It's been a little more than a year since ChatGPT had a major impact on business and society at large, and questions about AI safety are pressing for investors heading into the 2024 proxy season.
Several AI-related shareholder proposals have been prompted by growing concerns about the risks that rapid advances in the field pose to core institutions and the fundamentals of democracy and human rights.
The roughly 20 proposals submitted since the end of last year primarily target companies that are ushering in the age of AI, including Alphabet (Google), Amazon, Apple, Microsoft, and Metaplatform. The signatories are calling for greater transparency about how this technology is applied, as well as disclosure of ethical guidelines governing its use.
Financial and governance experts say these proposals tend to come from more socially-minded members of the investment community, but their concerns about the impact of AI use reflect broader shareholder sentiment.
Courtney Keating is senior director of ESG research at proxy advisory firm Glass Lewis. She called the situation “just a matter of investors getting a better understanding of how companies are using AI and being able to better communicate how companies are using AI.” '' he summarizes.
Of course, this is easier said than done. Companies appear reluctant to respond to investor demands by expanding on the voluntary disclosures some already make. However, given the growing public pressure on Big Tech to be more open in this regard, more formal reporting of AI-based activities is likely.
Pressure grows for AI disclosure
Investors are not the only ones demanding better governance and greater transparency. Various authorities aim to create standards covering the use and development of AI.
The most far-reaching so far is the EU's artificial intelligence law, approved by the European Parliament in March. This law aims to ensure fundamental rights and security regarding AI systems. This applies to AI-based tools sold within the EU, regardless of the location of the creator.
Expect increased regulatory oversight and perhaps tighter disclosure standards and requirements over time
In February, the UK government announced its long-awaited plan to regulate AI. The plan is built on core principles such as transparency and accountability and does not mandate legislation.
Last October, President Biden issued an executive order ordering federal agencies to develop guidelines on the use of AI. A number of related bills are currently under consideration in the US Congress.
“I'm really surprised at how quickly this is happening,” said Heidi Welsh, executive director of the Sustainable Investment Institute, a Washington, D.C., nonprofit that tracks ESG-related proposals. “Typically, in corporate liability matters, things get going for a few years, and then the direction slowly emerges.”
Big workforce takes on big technology
But it's probably not fast enough for some, including the AFL-CIO. The American Federation of Labor has adopted shareholder activism as a way to stop the spread of AI. The company has submitted six proposals to companies including Netflix, Walt Disney Co. and Warner Bros. Discovery, asking for disclosure and ethical guidelines.
The role of AI in film and television production emerged as a controversial issue in last year's labor dispute between creative unions such as the Writers Guild of America and major Hollywood studios. While the final settlement included protections for workers, the uproar caused by the recent release of OpenAI's text-to-video tool, Sora, has left the industry over the role of AI in the creative process. This suggests that the conflict may recur.
Another focus of recent AI proposals is that the technology could amplify misinformation and disinformation, posing a threat to democracies around the world, especially at a time when several major elections are looming. That's it. With this in mind, activist investment firm Arjuna Capital has asked many large tech companies to issue annual reports on the risks posed by promoting misinformation and disinformation and how they are addressing the issue. I called out.
Deviate from investor AI demands
In its formal response to Arjuna Capital's proposal, Microsoft said it already has appropriate policies and practices in place to manage such risks. Among other disclosures, it mentioned a new annual report on AI governance practices that it plans to publish by the end of this quarter, building on a commitment made at the White House's Major Developers Conference in July 2023.
This is a question for investors to better understand how companies are using AI.
Microsoft, which invested $10bn (£8bn) in OpenAI last year, also downplayed the disbandment of its ethics and social team last year, saying it still had nearly 350 people working to ensure the responsible development of AI. He pointed out that there was.
Their responses broadly reflect those of other companies that have received AI-related proposals. The general message is that appropriate safeguards are already in place to ensure the safety of AI and are in line with recent government initiatives in this area.
So far, two AI proposals have been voted on at the annual general meeting. The AFL-CIO's call for ethics disclosure from Apple received support from 37.5% of investors. Meanwhile, at Microsoft, 21.2% supported Arjuna Capital's AI misinformation proposal.
Although neither proposal received the majority approval needed to pass, Wales said he was encouraged by the results, especially Apple's vote, given that the debate is so new.
Bringing AI to your board
The issue is also gaining attention from larger, traditional asset management firms. An EY survey of governance professionals working at these institutional investors, published in February, found that responsible AI has emerged as an “engagement” priority this year, with respondents It was found that 19% cited it.
A study published last year by ISS-Corporate, part of proxy voting advisor Institutional Shareholder Services, found that as of September 2023, most companies providing some information in their proxy statements regarding board oversight of AI The S&P 500 accounted for only about 15%.
Two shareholder proposals were submitted this year to Alphabet and Amazon, respectively, aiming to improve this ratio. One is an opinion from Trillium Management, a socially responsible investor, urging Alphabet to formally authorize the board's audit and compliance committee to oversee the company's AI activities and implementation of the AI Principles. I asked for it. The other, filed by the AFL-CIO, calls on Amazon's board to create a new committee to address the perceived risks to human rights posed by the company's AI-based systems. Ta.
Companies do not yet have clear guidelines or disclosure requirements regarding AI in financial reporting, but that will change as the technology becomes increasingly important to their businesses. says Severine Neervoort, global policy director at the nonprofit International Corporate Governance Network.
“We expect to see increased regulatory oversight and perhaps tighter disclosure standards and requirements over time,” she predicts.
The U.S. Securities and Exchange Commission's recently issued cyber risk disclosure rules signal a possible future for AI reporting, Keating said, adding that regulators' approaches to cybersecurity issues will become “natural.” We expect it to expand.”
Nevertheless, she acknowledges that new SEC rules regarding AI-related disclosures are likely still some time away, given the painstaking nature of the regulatory process.
