AI Governance Appears on Corporate Radar

Below is an excerpt from ISS-Corporate’s recently released paper “AI Governance Appears on Corporate Radar”. The full paper is available for download from the ISS-Corporate online library.

KEY TAKEAWAYS:

• Only about 15% of companies in the S&P 500 provide some disclosure in proxy statements about board oversight of AI.
• Disclosure of board oversight of AI and directors’ AI expertise is primarily found in the information technology sector, with 38% of companies providing some level of board oversight disclosure. 
• 13% of S&P 500 companies have at least one director with AI-related expertise.
• As AI becomes a material factor for many companies, investors may start to demand that companies not only disclose relevant board skills and oversight responsibilities but also enhance disclosure on AI.

Introduction

Artificial intelligence (AI), the use of technology to execute or simulate processes that would otherwise require human intelligence, is quickly evolving. Companies have begun to use the rapidly expanding technology to help achieve efficiency, increase competitive advantages, and enhance engagement with stakeholders. Early adopters are implementing AI in a variety of ways, such as sales/marketing, product development, and legal.

However, while AI may provide unique opportunities for companies, there are significant risks and challenges surrounding its implementation. Mentions of AI are up by 77%,[1] and many companies are beginning to cite AI as a risk.[2] Given these circumstances, the White House has taken the first step in regulating this technology by issuing a sweeping executive order on AI on October 30.

Reflecting the rising importance of AI’s impact on businesses, some companies are recruiting directors with AI expertise and establishing board-level oversight. To assess how boards may evolve to manage and oversee this new area of potential risks and opportunities, ISS-Corporate examined S&P 500 company DEF 14As filed from September 2022 through September 2023 for mentions of board oversight and director skills related to AI.

READ THE FULL PAPER >

[1] “AI Is the Hot Topic on Earnings Calls This Quarter,” Jennifer Ryan, May 5, 2023, Bloomberg L.P.
[2] According to a Weil, Goshal & Manges report, more than 100 companies in the S&P 500 include AI risk disclosure in their Form 10-Q/10-K.