How transparency killed transparency

It's a dirty little--well, it's not a secret, really, because it's generally known among corporate legal types that government efforts to maximize transparency in publicly traded corporations has actually made them less transparent. Like I used to teach in my law school classes, the issue is information design and in particular, attention management. Datafloods and shrewdly worded boilerplate can be technically accurate yet thoroughly misleading, not just to the average reader but to the well-trained specialist.

The American offers a concise and accessible summary of the problem. Its particular focus: how Sarbanes-Oxley has made the problem worse.

“In an era where average citizens are being asked to take more responsibility for their financial futures, bulky documents and hard-to-use online formats are a barrier to their ability to succeed,” says Dominic Jones, an investor-relations consultant and founder of the IR Web Report. “In my opinion, compliance is only one half of effective disclosure. Clear communication is the other half. But we’re seeing less communication since Sarbanes-Oxley.”

And this isn’t just about annual reports being less user-friendly than in the past. Beyond that, Sarbanes-Oxley might be making America less investor-friendly. It would certainly be a shame if another unintended consequence of Sarbanes-Oxley was that individuals soured on investing just at the time when the stock market might be part of the solution for creating a post-Social Security retirement and savings system.

It's a valuable object lesson for the push for increased transparency for nonprofits and other do-gooders. We must be careful not to confuse the means with the end--our overall aim is to maintain trust, not to drown people in numbers.