The conventional standard for judging whether government is "open" is the quantity and type of information it makes available to the public. Likewise, laws that require companies to share information with investors or consumers tend to measure compliance by whether mandatory disclosures are made.
And yet any casual reader of a Federal Register notice or corporate filing knows that ineffective disclosures can undermine the civic and protective aims of a responsible government. Too much information is overwhelming. Poorly presented information creates confusion. Gratuitous complexity sows distrust.
The dangers of information overload are only bound to increase in an age when technology enables the automatic production and release of ever more massive quantities of data. We need a better standard for determining whether the government and the markets it regulates are fulfilling their obligations to communicate openly with the public.
That's why in addition to measuring openness by outputs (how much and which information is disclosed), policymakers and regulators should begin measuring transparency by outcomes: whether the information is comprehensible and useful. A "comprehensibility standard" could be applied in almost any context where the government publishes or regulates information, from the federal rule- making process to student loan servicing to consumer contracts.
Progress and Promise
There are promising moves in this direction. President Obama's regulatory czar, Cass Sunstein, directed agencies in 2010 to mandate simple disclosures that "avoid undue detail or excessive complexity," and to present information to users "when they need it," not when it's convenient for bureaucracy or industry. The 2010 Plain Writing Act, which takes full effect in October, requires communication to be "clear, concise, well-organized" and presented in a way "that the public can understand and use."
Some agencies are taking the lead in testing outcomes. The new Consumer Financial Protection Bureau is subjecting revamped mortgage disclosures to consumer testing before beginning the formal rule-making process. "We think the CFPB is on the right track in terms of building in that consumer testing on the front end to make sure they convey the desired information," says Barbara Roper, director of investor protection with the Consumer Federation of America.
Likewise, a radical simplification of the Internal Revenue Service's automated taxpayer correspondence system, informed by user testing, promises to speed dispute resolution and reduce calls to customer service lines. And the Education Department's financial aid division has created a chief customer experience officer to "simplify and improve" college loan applications and to provide a "simpler, more straightforward experience" for borrowers.
Simple Is Not Easy
Making things simple is not simple, however. Consider the new "plain English" disclosures the Securities and Exchange Commission now requires of money managers. Thanks to a new rule, the revamped brochures are available to the public in one searchable database.
They represent one of the most important investor protection initiatives in decades, according to SEC Commissioner Elisse B. Walter. Indeed, they are a major step forward by the federal government in helping investors make informed choices about perhaps the single most important financial decision they make: Whom to entrust with their money.
Unfortunately, the new Form ADV Part II disclosures are also an abject lesson in missed opportunity. They're still too hard to understand, cumbersome to navigate, and likely will continue to be ignored by the very people they're intended to help-unless the SEC releases the data in a more user-friendly way.
In a new paper out in October, "When When Words Get in the Way," the Center for American Progress urges SEC to apply outcome tests to these and other government disclosure regimes.
The commission should use its newfound authority under the 2010 Dodd-Frank financial reform law to test investors and determine whether the new disclosures are comprehensible or useful-and improve them accordingly. And it should vigorously enforce its plain English requirement, penalizing money managers who fail to explain their business practices and conflicts of interest in a way that the average investor can understand.
"The name of the game, as we all know with regulation, is enforcement," says William Lutz, a retired English professor who led a yearlong SEC disclosure initiative during the Bush administration. "If people never got pulled over for running red lights, how many people would stop for them? Go to Paris and you'll find out."
The Aunt Edna Test
For markets to function well, all participants must have access to useful and understandable information. Sometimes good disclosure means more information. Sometimes it means less. The only way to know for certain whether and when a document is effective is to test it on its intended audience.
Or you could ask Aunt Edna. That's what former SEC Chairman Arthur Levitt, who presided over a plain English initiative at the commission, does when trying to figure out whether a piece of communication is comprehensible.
"I just think of my Aunt Edna," he says. "Can Aunt Edna understand it? If she can't, you've got to rewrite it. That's a reasonably good test."
Gadi Dechter is associate director of government reform at the Center for American Progress.