Blast the bombast. Drop the drivel. Lose the lingo. The jargon in your everyday business vocabulary may be gibberish to investors. That’s why IROs need to ‘take the time to think about the best way to convey ideas,’ says Lois Yurow, president of New Jersey-based Investor Communications Services. ‘Find out if the words you use are in the everyday vocabulary of the rest of the world.’
Using plain English isn’t about dumbing down corporate disclosure by omitting complex information. It’s about breaking down complicated ideas and explaining their significance to investors.
‘Plain English is communicating something in a way that the intended audience will understand,’ states Yurow. As an attorney turned writer and plain English advocate, she is dedicated to the pursuit of clear communications. ‘If that means showing a paragraph or two to your neighbor, your spouse or the person who cuts your hair to find out if they understand what you’re talking about, then that’s what you need to do.’
It’s important to target your message to your audience and then get to the point as soon as possible, says Carolyn Miller, senior vice president of Fleishman-Hillard’s financial communications practice. IR people need to ask, ‘Who is this for?’ and ‘What is a comfortable base assumption about their level of knowledge on the subject?’ Miller says. ‘Whatever choices you make will depend on whom you are writing for and what you assume the reader knows,’ she adds.
Stylistic changes can make a big difference to some disclosure documents. Shorter sentences, bullet points, visual appeal, white space and easy-to-navigate headings can go a long way to making them easier to digest. There are other cases, however, where documents have to be completely rewritten to qualify as plain English.
Miller, also an attorney, worked with issuers on a voluntary pilot program to put disclosure statements into plain English when she was at the SEC. She also helped formulate the SEC’s final plain English rules and participated in writing its handbook on plain English. Miller says these rules are essentially about good writing. They cover ‘very fundamental points about how to write more clearly.’ The handbook cites the most common problems with disclosure documents and suggests ways to fix them. Typical trouble spots include long sentences, a passive voice, weak verbs, superfluous words and too much legal and financial jargon. Unreadable design and layout and unnecessary details are also common mistakes.
Yurow’s approach stresses clarity and brevity. ‘Don’t try to be fancy or write in a stylized way,’ she advises. ‘Don’t pack lots of information into every sentence. Ask yourself what are the most important things you’re trying to say and how you can explain things without a lot of extra words and ideas.’
‘You need to be willing to challenge everything you’ve said before,’ Yurow continues. For example, take a look at the last paragraph of your financial press release describing your company. ‘Just because you said it that way before doesn’t mean it’s correct,’ she says. ‘Don’t just edit a word here or there or add a comma. Ripping something apart and then putting it back together again is very scary. But don’t be afraid to start from scratch. It’s much easier to do subsequent updates if you’re starting from a clear, well-written, well-organized document.’
Why bother? Current plain English rules apply only to certain sections of offering documents like prospectuses, not to periodic reports like 10Ks or 10Qs. But these days public companies (and anybody associated with them) are ‘presumed guilty until proven innocent,’ says Yurow. ‘There is value in making sure there is no way you can be misinterpreted or perceived as hiding anything. Investors who can’t understand what a company is saying will wonder what you are hiding or why you didn’t take time to find somebody to explain this. Companies should realize they can’t give anybody yet another reason not to trust them. There are plenty already.’
‘There has been such an erosion of trust,’ agrees Miller. ‘The most important thing you can do is to be straightforward with your investment audience and make it as easy as possible for them to understand the material positive and negative aspects of your company. Any company that goes to the time and trouble to write its disclosure documents in plain English clearly is going to have more credibility with its investors.’
Transparency first
Charlene Haykel says IROs need to agree on what exactly transparency means
You come home from work, hungry and tired. You grab a pile of mail and sit down with a cool drink to begin sorting through bank statements, bills, etc. Suddenly your interest is piqued by a package from company X, which you bought shares in last year. Have you made any money? In reading the annual, it’s hard to tell. The bottom line is as an impenetrable jumble of data. You’re overcome with a barrage of figures, codes and acronyms. It’s impossible to figure out how the company is performing let alone what it does.
Don’t let this happen to your investors. Every year companies spend billions on financial statements and annuals that do nothing more than instill fear in the recipients. From the brokerage statement that says you’ve lost your shirt on small-cap funds this quarter but doesn’t explain that you have beat the benchmarks, through to the annual report that buries stock performance in marketing lingo, financial documents categorically communicate poorly.
Today IR professionals, compliance officers, marketing experts and corporate writers are deeply concerned about what they must communicate to investors to be in compliance with the law, but are woefully neglectful of how. By focusing on the letter rather than the spirit of the law, they have unwittingly foiled the whole intent of disclosure. Instead of ensuring investors understand the risks associated with various securities and sectors, they practically guarantee investors will throw up their hands in frustration over inscrutable footnotes, daunting details and pervasive jargon.
The same is true for reports sent to individual investors on their retirement accounts and investments. By not applying the principles of clear communication, banks, brokerage firms and insurance companies have created a mystique around financial matters that inspires confusion rather than confidence.
Almost two years ago, when Enron dominated the headlines and upended the compliance landscape, the impact of misinformation on investors was set in sharp relief. Amid the ensuing calls for reform, ‘transparency’ was first used as a catchall phrase to describe the kind of openness and candor Wall Street was seeking.
But what exactly is transparency? In my view, it has little to do with the content of what is disclosed and everything to do with how it is presented. Disclosure is not achieved merely by including material information in a document or report. To be truly disclosed, material information must be understood by investors. If it’s transparent in the way it’s presented, it will be understood and so fully disclosed in the spirit of the law.
IR and communications professionals should agree on a working definition of transparency that expresses it in concrete, operational terms. Here are my suggestions:
Transparency is…
– the ability to ‘see through’ to what’s inside
– plain English rather than jargon
– forthright, unvarnished presentation of bad news
– the fine print of footnotes writ large
– rational, user-friendly, intelligent design
– logically sequenced content
– the whole truth at a glance
To restore investor confidence and increase their control over their own financial lives, IROs and other communication professionals need to operationalize transparency by making these changes:
-Commit to a two-pronged program. Decide what you’re going to report and, separately, how you’re going to make it clear and comprehensible
– Pair content experts like accountants, attorneys and compliance officers with plain English writers and information designers- Undertake rigorous research to discover the financial literacy level of your customers and investors.- In summary, seek transparency first and you will find full disclosure
Charlene Haykel is managing director of the simplified communications practice of Addison, a New York-based branding and communications company [email protected] or +1 212 229 5000
