May 08, 2024

Shareholder Activism Over AI Amplifies the Need for Meaningful AI Governance

General Counsel By Steven Aquino
Graphic depiction of AI network

Artificial intelligence is flourishing – along with the public’s understanding of its benefits and pitfalls. With its efficiencies and breakthroughs come ethical and intellectual property issues, potential misinformation and “hallucinations,” data privacy concerns and transparency and disclosure challenges.

Rising Shareholder Demands for AI Oversight

Shareholders at media and tech giants are noticing these risks and have started to push for more transparency and governance over companies’ use of AI. Over the last two quarters, investors and labor groups at companies like Amazon, Meta, Alphabet, Apple, Microsoft, Warner Bros. Discovery, and Netflix have made proposals for the adoption of a number of AI-focused guardrails, including forming an AI committee, risk reports, and creating board oversight of company AI use.

While many of these companies have pushed back on the measures, Disney agreed to additional disclosure about its AI use, and several of the proposals are still up for a vote at the companies’ upcoming annual meetings.

The Implications of Neglecting AI Governance

What’s particularly interesting from a corporate governance perspective about this shareholder activism is that it hints at the potential liabilities corporate boards and executives face if they fail to implement internal policies and controls over their companies’ use of AI.

Frequently, these types of shareholder initiatives wind up being the predicate to lawsuits.  As we’ve argued, directors and officers at public companies must implement robust supervision of AI – and especially Generative AI – in order to fulfill their fiduciary responsibilities to their shareholders.

That supervision, at bottom, should include AI-specific board committees, AI use policies, and ongoing AI-focused trainings. When boards and C-suites bristle at these steps, they don’t only put their constituents at risk, but their own personal liability.

The Broader Corporate Impact of Shareholder Activism

If shareholders from the companies we’ve mentioned – a small group, for sure, but one with a collective market cap in the trillions – start calling for AI governance, it’s a safe bet that call will start to echo throughout the corporate world.

So what are now shareholder proposals should, we believe, become a non-negotiable part of the modern public company function.