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Seeing Clearly

Transparency is no substitute for clarity

December 2008

A notable thematic convergence has emerged this year. Amid the hard-fought presidential campaign and the global financial crisis, we have heard ever-increasing calls for transparency.

President-elect Barack Obama is credited for technology-fueled accessibility, and his supporters demand that he continue it in the White House. On the financial side, it is widely believed that opening the intricacies of Wall Street to public and regulator scrutiny would prevent a repeat of the recent breakdown of securities institutions and credit markets.

These truisms oversimplify both Obama’s success and Wall Street’s failure. Message discipline – and a mood for change – brought Obama to victory, not just the volume or the modes of his communication. As for the business community, history does not inspire confidence that mere disclosure will promote understanding.

Perhaps the key word, and the goal, should not be transparency but clarity.

Mistaking bulk for boldness

The fact is, much of the corporate world’s activity is hidden in plain sight. Annual reports and quarterly earnings filings grow longer every year, as regulators demand more disclosure but do not necessarily require it to be comprehensible by the general public. Prospectuses for equity and debt offerings resemble doorstops, and investors may find themselves relying on media coverage that boils down the basic terms. Even in private offerings – those subject to minimal oversight, such as PE funds – communications like private placement memoranda resemble dense legal contracts rather than clear statements of investment strategy.

With all this information already available, how sure can we be that more will be better? Those demanding more oversight of Wall Street, like those demanding continued transparency from the new White House, seem to emphasize volume of communication rather than quality. Make no mistake, fuller disclosure from the halls of finance and government will increase the likelihood that critical issues are exposed and monitored. But will we understand the key issues?

Think of it this way: When you get a new credit card, with its pages of terms, or install new PC software, which demands the acceptance of screens’ worth of conditions, merely having all the fine print doesn’t mean you will understand what you’ve agreed to when it matters.

Shedding light

As we continue in a period of constrained budgets and anxious audiences, winning clients and commitments means more than just disclosing – one has to enlighten.

The best example of enlightening financial reporting we heard all year came not from a newspaper or industry report but from a radio program aimed at nonfinancial audiences: National Public Radio’s This American Life. In a one-hour episode last spring, “The Giant Pool of Money,” the hosts of a show that normally tells stories of ordinary folk attempted to break down the fiscal crisis into terms understandable to the general public.

While explaining such concepts as collateralized debt options and credit spreads, the program assumed the audience’s capacity for intelligence; yet it eschewed jargon and left listeners better informed. So admired was the show that, when the most recent wave of the crisis hit in September, countless news websites pointed bewildered citizens toward the months-old program, and the NPR team quickly recorded a sequel to explain the latest goings-on.

While the established pillars of public discourse were demanding disclosure, This American Life satisfied a thirst for enlightenment. The series adhered to some simple but enduring communications best practices: using plain language, clarifying context through narrative, and respecting the audience.

Keep it meaningful

Strong communications – from a well-delivered radio program to a business presentation – are those grounded in clearly articulated core messages. Rigorous message discipline, achieved by reinforcing the main idea at every level, benefits key decision-makers and increases clarity.

To us, transparency is important but not the ultimate goal. The amount of disclosure should be relative to the message, and it should support what’s meaningful.

Our wish for the new year is not for more information, but better information. Let’s keep perspective and demand from ourselves what we hope for from our leaders in government and finance: greater clarity.

Fear of Freshness
How to respond to market demand for crisper communications
Simplicity for Sophisticates
Making disclosure more readable will be vital in the post-reform era
Lost in Transparency
Disclosure is not enough - financial reform must also mandate clarity
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