Is there a hotter topic in the business world than AI? AI offers huge opportunities for advancement and productivity gains, but it also poses huge risks.according to factset, 179 S&P 500 companies used the term “AI” in their Q4 2023 earnings calls. This is significantly higher than the five-year average of 73 companies. Among these companies, the “average number of times 'AI' was mentioned at financial results briefings'' was 13 times; The median number of times was 5. The term “AI” was mentioned more than 50 times in the earnings calls of nine S&P 500 companies. ” Similarly, bloomberg ” is reported.[a]At least 203 (41%) of S&P 500 companies mentioned AI in their most recent 10-K report. Bloomberg Law”Reviews found. This is up from 35% in 2022 and 28% in 2021. The majority of disclosures focused on the risks of the technology, while others focused on the benefits to the business. “One of the many challenges AI poses concerns corporate governance aspects, particularly board oversight, a topic addressed in his recent paper from ISS.'' AI governance appears on corporate radar. For the paper, ISS will be working from September 2022 to 2023 to “assess how boards will evolve to manage and oversee this new area of potential risks and opportunities.” We examined discussions of board oversight and directors' AI skills in proxy statements filed by S&P 500 companies through September 2019.
Board of Directors Oversight
What is an indicator of “board oversight”? For the purposes of this analysis, ISS deemed these proxy disclosures to reflect oversight of AI. During the year, (2) at least one board member has expertise in the field of AI, or (3) the company has established an AI ethics committee or similar governing body tasked with overseeing AI-related topics. ” ISS did not include references to AI in business strategy or executive officer expertise as a sign of oversight. The distribution of these three categories may surprise you. According to ISS research, among the S&P 500, “13% of companies have at least one director with AI expertise on their board, compared to 13% of companies with clear oversight of AI by boards or committees. 1.6% of companies are doing so, compared to 0.8% of AI ethics committees. ”
According to ISS research, more than 15% of S&P 500 companies have disclosed their board of directors' oversight of AI, including 38% in the information technology sector, 18% in the healthcare sector, and 15% in the communications services sector and consumer sector. It was a discretionary sector company. Sector. ISS expects clearer disclosure about board oversight in these areas in the future.
Whole Board/Committee. According to ISS research, disclosure of AI oversight by the entire board or committee is far from common among S&P 500 stocks, with only 1.6% of S&P 500 stocks making specific disclosures. It's just that. Companies in the financial sector most frequently disclosed AI oversight responsibilities at the board-wide or specific committee level (4.2%), followed by infotech and healthcare at 3.0%, and industrials at 1.3%. When a board committee is assigned responsibility for AI oversight, that responsibility is often delegated to an existing committee, such as an audit committee, and more recently may also have been delegated responsibility for cybersecurity oversight. ISS has observed that there is. (All of this may explain why audit committees are often referred to as the “board kitchen.” See this PubCo post.) Other committees with AI oversight responsibilities includes a dedicated technology committee, a committee that oversees public policy issues, and/or environmental and social risks, regulatory issues, privacy or risk management.
Regarding the attribution of board oversight to the ISS as a result of references to board or committee discussions on AI, ISS notes that “some companies may “We found that most companies' disclosures simply disclosed that:” “Boards should constantly assess the competitive environment and make sure that the company's We are responsible for keeping pace with our business and technology investments.”
Director's expertise. ISS found that board expertise is “the most common evidence that a board is prepared to oversee AI-related risks and opportunities.” What were the evidence of board expertise? ISS analysis included current or past employment with companies related to AI or the AI industry, positions related to AI, directors of companies in AI or related industries, and AI certifications. Qualifications, including members of committees or boards that oversee AI. To no one's surprise, the infotech sector is at the top, with 30% of S&P 500 infotech companies having at least one board member with AI-related expertise, followed by the consumer products sector (mostly automotive and parts). and the healthcare sector (mainly equipment and services). Both sectors have at least one director with AI expertise on 15% of their boards.
AI Ethics and Review Board. Although not board-level oversight, ISS calls the formation of a multidisciplinary ethics committee or review committee to oversee AI a sign of “a systematic and organized oversight mechanism for this emerging technology.” It was deemed that there was. ISS found that this type of board is disclosed in two areas: telecommunications services (5%) and information technology (4.5%). A common element identified by ISS in these committees was “the existence of a multidisciplinary group to ensure an ethical approach to AI.” More specifically, with respect to communications services, disclosures to the AI Ethics Committee were part of the risk assessment framework, as were disclosures to the board's audit committee. ”
conclusion
ISS notes that as AI expands, institutional investors will need to ensure that companies, particularly those in industries more impacted by AI, “are aware of the risks and opportunities of AI, including disclosure of relevant board skills and oversight responsibilities.” “We may expect the board to establish appropriate processes for oversight.” ” ISS says at least four shareholder proposals have already been submitted this season calling for “improved transparency regarding the use and impact of AI technology.”
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