For years the Securities Exchange Commission has tried to
pierce the
dense fog of legal jargon that obscures the details of executive
compensation packages. And although a rule requiring companies to write
proxy
statements in plain English went into effect in January, it
doesn’t appear that
much ground is being gained on this front.
“Companies are still allowing lawyers to have the final say
on writing the proxies,” SEC Chairman Christopher Cox told a gathering of
business leaders at the USC Marshall School of Business in Los Angeles on Friday,
March 23. Cox was keynote speaker for a corporate governance conference at the
school.
An analysis finds that the proxy statements recently filed by
about
40 companies read more like Ph.D. dissertations than the plain-English,
easy-to-understand documents required by the SEC, Cox said.
A variety of readability measuring tools were used to arrive
at this
conclusion, Cox explained. The proxies were assigned an average
readability score of 16.45, using the “Gunning Fog Index,” which
assesses the
readability of written material by taking into account
sentence length and
complexity of words being used.
By comparison, The Wall Street Journal, which has a
sophisticated
base of readers, ranks around 12 on the index and Reader’s Digest,
which is aimed at a broad audience, comes in at an 8.
The proxies are not only complex, but lengthy, stacking up to
30 to
40 pages, rather than the handful pages called for by the SEC.
Cox said he was disappointed with the lack of clarity in the
early
batch of proxies. “We are determined to stop bad habits in writing to
retail investors,” he said.
It appears, however, that there won’t be significant
ramifications
for those companies that fall short in complying with the
plain-English
requirements. The companies that have submitted these
difficult-to-understand texts won’t have to refile, and they won’t be
fined,
according to Cox.
—Gina
Ruiz
= Member Only
