PLAIN ENGLISH AND THE SEC



Rules requiring plain English and related adopting releases

Executive compensation

Proposing Release: Pay versus Performance (April 29, 2015) This release discusses proposed amendments to Item 402 of Regulation S-K to, among other things, require a clear description of executive pay in relation to company performance.

Rule 13a-20: Plain English Presentation of Specified Information This rule requires plain English for disclosures about executive compensation; security ownership of 5%-plus beneficial owners, directors, and named executive officers; related person transactions; and corporate governance.

Rule 15d-20: Plain English Presentation of Specified Information  This rule requires plain English for disclosures about executive compensation; security ownership of 5%-plus beneficial owners, directors, and named executive officers; related person transactions; and corporate governance.

Adopting Release: Executive Compensation and Related Person Disclosure (effective November 7, 2006)  This release (which is the source of the Compensation Discussion & Analysis) discusses Rules 13a-20 and 15d-20 and related amendments.

Offerings

Adopting Release: Asset-Backed Securities (December 22, 2004)  This release discusses registration, disclosure, and reporting requirements for asset-backed securities, and states that even the most complex structures can be described clearly and accurately without resorting to overly legalistic presentations.

Rule 421: Presentation of Information in Prospectuses  This rule requires all information in a prospectus to be written in a “clear, concise and understandable manner.” The front and back covers, the risk factors, and the summary section must be written using plain English principles for the organization, language, and design.

Adopting Release: Plain English Disclosure (effective October 1, 1998)  Where it all began…this release discusses Rule 421 and related amendments.

Shareholder communication

Adopting Release: Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Investment Management Companies This release discusses new rules that, among other things, require a plain English summary of key information at the front of every mutual fund prospectus.

Guidance regarding mutual fund enhanced disclosure (June 2014) This is a summary of comments made by staff of the Division of Investment Management, including concerns about funds’ failure to explain things in plain English and “prospectus summaries” that don’t summarize.

Rule 14a-16: Internet Availability of Proxy Materials  Rule 14a-16 permits public companies to provide proxy statements and annual reports online if they first provide shareholders a Notice of Internet Availability of Proxy Materials. Under subsection (g) of the rule, “the registrant must use plain English principles in the organization, language, and design of the notice.”

Adopting Release: Shareholder Choice Regarding Proxy Materials  This release discusses amendments that require public companies and other soliciting persons to provide electronic access to proxy materials.

Adopting Release: Internet Availability of Proxy Materials  This release discusses Rule 14a-16 and related amendments that permit public companies to voluntarily provide electronic access to proxy materials.

Adopting Release: Regulation of Takeovers and Security Holder Communications  Among other things, this package of rules requires a plain English summary term sheet for all tender offers, mergers, and going-private transactions.

Periodic reports

Adopting Release: Securities Offering Reform  Among other things, this package of rules requires risk factor disclosure in annual reports on Form 10-K to be written in plain English.

Item 406 of Regulation S-K  This item, which requires public companies to disclose whether they have a code of ethics for their executive officers, defines “code of ethics” to include “written standards that are reasonably designed to … promote … [f]ull, fair, accurate, timely, and understandable disclosure ….”

Investment advisers

Adopting Release: Amendments to Form ADV  These amendments require investment advisers to provide plain English narrative brochures to clients and prospective clients describing (among other things) their business practices, conflicts of interest, fees, and disciplinary history.



Miscellaneous studies and reports

Spotlight on Disclosure Effectiveness This is an ongoing project, discussed in several speeches by Mary Jo White and Keith Higgins (linked below).  Some of the comments the SEC has received (available through a link on the far right of the Spotlight page) are worth reading.

Report on Review of Disclosure Requirements in Regulation S-K (December 2013)

Study Regarding Financial Literacy Among Investors (August 2012)  Summarizing the findings of a study mandated by the Dodd-Frank Act, the staff notes that investors prefer that disclosures be written in clear, concise, understandable language, using bullet points, tables, charts, and/or graphs and investors favor the use of a summary document containing key information about an investment product or service.

Toward Greater Transparency: Modernizing the Securities and Exchange Commission’s Disclosure System (January, 2009)  Also known as the 21st Century Disclosure Initiative, this project didn’t go very far but still comes up occasionally.

Final Report: Focus Groups about Plain English Documents (May 2008) The SEC commissioned this report from an outside research firm to get investor opinions about the then ten-year-old plain English initiative.

Final Report: Focus Groups on a Summary Mutual Fund Prospectus (May 2008) The SEC commissioned this report from an outside research firm to get investor opinions about mutual fund disclosures.

Final Report of the Advisory Committee on Improvements to Financial Reporting to the United States Securities and Exchange Commission (August 1, 2008)  This report recommends, among other things, that the SEC require public companies to include an executive summary at the beginning of each annual report and quarterly report that summarizes, in plain English, the most important information about the company and provides context for the disclosures that follow.

Division of Corporation Finance, Staff Observations in the Review of Executive Compensation Disclosure (October 9, 2007)  Sample quote: “[C]areful drafting consistent with plain English principles could result in a shorter, more concise and effective discussion that complies with our rules.”

Order approving the amendment of the NASD Code of Arbitration Procedure to, among other things, “simplify the rule language into plain English.” (January 24, 2007)

Results of In-Depth Investor Inteviews Regarding Proposed Mutual Fund Sales Fee and Conflict of Interest Disclosure Forms (November 4, 2004) [outside agency report to the SEC].

Commission Guidance Regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations (December 29, 2003)

Summary by the Division of Corporation Finance of Significant Issues Addressed in the Review of the Periodic Reports of the Fortune 500 Companies (February 27, 2003)

Division of Corporate Finance, Staff Legal Bulletin #7, “Plain English Disclosure” (June 7, 1999)

A Plain English Handbook: How to create clear SEC disclosure documents, SEC Office of Investor Education and Assistance (August 1998)

Report of the Task Force on Disclosure Simplification (March 5, 1996)



Speeches and other public statements

Mary Jo White, “The Future of Investment Company Regulation” (May 20, 2016)

Sample quote: “You should be continuously reevaluating the purpose and value of all of your funds’ disclosures.  Avoid boilerplate and tailor your disclosure as appropriate for each fund.  Ask yourselves regularly: What can I do to improve investors’ understanding of the fund’s strategies, risks, and costs?  These features of your funds change continuously and so should your disclosures.”

Andrew J. Donohue, “New Directions in Corporate Compliance” (May 20, 2016)

Sample quote: “When developing the policies and procedures you expect the firm and its personnel to follow they will be most effective if they are as simple as possible, are explained in plain English and are intuitive to those that have to comply with them.”

Keith Higgins, “Executive Compensation: Looking Beyond the Dodd-Frank Horizon” (November 17, 2015)

Sample quote: “Judging by the page count of proxy statements following implementation of the [compensation disclosure] rules, the goal of completeness was relatively successful. One might wonder, however, whether the goal of clarity is being met.”

Amy M. Starr, Chief, Office of Capital Markets Trends, “Structured Products–Complexity and Disclosure–Do Retail Investors Really Understand What They Are Buying and What the Risks Are?”  (May 14, 2015)

Sample quote: “Some have also asked what more can be done with disclosures about these structured products or other actions that will help investors better understand the risks and operation of these sometimes very complex products?”

Keith Higgins, “Shaping Company Disclosure” (October 3, 2014)

Sample quote: “In recent years, some companies made significant changes to the presentation of their proxy statements to enhance the disclosure for investors. We want to encourage companies to make similar strides with their periodic reports — experiment with the presentation, reduce duplication and eliminate stale information that is both outdated and not required.” 

Kara Stein, “Remarks to the Council of Institutional Investors” (May 8, 2014)

Sample quote: “[I]s there a way to ensure that issuers’ disclosures are accessible to ordinary Americans, while also providing information that is important to sophisticated institutional investors? I believe there is.”

Keith Higgins, Disclosure Effectiveness” (April 11, 2014)

Mr. Higgins uses this speech to urge people who draft disclosure to “step up their game” by reducing repetition, focusing disclosure on the specific company rather than just duplicating what others have done, and eliminating outdated information.

Mary Jo White, “The Path Forward on Disclosure” (October 15, 2013)

Sample quote: “[W]e think . . . additional disclosures are a good thing, but we should be careful not to have too much of a good thing.”

Christopher Cox, “Enhanced Disclosure for Mutual Fund Investors” (November 19, 2008)

Sample quote: “[I]nvestors have to dig through pages of legalese to obtain the key information theyre after.”

Press Release announcing the 21st Century Disclosure Initiative to Fundamentally Rethink the Way Companies Report and Investors Acquire Information (June 24, 2008)

Sample quote: “We’ll be examining how to improve the way disclosure works, including tapping the full potential of today’s technology and integrating it seamlessly into our regulatory approach. That could mean fewer confusing forms, and more useful information at investors’ fingertips in a form they can really use.”

Christopher Cox, “Plain Language–The Benefits to Small Business” (February 26, 2008)

Sample quote: “At the SEC . . . were dead serious about plain English.”

Christopher Cox, “Plain Language and Good Business” (October 12, 2007)

Sample quote: “[I]f time is money, then poorly written proxy statements are wasting one of investors most important assets.”

John W. White, “Wheres the Analysis?” (October 9, 2007)

Sample quote: “Disclosure can fail in either of two different ways — it can be presented clearly and understandably without being meaningful or responsive to disclosure requirements or, conversely, it can be responsive in content without being clear and understandable.”

Statement of Chairman Christopher Cox Before the U.S. Senate Committee on Banking, Housing and Urban Affairs (July 31, 2007)

Sample quote: “[T]he Commission is hard at work on a simplified, plain English disclosure for mutual funds that would give investors what they need to know, in a form they can use.”

Press Release announcing the creation of an “Advisory Committee to Make U.S. Financial Reporting System More User-Friendly for Investors” (June 27, 2007)

Sample quote: “Christopher Cox today announced the establishment of an advisory committee that will examine the U.S. financial reporting system with the goals of reducing unnecessary complexity and making information more useful and understandable for investors.”

Testimony Concerning a Review of Investor Protection and Market Oversight with the Five Commissioners of the Securities and Exchange Commission (June 26, 2007)

Sample quote: “Another of our important initiatives to benefit individual investors is our drive to improve the quality and clarity of mutual fund and 401(k) disclosure.”

Andrew J. Donohue, Remarks Before the NAVA Compliance and Regulatory Affairs Conference (June 25, 2007)

Sample quote: “[T]he staff is serious about plain English and effective disclosure.”

Christopher Cox, Address to the Investment Company Institute’s 2007 General Membership Meeting (May 10, 2007)

Sample quote: “[T]he best information doesnt always mean the most information. The best information means disclosure that is readily accessible, easily understandable, and comparable from one fund to another.”

John W. White, “Keeping the Promises of Leadership and Teamwork: The 2007 Proxy Season and Executive Compensation Disclosures” (May 3, 2007)

Sample quote: “All the information in the world is of no use if no one can understand it.”

Christopher Cox, Closing Remarks to the Second Annual Corporate Governance Summit (March 23, 2007)

Sample quote: “The SEC is dead serious about shedding 70 years of accumulated bad habits in writing. We are well aware that our retail disclosure system has devolved into a self-serving exercise for issuers, underwriters, and their lawyers. No company that serves retail customers would seek to draw their attention to important subjects with an 80-page doorstop. Nor should we, if we are to continue to deserve our title as ‘the investor’s advocate.’”

Christopher Cox, Address to the 2007 Corporate Counsel Institute (March 8, 2007)

Sample quote: “[T]he SEC is waging an all-out war on complexity.”

Lori Schock, Acting Director of the Office of Investor Education and Assistance, “Feedback from Individual Investors on Disclosure” (January 19, 2007)

Sample quote: “[I]nvestors consistently have been telling us that disclosures should contain language that the average investor, not the average lawyer, can read and understand.”

John W. White, “Principles Matter” (September 6, 2006)

Sample quote: “Write for investors, not lawyers.”

Christopher Cox, “Improving Financial Disclosure for Individual Investors” (May 3, 2006)

Sample quote: “[I]n order for investors to make sound decisions, the seller’s information has to be understandable, accessible, and accurate.”

Cynthia Glassman, “Does SEC Disclosure Eschew Obfuscation? Res Ipsa Loquitur!” (November 4, 2005)

Sample quote: “Very simply put, it is my perception that disclosing parties and their lawyers be they mutual funds, broker-dealers, investment advisers, or operating companies view their disclosure obligations with an eye toward limiting their potential liability. Thus, the disclosures that they make, while often voluminous, do not necessarily provide information in a helpful, informative manner. In contrast, the recipients want timely, complete, and useful information that is readily understandable.”

Arthur Levitt, “Fulfilling the Promise of Disclosure” (July 23, 1997)

Sample quote: “It is possible that no document on Earth has committed as many sins against clear language as the prospectus. The prose trips off the tongue like peanut butter. Poetry seems to be reserved for claims about performance, and conciseness for discussions about fees.”

Isaac Hunt, Jr., “Plain English and the U.S. Securities Markets” (July 17, 1997)

Sample quote: “We want documents that are meant for investors to read to be prepared so that investors can use them.”

Isaac Hunt, Jr., “Investor Education Policies and Program” (May 26, 1997)

Sample quote: “[D]isclosure documents filed with the SEC are . . . one of the primary ways that issuers communicate with investors .”

Isaac Hunt, Jr., “Plain English: A Work in Progress” (February 6, 1997)

Sample quote: “Good writing is hard work. It takes time and effort to clearly summarize complex material; but it can be done.”