S.E.C. Sends Lawyers Back to English Class

The Securities and Exchange Commission has completed its initial review of how 350 public companies have complied with the compensation disclosure requirements that went into effect in November 2006. The S.E.C. wanted companies to disclose more detailed information on how and what it pays its officers, and it wanted it in plain English.

And the verdict? Companies evidently don't speak plain English.

The S.E.C. released ten pages summarizing its feedback to the companies and, more specifically, the corporate attorneys that write their regulatory filings. In fact, the criticism had a ring of familiarity to it for any reporter who once filed a wordy, wandering, ill-sourced story to a demanding editor:

Write tightly. Don't bury your lede. Better quotes. Cut the fat. Include more detailed descriptions. Where is the nut graf???

Of course, the S.E.C. delivers its judgment with a bit more caution and kindness.

Where the S.E.C. says this:

"First, the Compensation Discussion and Analysis needs to be focused on how and why a company arrives at specific executive compensation decisions and policies. This does not mean that disclosure needs to be longer or more technical; indeed shorter, crisper, and clearer would often be better. The focus should be on helping the reader understand the basis and the context for granting different types and amounts of executive compensation."

An editor might say this:

"Stick to the basics, kid. Who, what, when, where, and why."

And when the securities regulators say this:

"Second, the manner of presentation matters -- in particular, using plain English and organizing tabular and graphical information in a way that helps the reader understand a company's disclosure. The executive compensation rules require companies to disclose a great deal of information. Techniques such as providing an executive summary, or creating tables or charts tailored to a company's particular executive compensation program, can make the disclosure more useful and meaningful. We encourage companies to continue thinking about how executive compensation information -- from the big picture to the details -- can be better organized and presented for both the lay reader and the professional."

An editor would say this:

"Always start with an outline."

Still, it's admirable that the S.E.C. is trying to inject a dose of reality into the effusive, lede-burying, confusing, and oftentimes irrelevant filings that public companies file to the agency. It sometimes seems as if they intentionally include extra pages of meaningless legal jargon so that investors will get bored and stop reading before the very last footnote, which is usually the one that really matters.

Whether or not the companies will ever fully satisfy the agency on its demands for better disclosure remains to be seen. At least it's making them. And it's safe to say that the S.E.C. will keep driving home its message until companies begin to respond.

For starters, S.E.C. chairman Christopher Cox will revisit the topic during his keynote presentation later this week at the Center for Plain Language for a conference entitled "Plain Language: Public Policy and Good Business."

Where else?

by Megan Barnett