Recapitalization plans are not exactly a piece of cake. Difficult to engineer, they’re even more complex to explain to those outside the financial world. So when Ford Motor Co. needed to communicate to its 725,000 shareholders its market recapitalization proposal in its July proxy statement, the legal department faced a daunting task.
If the plan was accepted, every investor would receive one new share of stock and their choice of cash, additional stock, or a combination of the two. Cash was the default option, but the choice had tax implications that Ford wanted to alert its shareholders to. “It was a very complicated plan and it was very important to us that we use plain English to communicate it to our shareholders as clearly as possible,” said Ford counsel- corporate and assistant secretary Kathryn Lamping.
Plain English? It might sound like a shocking idea coming from an attorney, but happily for Ford investors, the legal department was already quite fluent in plain English, a language style generally defined by shorter sentences and words, active voice, and easily digestible graphics. Ford was a first-mover on the SEC’s 1998 directive to use plain English in prospectuses, and carried the initiative through to its other SEC filings. In fact, it basically tore up its proxy template in 1997 and worked with a consultant to create a new proxy with more clarity. Ultimately, the initiative won them the Michigan State Bar’s annual “plain English” award.
So, although the market recapitalization plan presented some new challenges, Ford counsel was able to apply many of the lessons they’d learned over the past 3 years, such as using a question-and-answer format with headings like, “Why is Ford proposing the recapitalization plan?” and “What do I need to do with the election and transmittal form?” Short, simple sentences and bulleted lists made the document even easier to read.
Judging by the response, the straight-forward approach worked. Nearly 90 percent of eligible shareholders voted, approving the measure with an 86 percent majority at an August 2 meeting. Even the plan’s opponents, like TIAA/CREF, lauded its presentation. “It was honest”, says TIAA-CREF director of corporate governance Ken Bertsch, and it pointed out potential concerns for investors in addition to the expected benefits of the plan. “[Ford] set the issues up front and had a good summary about what they were, with more detail in the body if you wanted it, which was also clear,” he says.
Improved investor relations is just one of the fringe benefits Ford has realized in going the extra mile on the 1998 SEC rule, which only requires plain English on the cover page, summary, and risk factor sections of prospectuses. (http://www.sec.gov/rules/final/33- 7497.txt) . Lamping says plain English has made it much easier to explain benefits plans to employees, as well as lease arrangements to customers. “I think the important point to note is that once you adopt a corporate writing style, it becomes the mindset— regardless of what type of communication it is,” adds Ford’s assistant general counsel and assistant secretary Peter Sherry, Jr.