Boards Face Shareholder Proposals And Internal Questions About Artificial Intelligence

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Boards should consider how the company will communicate and enforce AI governance rules and policies internally, and ask three key questions.

Shareholders are beginning to pressure corporate boards to reveal more information about the potential risks artificial intelligence (AI) might have on the companies they invest in.  While most people agree that the use of generative AI holds great potential to improve business productivity and efficiency, some shareholders have become increasingly concerned about the potential risks AI could pose to individual businesses and the general public. Corporate board members may need to prepare a response if shareholders raise issues about the company’s use of AI.      

Sustainable investment firm Arjuna Capital recently submitted a proposal to Microsoft on behalf of one of its shareholders asking the company to “report on risks associated with the misinformation and disinformation generated and disseminated via its generative Artificial Intelligence (gAI) and plans to mitigate these risks.”

Microsoft developed the popular AI platform ChatGPT with OpenAI. The technology has not had a perfect record when providing answers to questions from users, prompting major concerns from many stakeholders. In a press release, Arjuna Capital stated that “Microsoft shareholders are concerned about the long-term reputational and financial risks that gAI poses to the company,” adding that, “Microsoft may be vulnerable to future legal scrutiny of mis- and disinformation produced by its own gAI tools.”

The Microsoft board said the company has already fulfilled its obligation for transparency with commitments for current reporting and will produce an annual transparency report in June 2024. The Arjuna proposal was defeated at the company’s annual meeting in December.

Since the use of artificial intelligence is in its early stages, any company that uses generative AI in a significant way should expect to receive similar proposals in the near future. In the Spring, investors at Alphabet and Meta Platforms are expected to vote on similar AI proposals at their annual meetings. More are sure to follow.

Corporate board members should begin determining how they will communicate with shareholders about these types of proposals. They might also want to consider how the company will communicate and enforce rules and policies around AI governance internally. There are other questions connected to AI that boards will need to consider:

• Is there anyone currently on the board or the management team that has the proper knowledge and experience to lead the company’s efforts to assess the true risks and opportunities connected with generative Artificial Intelligence? (If not, how will this be addressed?)

• Has the company done a comprehensive assessment of how incorporating generative AI into business practices and operations will impact the makeup of the company workforce? (Will layoffs or re-training be necessary, and how will that affect the company bottom-line?)

• How will the increased use of artificial intelligence by competitors impact your company in the future? Will your company need to adapt its products and services in order to compete? Will your third-party suppliers be negatively impacted by AI in any way?

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