THE US Securities and Exchange Commission (SEC) is going to train about 125 employees to write clearer advice for issuers and their lawyers – but investors are unlikely to benefit from the simpler prose.
That’s because in identifying the documents covered by the Plain Writing Act of 2010 that agencies must implement by October 13, the SEC doesn’t mention any improvements to disclosure documents meant for the investors it is charged with protecting.
Instead, the documents that will likely become more understandable are those targeted at company executives and their equally well-educated lawyers, including:
- Narrative text of SEC rule releases and proposals;
- No-action letters, exemptive and interpretive orders, including SRO rule filing notices and orders, answers to frequently asked questions, compliance alerts, and comment letters;
- Press releases, news digests, and most content of sec.gov and investor.gov; and,
- Correspondence and published speeches, presentations and conference materials that explain how to comply with SEC rules.
To be fair, the list of covered documents does include investor alerts and bulletins, but these already are written in plain English by the very capable folks in the commission’s Office of Investor Education and Advocacy.
The commission says staff who regularly write or edit documents covered by the Act will receive onsite training in plain writing from the Plain Language and Information Network (PLAIN). Videotapes of the training sessions and online trading resources from PLAIN and other federal agencies will be made available to staff. The commission will also consider giving out an award for achievement in plain writing.
“Staff who regularly write or edit covered documents will be required to certify to their office or division’s Plain Writing Liaison that they have attended onsite training or reviewed online training materials. Other staff is encouraged to review the training materials as well,” says the SEC in a report (PDF 54KB) posted online this week.
Too much legal jargon
The SEC has taken several steps over the years to require issuers to use plain English in some of their disclosure documents. In 1998, it adopted a rule requiring companies to write certain sections of prospectuses in plain English, and in 2006, companies had to include a plain English compensation discussion and analysis (CD&A) section in their proxy statements, with mixed results.
However, the early efforts appear to have largely failed to improve retail investors’ opinions of the readability of company disclosure documents. A large-scale study commission by the SEC in 2008 found that 78% of retail investors completely or somewhat agree that there is too much legal jargon in company annual reports. Similar results were found for other SEC-required disclosure documents.
While I think the current initiative is great, the key beneficiaries are likely to be those who least need plain writing — securities lawyers and other advisors.
One easy target for the SEC would be to improve the labels it uses for EDGAR filings. Labels like “Current report, items 3.01 and 9.01” are meaningless to average investors. Surely there must be a way to provide a 140-character summary of what each filed document is about without the investor having to open the filing?
EDGAR is a fantastic resource but it would be much more accessible to the public if it used generally understandable labels in plain English.