewhat daunting on occasion? Inclusion of graphics in lieu of copious text has been almost de rigueur in proxy statements for several seasons now as a way to facilitate comprehension of sometimes complex data. And most often, those graphics are relatively effective for that purpose. As we head into the 2018 proxy season, however, this piece in CFO.com suggests that some forms of visual presentation may be, well, a lot more useful than others.
According to the article, featuring some graphics does make sense because research has shown that people “process visual information faster than verbal information. And we do it with a part of the brain that requires less energy.” That’s especially true with line and bar charts. Where things get trickier, the article suggests, is with pie charts: “a pie chart often makes it hard to figure out the exact magnitude of a data point (a slice) and uses a lot of text to display very little data. It also forces readers to rapidly move their eyes back and forth between the legend and the graphic to interpret the data. A simple table can be a lot more elegant, experts say.”
And more sophisticated tools, such as “exploding 3-D pie charts” can compound the problem, according to one academic. He also took issue with “stacked bar charts,” according to the article, “’because they make estimating the values of the variables on the top of the bars difficult.’”
Just the use of graphics at all can have an impact on the information perceived. Citing this 2007 academic paper, the article contends that, where a report includes both “text and graphics, the audience is likely to lend greater weight to the graphical information…. The perception of risk is higher, for example, when it is presented graphically and the cost of reducing a risk is presented in text format, compared with when both are presented in text format, studies have shown.”
And sometimes graphics may not convey information clearly or efficiently. The authors of the paper maintain that “shapes and colors that ‘pop out’ in a chart or have the greatest variation in size will be more heavily weighted in decision making….Further, researchers have found that the arrangement of data in a visual display influences the interpretation: When a company’s sales results chart is ordered from highest to lowest, it may lead to higher overall sales estimates than when it is arranged from lowest to highest, say [the authors], because of the ‘tendency to place greater weight on initial information.’”
Graphics that demand that readers estimate physical space can also be problematic, the article asserts. For example, a graphic analyzed by the academics showed a number of circles representing business units in proportion to the market size of the unit; however, “according to what researchers call the ‘size effect,’ decision makers will underestimate the magnitude of the difference between larger and smaller circles (business units)….”
A whitepaper also cited in the article that relates to data presentations on corporate dashboards may have some relevance in other contexts. For example, the article is critical of the practice of displaying numbers too precisely when not necessary (e.g., $10,645,899.96 instead of $10,646,000 or $10.6M), which can compel “the viewer to process levels of data that are irrelevant to the task at hand.” Another distraction may be cluttering the graphic with too many bells and whistles or making everything equally prominent visually, instead of highlighting the most important information.
So what makes a good graphic? According to one commentator, a “good graphic represents quantities accurately; makes it easy to compare them and see how they relate to one another; and makes it easy to see a ranked order of values. Perhaps most important, … it ‘makes obvious how people should use the information — what they should use it to accomplish — and encourages them to do this.’”