Release No. 33-8655
Release No. 34-53185

Release No. IC-27218
 

Securities and Exchange Commission

Executive Compensation and Related Party Disclosure
Section VI

    Release Table of Contents

VI. Plain English Disclosure

We are proposing that most of the disclosure required by proposed Items 402, 403, 404 and 407 be provided in plain English. We propose that this plain English requirement apply when information responding to these items is included (whether directly or through incorporation by reference) in reports required to be filed under Exchange Act Sections 13(a) or 15(d).

In 1998, we adopted rule changes requiring issuers to write the cover page, summary and risk factors section of prospectuses in plain English and apply plain English principles to other portions of the prospectus.³¹⁹ These rules transformed the landscape of public offering disclosure and made prospectuses more accessible to investors. We believe that plain English principles should apply to the disclosure requirements that we propose to revise, so disclosure provided in response to those requirements is easier to read and understand. Clearer, more concise presentation of executive and director compensation, related person transactions, beneficial ownership and corporate governance matters can facilitate more informed investing and voting decisions in the face of complex information about these important areas.

We propose to add Exchange Act Rules 13a-20 and 15d-20 to require that companies prepare their executive and director compensation, related person transactions, beneficial ownership and corporate governance disclosures included in Exchange Act reports using plain English principles, including the following standards:

present information in clear, concise sections, paragraphs and sentences;

use short sentences;

use definite, concrete, everyday words;

use the active voice;

avoid multiple negatives;

use descriptive headings and subheadings;

use a tabular presentation or bullet lists for complex material, wherever possible;

avoid legal jargon and highly technical business and other terminology;

avoid frequent reliance on glossaries or defined terms as the primary means of explaining information, defining terms in the glossary or other section of the document only if the meaning is unclear from the context and using a glossary only if it facilitates understanding of the disclosure; and  

in designing the presentation of the information, include pictures, logos, charts, graphs, schedules, tables or other design elements so long as the design is not misleading and the required information is clear, understandable, consistent with applicable disclosure requirements and any other included information, drawn to scale and not misleading.

The proposed rule would also provide additional guidance on drafting the disclosure that would comply with plain English principles, including guidance as to the following practices that registrants should avoid:

legalistic or overly complex presentations that make the substance of the disclosure difficult to understand;

vague "boilerplate" explanations that are imprecise and readily subject to different interpretations;

complex information copied directly from legal documents without any clear and concise explanation of the provision(s); and

disclosure repeated in different sections of the document that increases the size of the document but does not enhance the quality of the information.

Under the proposed rules, if the executive compensation, beneficial ownership, related person transaction or corporate governance matters disclosure were incorporated by reference into an Exchange Act report from a companys proxy or information statement, the disclosure would be required to be in plain English in the proxy or information statement.³²⁰ The plain English rules are proposed as part of the disclosure rules applicable to filings required under Sections 13(a) and 15(d) of the Exchange Act. We believe that these plain English requirements are best administered by the Commission under these rules.

Request for Comment

Will the plain English requirements discussed above be sufficient to discourage boilerplate and promote clear, more user-friendly Exchange Act reports and proxy or information statements? If not, how should we revise the requirements?

Are there differences between proxy statements and Exchange Act reports which would require different requirements in order to accomplish the objectives of plain English? If so, what are the different requirements and how should the different requirements be addressed?

In addition to the proposal, should we require that information provided under proposed Items 402, 403, 404 and 407 in other filings, such as Form S-1, be written in plain English?

Since only portions of the disclosure under proposed Item 407 would be required to be included in Exchange Act reports, should we specifically require that all Item 407 disclosure be in plain English? If so, how should we impose this requirement?

Should we require that all or portions of proxy or information statements be in plain English? If so, should a plain English requirement apply to disclosure provided by anyone who solicits a proxy with a proxy statement, or should it be limited to just companies making a solicitation of their shareholders? Should shareholder proposals under Exchange Act Rule 14a-8³²¹ or financial statements and related disclosures under Item 13 of Schedule 14A be excluded from any plain English requirements applicable to proxy statements? Would a plain English requirement under the proxy rules have the potential to increase disputes, including possible litigation, that could inappropriately delay or frustrate the conduct of solicitations and shareholder meetings or otherwise interfere with the proper operation of the proxy rules?

³¹⁹ Plain English Disclosure, Release No. 33-7497 (Jan. 28, 1998) [63 FR 6369] (adopting revisions to Securities Act Rule 421 [17 CFR 230.421]). We have also required that risk factor disclosure included in annual reports and Summary Term Sheets in business combination filings be in plain English. See General Instruction 1A. to Form 10-K and Item 1001 of Regulation M-A [17 CFR 229.1001], respectively.

³²⁰ See, e.g., General Instruction G(3) to Form 10-K and General Instruction E.3. to Form 10-KSB (specifying information that may be incorporated by reference from a proxy or information statement in an annual report on Form 10-K or 10-KSB).

³²¹ 17 CFR 240.14a-8.