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Lost in Transparency

Disclosure is not enough - financial reform must also mandate clarity

June 2010

After nearly two years of debate and compromise, the U.S. Congress is on the threshold of passing the most sweeping financial reform since the Great Depression.

It’s been a noisy debate: from the early 2009 firestorm over bonuses at AIG, to the televised Congressional grilling of bank CEOs, to the recent hearings on how collateralized-debt products were marketed at Goldman Sachs, the general public has been exposed to more of Wall Street’s inner workings than ever. Even before the law mandates it, the era of fuller disclosure has arrived.

And yet, despite the voluminous revelations, public outrage and bewilderment seem greater than ever. Why is everyone still so confused?

We believe it’s because virtually all of the information has been indigestible. Just after the election of President Barack Obama and the apex of the global financial crisis, we issued a call for clarity, arguing that what was sorely needed from Washington and Wall Street was not simply “transparency” – the buzzword of 2008 – but plain language and clear context.

Sadly, we have seen plenty of disclosure but insufficient enlightenment since 2008. A single day of the Goldman Sachs hearings in April marshaled some 900 pages of documents as evidence. But when elected officials and financiers went head to head, they seemed to speak different languages.

In this clarity vacuum, extremes emerge. We’ve heard a raft of analogies attempting to explain the financial crisis (“perfect storm” is a favorite) or the doings of investment banks (car salesmen are a regular trope). These simplistic, often inaccurate clichés serve to reduce clarity. At the other extreme is an overreliance on dense jargon and industry-centric axioms that have minimal relevance to people outside the sector. Particularly when it comes to a sector as complex as financial services, context and clear language are necessary to foster intelligibility.

Once financial reform has been passed, a new age will begin in the social contract between the public and the financial industry. As communications advisors, we will follow closely the new standards that emerge and, in future essays, consider how leaders in finance and government can go beyond mere disclosure. Time-tested principles like using plain language, providing context through narrative structure, and explaining relevance are still the keys to promoting understanding.

While the details of reform have yet to be decided, one thing is certain: the clarity of information – not just the amount of disclosure – will be essential to restoring market confidence. Those firms that achieve clarity in their communications will likely be first to benefit from that renewed confidence.

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