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Plain English is in and legalese is out at the Securities and Exchange Commission, where Chairman Christopher Cox has been telling Congress, institutional investors, and anyone who will listen that disclosure documents have to be understandable to the average investor. Companies that don’t comply with Cox’s mandate may find their documents consigned to regulatory limbo while they filter out jargon and clunky sentences. It’s all part of the SEC’s drive to improve disclosure, especially regarding executive compensation. It applies to proxy statements, annual reports, and any required corporate disclosures. The SEC’s proposed rule on this subject, published Feb. 8, drew 17,000 comments — one of the largest responses in the agency’s 72-year history. “Empowering investors doesn’t just mean better access to information — it also means access to better information,” Cox recently told the Senate Committee on Banking, Housing, and Urban Affairs. “Even though they are nominally written in English, the disclosure in some documents that are provided to investors is often so full of legal jargon and boilerplate disclosure that it can actually obscure important information.” Cox continued: “Plain English uses plain words — and, among other basic ingredients, the active voice. We want to promote the use of the active voice not just because it makes for punchier sentences, but because it requires a definite subject to go with the predicate. That’s the only way that investors will be able to figure out who did what to whom.” As an example of what he doesn’t want to see in proxy statements, Cox cited a 2001 document from Enron Corp. It proclaimed the company’s intention to pay senior executives “effectively in a manner consistent with the stated compensation strategy of Enron, internal equity considerations, competitive practices, and the requirements of appropriate regulatory bodies.” From that sentence, Cox said scathingly, “we actually learned nothing about what Enron’s compensation strategy might be — neither there nor anywhere else in the proxy statement.” One firm taking notice is the Coca-Cola Co. “Obviously, we want our communications to be as clear as possible for share owners to comply with SEC guidelines,” says spokesman Charlie Sutlive. He says Coke now uses bullet points in some documents and included a Q-and-A section in its proxy statement to help shareholders understand the proxy process. Documents filed with the SEC that don’t meet the readability test will draw a comment letter from agency staff, according to SEC spokesman John Heine. He notes that both an agency attorney and an accountant scrutinize company filings for a variety of issues, including the use of plain English. Until their concerns are addressed — a process that may involve back-and-forth negotiations — the SEC will not approve the filing. OUT WITH THE STILTED Brian Rubin, a partner in Sutherland Asbill & Brennan’s Washington office, and his colleague Christian Cannon recently won an award from the New York-based Burton Foundation, which aims “to eliminate stilted, archaic, and convoluted writing and replace it with plain, clear, and effective legal expression.” Rubin, who formerly worked at the SEC, praises Cox’s initiative. “As Cox mentioned, the passive voice hides the actor. With certain types of legalese, people don’t know what is going on — and sometimes that is the intent,” he says. “Plain English is language that is understandable by your parents or grandparents.” Cox’s campaign for clarity continues a push begun by his predecessor, Arthur Levitt. In 1998 the SEC issued a final rule requiring issuers to write the cover page, summary, and risk-factors section of prospectuses in plain English. That rule, according to the SEC, “transformed the landscape of public-offering disclosure and made prospectuses more accessible to investors.” In a subsequent rule, the SEC required a plain-English summary term sheet for all cash tender offers, cash mergers, and going-private transactions. DEAR SIS So where would a lawyer learn to write plain English? One source is the SEC’s own Plain English Handbook, available on the SEC Web site. It contains a preface by legendary investor Warren Buffett, chairman of Berkshire Hathaway Inc. “For more than 40 years, I’ve studied the documents that public companies file. Too often, I’ve been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said,” Buffett writes. “In some cases, moreover, I suspect that a less-than-scrupulous issuer doesn’t want us to understand a subject it feels legally obligated to touch upon.” Buffett also offers a tip: Write with a specific person in mind. He pretends he is talking to his sisters. “I have no trouble picturing them: Though highly intelligent, they are not experts in accounting or finance. They will understand plain English, but jargon may puzzle them. . . . To succeed, I don’t need to be Shakespeare; I must, though, have a sincere desire to inform. “No siblings to write to? Borrow mine: Just begin with �Dear Doris and Bertie,’ ” he offers. The fundamentals of clear writing cut across business, law, and other areas. Georgia State University professor George Pullman directs the Writing Across the Curriculum program, which trains students in rhetoric and composition as well as technical and professional writing. “We focus on subject-verb-object; using the active voice; concrete, specific language; and not using obscure words,” Pullman says. “The more that a person has to interpret the meaning of a sentence, the harder it is to read and the less �plain.’ You can say nearly anything in such a way that nearly anybody can understand it.” Too often, Pullman says, corporate documents are written as though for members of the board or management. The writers don’t recognize that the language used is not necessarily in the common realm, and they don’t take the time to have them read by nonexperts for clarity. Linda Edwards, a professor at Mercer University School of Law and director of its legal writing program, says incoming law students face an immediate language challenge. Among their first assignments is to read classic opinions. The stilted language of some of these opinions may influence students’ writing styles. “We emphasize clarity of thinking, which includes clarity of organization. It’s very difficult to write in a way that a reader can really understand if the writer has not clearly thought through what is to be said and organized it in a way that the reader expects,” Edwards says. “We also urge them to avoid all these legal terms that are archaic, unnecessary, and sometimes counterproductive.” Edwards says the best moments for her as a teacher are when former students contact her to tell her that a judge incorporated sections from their briefs in the opinion handed down — a sign of a clear and effective argument.
Philippa Maister is a reporter for the Fulton County Daily Report , the ALM publication in which this article first appeared.

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