Do Corporate Boards Have to Report on the Use of AI? - Boardroom News

Do Corporate Boards Have to Report on the Use of AI?

Corporate boards have a duty to inform their stakeholders, especially when that board is part of a publicly traded company. They provide information about the company’s financial performance, governance structure, risk management policies, and key operational decisions. But to what extent should shareholders expect boards to report on the company’s use of artificial intelligence?

How AI Is Changing the World of Business

First, it’s important to understand just how much AI is impacting the world of business. Companies are now using AI-powered tools for a range of applications, including:

  • Customer-facing AI-powered chatbots
  • Generative tools to create marketing copy, images, video scripts, and more
  • Automated accounting tools to process accounts payable/receivable
  • Supply chain optimization and route optimization
  • Inventory management and predictive analytics for replenishment
  • Data analysis and the identification of key trends

To be clear, these applications only scratch the surface of how AI is transforming the business landscape. Given the accelerated pace at which AI-powered technologies are advancing, companies might expect to see an increased reliance on AI in the very near future.

Understanding Shareholder Concerns Over AI

Understanding Board Effectiveness as the Key to Good Governance

Given these benefits, why might shareholders be concerned about a company’s use of AI?

For some, the concern is primarily technological: can AI-powered systems really produce and synthesize accurate data to govern business decisions?

After all, if companies are using AI to produce and analyze financial data, there may be concerns about whether they are reporting their metrics to shareholders accurately.

Others have ethical concerns about the rise of AI. With AI streamlining so many business processes, could this technology be reducing the number of available jobs? For that matter, might companies who use AI to guide their decisions be lacking in empathy and human reasoning?

Still others have legal concerns about AI. For starters:

  • Could AI systems represent another opportunity for a data breach?
  • And if a company uses generative AI to produce marketing content, or even an image, who owns the rights to that content?

Current Law Surrounding Reporting

Under current law, publicly traded companies are under no obligation to report the use of AI technology to their shareholders. However, the use of AI has a direct impact on the company’s operations and performance, which may make this information particularly valuable to shareholders, especially given the concerns regarding ethics and privacy.

Additionally, shareholders are beginning to expect — if not demand — that companies reveal more about their use of AI. For example, investment firm Arjuna Capital has acted on behalf of one of its shareholders by asking Microsoft to “report on risks” associated with generative AI. The company currently plans to produce a transparency report in June 2024.

Companies that invest in AI commonly report its use during earnings calls and other investor communications. According to data published by Reuters, the number of AI mentions in S&P 500 analyst calls has risen exponentially from the third quarter of 2021 to the second quarter of 2023. Corporate boards can demonstrate leadership and build goodwill among present and future shareholders by pursuing transparency with regard to AI. 

How Boards Can Report on the Use of AI

Corporate board members can work to determine the best way to communicate with their shareholders regarding the adoption of AI. The following are some considerations for the best practices to communicate the use of AI technologies in your organization.

Communicate Internal Controls

First, start by communicating what internal controls you’ve already established to govern the use of AI. For example, do you have policies regarding the use of generative AI in your marketing content? Do you use the right security software to protect your company or customer data?

You can use this as an opportunity to communicate to your shareholders how your company plans to enforce these rules internally. At the very least, this will help shareholders feel that you understand and share their concerns.

Consider Your Board Composition

Chances are that you may already have someone on your board who is championing the adoption of AI technology. But does your board currently have anyone with the knowledge or experience to address the risks associated with AI? 

If not, you might consider how you plan to address these issues in the immediate future. Communicating to shareholders that you intend to take leadership on these concerns can go a long way toward building greater transparency. 

Complete a Risk Assessment

If you’ve already integrated AI into your core business processes, it may be helpful to perform a risk assessment to identify areas of potential risk. This can include concerns over data safety or even concerns about ownership of content when using generative AI tools.

A thorough risk assessment will also highlight the ways in which AI might impact your workforce. Will AI alter the makeup of your workforce? If so, how? For example, will you be considering layoffs or retraining now that you’ve invested in AI technology? 

Compare Your Company to the Competition

You’re hardly the only company to adopt AI technology. Your competitors are using all the same tools that you are — if not more. Will this increase the pressure on your company to accelerate the use of AI?

This is an important question to ask, because the way you interact with AI may also impact your third-party suppliers or business partners. Addressing these issues may communicate to shareholders your intention to maintain current supplier relationships, which likewise reflects your company’s long-term operations.

Calculate the Impact of AI

Given the concerns raised by shareholders, it may help to highlight the positive impact that AI has on your bottom line. For example, adopting automated tools to streamline your procurement process may allow you to expand your customer volume while reducing operating costs.

Investors aren’t purely motivated by money. However, these financial benefits are sure to attract or retain shareholders who might otherwise be skeptical about the use of AI.

The Continued Call for Transparency

AI technology is not going away. On the contrary, it’s accelerating at speeds never before predicted. Adopting AI can streamline your core business processes, but as the future unfolds, corporate boards will have to take extra steps toward transparency in all their operations.

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