A Plain English Handbook - SEC
A Plain EnglishHandbookHow to create clearSEC disclosure documentsBy the Office of Investor Education and AssistanceU.S. Securities and Exchange Commission450 5th Street, N.W.Washington, DC 20549August 1998
This handbook shows how you can use well-established techniquesfor writing in plain English to create clearer and more informativedisclosure documents. We are publishing this handbook only foryour general information. Of course, when drafting a document forfiling with the SEC, you must make sure it meets all legal requirements.
AcknowledgmentsThis handbook reflects the work, ideas, and generosity of manyindividuals and organizations at the SEC and in the private sector.At the SEC, staff in the Divisions of Corporation Finance andInvestment Management, the Offices of Public Affairs and GeneralCounsel, and the Chairman’s Office provided insightful comments.In particular, Commissioner Isaac C. Hunt Jr., Nick Balamaci, BarryBarbash, Gregg Corso, Brian Lane, Diane Sanger, Jennifer Scardino,Michael Schlein, Heidi Stam, and Tony Vertuno offered invaluableadvice and guidance.Corporate officials and lawyers enthusiastically helped us to breathelife into our plain English initiatives and this handbook. The Societyof Corporate Secretaries, the American Bar Association, and The BondMarket Association invited us to conduct workshops where we testedmuch of the information in the handbook. Kathleen Gibson, PeggyForan, Susan Wolf, Bruce Bennett, Jim McKenzie, Jeff Klauder,Fred Green, Mark Howard, Pierre de Saint Phalle, Richard M. Phillips,and Alan J. Davis contributed mightily to our efforts.Special thanks to Warren Buffett for his support and preface, to KenMorris of Lightbulb Press, and to the talented staff at Siegel & Gale. Iam especially grateful to the staff of my office for giving me the timeand support I needed to work on the handbook.a p lain english hand b ookNancy M. SmithDirector, Office of InvestorEducation and Assistance
Three people poured their hearts and minds into this handbook fromthe start: Ann Wallace, from the Division of Corporation Finance;Carolyn Miller, formerly of Siegel & Gale and now with the SEC; andWilliam Lutz, author and Professor of English at Rutgers University.All of the credit and none of the blame goes to them.And finally, many thanks to Chairman Arthur Levitt, who made itall possible by putting plain English at the top of his agenda so thatinvestors might better understand their investments. a pl a i n en g l i s h h and b ook
Table of ContentsPrefaceby Warren E. Buffett1Introductionby Arthur Levitt, ChairmanU.S. Securities and Exchange Commission3Chapter 1What Is a “Plain English” Document?5Chapter 2Getting Started7Chapter 3Knowing Your Audience9Chapter 4Knowing the Information You Need to Disclose11Chapter 5Reorganizing the Document15Chapter 6Writing in Plain English17Chapter 7Designing the Document37Chapter 8Time-Saving Tips55Chapter 9Using Readability Formulas and Style Checkers57Chapter 10Evaluating the Document59Chapter 11Reading List61Chapter 12Keeping in Touch with Us63Appendix APlain English at a GlanceThe SEC’s Plain English Rules—an Excerpt6566Appendix BPlain English Examples“Before” and “After” Filings with Notes6970a p lain english hand b ook
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by Warren E. BuffettPrefaceThis handbook, and Chairman Levitt’s whole drive to encourage “plainEnglish” in disclosure documents, are good news for me. For more thanforty years, I’ve studied the documents that public companies file. Toooften, I’ve been unable to decipher just what is being said or, worse yet,had to conclude that nothing was being said. If corporate lawyers andtheir clients follow the advice in this handbook, my life is going tobecome much easier.There are several possible explanations as to why I and others some times stumble over an accounting note or indenture description. Maybewe simply don’t have the technical knowledge to grasp what the writerwishes to convey. Or perhaps the writer doesn’t understand what he orshe is talking about. In some cases, moreover, I suspect that a less-than scrupulous issuer doesn’t want us to understand a subject it feels legallyobligated to touch upon.Perhaps the most common problem, however, is that a well-intentionedand informed writer simply fails to get the message across to anintelligent, interested reader. In that case, stilted jargon and complexconstructions are usually the villains.This handbook tells you how to free yourself of those impediments toeffective communication. Write as this handbook instructs you and youwill be amazed at how much smarter your readers will think you havebecome.a p lain english hand b ook1
One unoriginal but useful tip: Write with a specific person in mind.When writing Berkshire Hathaway’s annual report, I pretend that I’mtalking to my sisters. I have no trouble picturing them: Though highlyintelligent, they are not experts in accounting or finance. They willunderstand plain English, but jargon may puzzle them. My goal issimply to give them the information I would wish them to supply meif our positions were reversed. To succeed, I don’t need to beShakespeare; I must, though, have a sincere desire to inform.No siblings to write to? Borrow mine: Just begin with “Dear Dorisand Bertie.” 2a pl a i n en g l i s h h and b ook
by Arthur LevittChairman, U.S. Securitiesand Exchange CommissionIntroductionInvestors need to read and understand disclosure documents tobenefit fully from the protections offered by our federal securitieslaws. Because many investors are neither lawyers, accountants, norinvestment bankers, we need to start writing disclosure documentsin a language investors can understand: plain English.The shift to plain English requires a new style of thinking and writing,whether you work at a company, a law firm, or the U.S. Securities andExchange Commission. We must question whether the documents weare used to writing highlight the important information investors needto make informed decisions. The legalese and jargon of the past mustgive way to everyday words that communicate complex informationclearly.The good news is that more and more companies and lawyers areusing plain English and filing documents with the SEC that otherscan study, use, and improve upon. With the SEC’s plain English rulesin place, every prospectus will have its cover page, summary, and riskfactors in plain English.The benefits of plain English abound. Investors will be more likely tounderstand what they are buying and to make informed judgmentsabout whether they should hold or sell their investments. Brokers andinvestment advisers can make better recommendations to their clientsif they can read and understand these documents quickly and easily.a p lain english hand b ook3
Companies that communicate successfully with their investors formstronger relationships with them. These companies save the costs ofexplaining legalese and dealing with confused and sometimes angryinvestors. Lawyers reviewing plain English documents catch and correctmistakes more easily. Many companies have switched to plain Englishbecause it’s a good business decision. They see the value of communi cating with their investors rather than sending them impenetrabledocuments. And as we depend more and more on the Internet andelectronic delivery of documents, plain English versions will be easierto read electronically than legalese.The SEC’s staff has created this handbook to help speed and smooththe transition to plain English. It includes proven tips from those inthe private sector who have already created plain English disclosuredocuments. This handbook reflects their substantial contributions andthose of highly regarded experts in the field who were our consultantson this project, Dr. William Lutz at Rutgers University and the firm ofSiegel & Gale in New York City.But I hasten to add that the SEC has not cornered the market on plainEnglish advice. Our rules and communications need as strong a doseof plain English as any disclosure document. This handbook gives yousome ideas on what has worked for others, but use whatever worksfor you.No matter what route you take to plain English, we want you to producedocuments that fulfill the promise of our securities laws. I urge you—in long and short documents, in prospectuses and shareholderreports—to speak to investors in words they can understand. Tellthem plainly what they need to know to make intelligent investmentdecisions. 4a pl a i n en g l i s h h and b ook
1What Is a “PlainEnglish” Document?We’ll start by dispelling a common misconception about plain Englishwriting. It does not mean deleting complex information to make thedocument easier to understand. For investors to make informeddecisions, disclosure documents must impart complex information.Using plain English assures the orderly and clear presentation ofcomplex information so that investors have the best possible chanceof understanding it.Plain English means analyzing and deciding what informationinvestors need to make informed decisions, before words, sentences,or paragraphs are considered. A plain English document uses wordseconomically and at a level the audience can understand. Its sentencestructure is tight. Its tone is welcoming and direct. Its design is visuallyappealing. A plain English document is easy to read and looks like it’smeant to be read.a p lain english hand b ook5
This handbook’s purposeThis handbook gives you practical tips on how to create plain Englishdocuments. All of these were born of experience. They come fromexperts and those who have already written or rewritten their docu ments in plain English.As with all the advice in this handbook, feel free to tailor these tips toyour schedule, your document, and your budget. Not all of the tips willapply to everyone or to every document. Pick and choose the ones thatmake sense for you.Some of our tips cover very basic mechanical issues, like how to photo copy your working draft. We’ve included them because they werelearned the hard way and have saved people time, money, and aggrava tion. You’ll see them listed in Chapter 8, titled “Time-Saving Tips.”This handbook is by no means the last word on plain English. Weexpect to change it and add more tips as we learn more about writingsecurities documents in plain English. So please keep notes on yourexperiences and copies of your original and rewritten language. Wewant to hear from you and include your tips and rewrites in the nextedition.Finally, we encourage you to give this handbook out freely. It is notcopyrighted, so you can photocopy it without fear of penalty. 6a pl a i n en g l i s h h and b ook
2Getting StartedAssemble the team or move ahead on your ownAs with a lot of things in life, it’s the preparation that often determinesthe success or failure of an effort to write documents in plain English.Many of you routinely select a team to think and talk about how to writea document from scratch or rewrite an existing document. Or you maydo it on your own. In that case, rest assured that one person can do italone.The list below describes the types of people who have participated insuccessful plain English teams. We’re not suggesting that you need to selecteveryone listed. Some will not apply to your company or your situation.The people you select, and the point at which you involve them in yourplain English project, will depend on your document, your schedule,and your budget. A team leader who has the authority to make decisions that keepthe project moving forward and bring it to a successful conclusion.(More than one plain English project has faltered because the teamleader has not had this level of authority.) The team leader may bea company’s or an underwriter’s lawyer. A lead writer who ensures the document uses a logical structure andsimple, clear language. If more than one person is drafting sections ofthe document, the lead writer makes sure the final draft has a consis tent tone and the individual parts form a coherent whole. Lawyers for the company or the underwriter who know what informa tion must be included and why.a p lain english hand b ook7
An investor relations expert who knows firsthand the financial sophis tication of your investors. Investor relations people know which ques tions investors typically ask and where past disclosure documents havefailed to make information clear. A compliance officer who can lend guidance to the writer and whoknows, along with your lawyers, what information must be included. A production and operations person who understands the mechanicsand costs of printing and mailing your document, so that yourimproved document doesn’t get ahead of your in-house capabilities orbudget. A marketing person who may have market survey research or polls onyour investors. Also, the marketing department is usually attuned tothe terminology that your investors can readily understand. An information designer who is a graphic designer trained to workclosely with the writers and to think about how to present complexinformation visually.Select documentsYou may want to consider these issues as you start writing in plainEnglish: How long is the document? Will you write all of it, or only sections of it, in plain English? How much time do you have before you need to file your document?You will also want to gather and distribute other documents that yourcompany has written for investors. It’s likely that your company hasalready used plain English in its glossy annual reports and other com munications prepared especially for investors. These documents maysave you time by showing you the type of language your company isalready comfortable using. 8a pl a i n en g l i s h h and b ook
3Knowing Your AudienceKnowing your audience is the most important step in assuring thatyour document is understandable to your current or prospectiveinvestors. To write understandable documents, you need to gauge thefinancial sophistication of your investors.Through polls and other market survey research tools, some companiesknow the demographics of their investors well. Other companies rely ontheir investor relations staff or their underwriters to describe who hasbought, or is likely to buy, their securities.Using whatever information is available, you can create a profileof your investors or prospective investors based on the followingquestions: What are their demographics—age, income, level of education, andjob experience? How familiar are they with investments and financial terminology? What investment concepts can you safely assume they understand? How will they read the document for the first time? Will they read itstraight through or skip around to the sections that interest them? Will they read your document and your competitors’ side by side? How will they use the document while they own the security?What information will they be looking for later, and is it easy to find?a p lain english hand b ook9
Your investors or prospective investors may include individuals andinstitutions with varying degrees of financial sophistication. While youraudience will include analysts and other industry experts, you may wantto keep in mind that your least sophisticated investors have the greatestneed for a disclosure document they can understand. Some companieshave faced the differing needs of their investors and other audiencesby making basic educational information visually distinctive from therest of the text so that sophisticated investors can easily recognize andscan it.Once you’ve drawn a profile of your investors, keep it constantly inmind. Some writers keep a photo of a typical investor to make sure theydon’t lose sight of their readers.“One must consider alsothe audience.the readeris the judge.”After analyzing who your investors are, you can turn to the documentyou want to write or rewrite. AristotleRhetoric10a pl a i n en g l i s h h and b ook
4Knowing theInformation You Needto DiscloseThe steps outlined in this section have been used successfully byothers who have written disclosure documents in plain English. As wesaid earlier, feel free to tailor these steps to your own schedule andteam. This is one approach if you are rewriting an existing document,but others may work equally well.Read and outline the current documentRead the entire document once without making any notes or commentson the text. This should give you a general understanding of theinformation covered in the document and make your next read moreproductive.When you read it the second time, make notes on what informationis covered and any questions you have. Your notes will also help you toassess if information flows through your document in a logical order.As you read, consider the following: Will the investors understand the language? Does the document highlight information that is important toinvestors? Is any important information missing? Does the document include information that is not legally requiredand will not help investors make informed decisions?a p lain english hand b ook11For time-saving tips on how tooutline and reorganize yourdocument, read Chapter 8 onpage 55.
Meet to resolve questionsMeet with the authors of the original document or others who under stand it and any members of the team who can help to answer thequestions you wrote in the margins. Besides the obvious reason forthe meeting, another more important goal isto question the need for everything that appears in the document.“Because it’s always been there” is not reason enough to keep it in yourdraft. Since much of the language in these documents is recycled fromolder (or another company’s) documents, often no one knows whoinitially wrote it or why it is needed now. If you’ve done your legalresearch and no one knows why the information is important orrequired, consider taking it out.“Writers must thereforeconstantly ask:What am I trying to say?Surprisingly often theydon’t know. They mustlook at what they havewritten and ask:Have I said it?”William ZinsserOn Writing WellEliminate redundant informationQuestion the need for repeating any information. Reading the samematerial two or three times can bore and even trouble readers. Mostreaders skip over paragraphs if they think they’ve read them before.If you cut down on repetitious paragraphs or sentences, you’ll not onlyearn the gratitude of your reader, you’ll reduce printing and mailingcosts.Discuss the cover page and the summaryA cover page should be an introduction, an inviting entryway into yourdocument, giving investors some key facts about your offering, but nottelling everything all at once. If it looks dense and overgrown withthorny details, no one will want to pick it up and start reading. If itlooks like a legal document written by lawyers and for lawyers, manyinvestors will not even attempt to read it.To create an inviting cover page, you’ll need to strip away much of whatis conventionally placed there, but which is not required.12a pl a i n en g l i s h h and b ook
As you review your cover page, question why each item of informationis there. It may be important, but does it have to be on the cover page?You usually have a substantial document following the cover page—letsome of those other pages carry the information load in logical order.What would be helpful for investors to see on this page? Look throughyour investors’ eyes and you’ll make better decisions about where toplace information.The same goes for the summary. A summary should orient the reader,highlighting the most important points that are presented in greaterdetail in the prospectus. Many summaries now seem as long as thedocument itself and consist merely of paragraphs copied straight fromthe body of the document.Use defined terms sparinglyAlthough customary, introducing defined terms on the cover page andin the summary discourages many readers from getting beyond the firstpages.
6 a plain english handbook . Getting Started . Assemble the team or move ahead on your own . As with a lot of things in life, it’s the preparation that often determines the success or failure of an effort to write documents in plain English.
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