On Friday at the “SEC Speaks” conference, Securities and Exchange Commissioner Troy Paredes observed that the information companies disclose to investors leads to “disclosure overload” that hampers the ability of investors to gauge the importance of the data. Commissioner Paredes went on to say “what we need is a top-to-bottom review of our disclosure regime.”
At CrowdCheck, we agree with Commissioner Paredes. The value of disclosure is significantly increased when presented in a readable format that does not overwhelm the investor. While the information presented in an opaque document may be the same as that of a readable document, the impact is very different.
In a paper by Kristina Rennekamp of the University of Illinois at Urbana-Champaign, the author found that investors are more likely to feel as though they can rely on a disclosure that is more readable. After all, if a company does not seem like it is trying to hide the truth beneath a mountain of jargon, the potential investor is more likely to believe the company is not trying to hide information.
Investors’ negative impressions are often unfair to the company. As Warren Buffett noted in his Preface to the SEC’s Plain English Handbook, the most common situation is that a “well-intentioned and informed writer simply fails to get the message across to an intelligent, interested reader. In that case, stilted jargon and complex constructions are usually the villains.”
It is even more important for companies to provide clear and meaningful disclosures when offering crowdfunding securities. One of the biggest potential upsides for crowdfunding is securing a loyal core of customers who are dedicated to the success of the company. But these people may be new to investing and turned off by realms of unfamiliar text. Companies that effectively communicate with their investor-customers form stronger relationships with them; and the information a company provides them during the crowdfunding offering is the chance to make a first impression with investors.
Improved disclosure adds value for both the company issuing securities and its investors. CrowdCheck can help deliver that value by working closely with companies issuing securities and creating disclosure reports with crowdfunding investors in mind.