Corporate communicators now have an added tool to help strengthen IR by effectively relaying company assets to those already contributing and to those wanting to invest.
As of October 1, 1998, The Securities and Exchange Commission (SEC) adopted the plain English rule which requires companies filing registration statements under the Securities Act of 1933
- to write the forepart of these registration statements in plain English;
- to write the remaining portions in clear, understandable manner; and
- to design them to be visually inviting and easy to read. Companies must adhere to this rule in the organization, language and design of the front and back cover pages, the summary and the risk factors sections. The SEC believes using plain English in prospectuses will lead to a better informed securities market-a market in which investors can more easily understand the disclosure required by law.
"Companies tend to hide behind legalese which adds difficulty in what is important and what is not about the company financial profile," says Carla Kienast, vice president of investor relations for Silverleaf Resorts, Inc. (Dallas). "Plain English will usher in a new era of communication with the investing people."
The biggest challenge companies will face is discarding their "template" and starting with a clean slate, she said. "This tends to become a historical document for the company and the same language gets used year after year."
Even though in the long run plain English may prove an effective way to gain investors and smooth out communication wrinkles, the jury is still out on that-literally. Attorney David Makarechian of Brobeck, Phleger, & Harrison expresses mixed emotions. "On one hand, making things readable is a good thing," he says. "I'm disquieted by these new set of standards that have not yet been proven in court."
There is a fear among financial gurus that over-clarifying content will lose meaning and companies could face lawsuit dangers. To avoid this, it is important for corporate communicators to keep channels open between investors and those company employees writing the prospectus.
The SEC has gone to great lengths to provide information on plain English. Caria Miller, attorney advisor for the division of Corporate Finance of the SEC, encourages people to visit their Web site (http://www.sec.gov) which outlines the plain English rule, answers frequently asked questions, shows examples and provides a downloaded version of their handbook, A Plain English Handbook; How to create clear SEC disclosure documents. "Plain English will affect the production process," she says. "Generally, a company should allot three months for the initial conversion."
Even though plain English format is only required for the prospectus, Millerencourages companies to start getting in the habit for all disclosure documents. No timeline is set, but SEC predicts all filings will eventually follow the plain English rule. (Carie Miller, 202/942-1882; Carla Kienast, 972/503-0430; David Makarechian. 650/812-2424)
Plain English at a Glance
Entire Prospectus
- use clear, concise, understandable language
- use short sentences whenever possible
- use bullet lists whenever possible
- use descriptive headers and subheads
- avoid relying on glossaries and defined terms
- avoid legal and highly technical business terms
- avoid legalistic, overly complex presentations
- avoid vague boilerplate
- don't use excerpts from legal documents
- avoid repetition
In designing the prospectus your company:
- may use pictures, logos, charts, graphs or other design elements
- should use tables, schedules, charts and graphics for financial data
- must draw graphs and charts to scale
Source: SEC