Why corporate disclosures must be clear

• Complex corporate disclosures create unfair information asymmetry
• SEBI seeks better transparency for retail investors and governance
• Simplified formats aim to make disclosures easier for clients to read

The word “disclosure” often brings to mind dense, jargon-filled documents buried on a corporate website. But what if they were clear, concise, and easy to understand? This isn't just a matter of convenience; it’s a fundamental issue of fairness.

The Current State of Confusion

In theory, disclosures are meant to create transparency, giving investors, consumers, and regulators a clear view of a company's health, risks, and operations. In practice, they often achieve the opposite. Key information is frequently shrouded in complex legal and financial jargon, spread across hundreds of pages, and designed more to shield a company from liability than to inform the public. This culture of complexity creates a two-tiered system: one for the financial analysts and lawyers who can decode the documents, and another for everyone else. This information asymmetry puts retail investors at a significant disadvantage and erodes the very foundation of trust that markets are built on. When information is technically public but functionally incomprehensible, it fails the basic test of transparency.

Specificity Is a Form of Honesty

Vague language is the enemy of accountability. A disclosure that mentions “potential market risks” without detailing what they are is not a disclosure; it’s a deflection. True transparency demands specificity. This means providing concrete numbers, clear timelines, and explicit descriptions of related-party transactions, risk factors, and accounting policies. When a company is specific, it gives stakeholders measurable benchmarks against which they can judge performance and hold leadership accountable. India’s market regulator, SEBI, has pushed for more specific disclosures, particularly around areas like related-party transactions and the use of funds from public issues, recognizing that clarity is crucial for corporate governance. Honesty in business communication isn't just about not lying; it's about providing the complete, specific truth.

Readability for the Retail Investor

Financial and legal documents do not need to be unreadable. The movement for “plain language” in professional communication is built on a simple but powerful idea: information should be accessible to the person who needs it. A recent study found that when financial products are described in complex language, people perceive them as more morally questionable than the exact same products described simply. This suggests that jargon doesn’t just confuse people; it actively breeds distrust. Companies and portfolio managers should be writing for a reasonably intelligent individual, not for a supercomputer. This involves using shorter sentences, defining technical terms, and logically structuring information. It’s not about “dumbing down” content; it’s about respecting the reader’s time and their right to understand information that affects their financial well-being.

Making Information Easy to Find

A brilliant, clear, and specific disclosure is useless if nobody can find it. Transparency requires accessibility. Important information shouldn't be hidden in an obscure corner of a website or buried as a footnote on page 197 of a prospectus. Regulators are beginning to address this. For instance, SEBI’s recent move to simplify the format for disclosure documents for portfolio managers, splitting them into 'static' and 'dynamic' sections, is a step toward making information more manageable and easier to navigate for clients. This principle should be applied more broadly. Critical disclosures should be prominently featured, easily searchable, and presented in formats that are user-friendly on both desktop and mobile devices. The goal should be to empower stakeholders, not force them into a scavenger hunt.