How many companies are disclosing their board oversight of AI?
Just after I read about Salesforce’s new “Sustainable AI Policy Initiatives,” I read this blog by Cydney Posner about how hot AI is in the corporate world. Here is the intro from that blog:
Is there a hotter topic in the business world than AI? AI offers major opportunities for progress and productivity gains, but substantial risks as well. According to FactSet, 179 companies in the S&P 500 used the term “AI” during their earnings call for the fourth quarter of 2023, well above the 5-year average of 73. Among these companies, “the average number of times ‘AI’ was mentioned on their earnings calls was 13, while the median number of times ‘AI’ was mentioned on their earnings calls was 5. The term ‘AI’ was mentioned more than 50 times on the earnings calls of nine S&P 500 companies.”
Similarly, Bloomberg reports that “[a]t least 203, or 41%, of the S&P 500 companies mentioned AI in their most recent 10-K report, Bloomberg Law’s review found. That’s up from 35% in 2022 and 28% in 2021. A majority of the disclosures focused on the risks of the technology, while others focused on its benefit to their business.” One of the many challenges that AI presents is on the corporate governance front, in particular board oversight, a topic addressed in this recent paper from ISS, AI Governance Appears on Corporate Radar. For the paper, ISS examined discussions of board oversight and director AI skills in proxy statements filed by S&P 500 companies from September 2022 through September 2023 to “assess how boards may evolve to manage and oversee this new area of potential risks and opportunities.”
Board Oversight
What are indicia of “board oversight”? For purposes of this analysis, ISS considered these proxy disclosures to reflect oversight of AI: “(1) the full board or a specific committee either has oversight responsibility of AI or AI was mentioned as one of the topics evaluated by the board or the committee during the year, (2) at least one director has expertise in the field of AI, or (3) the company has established an AI ethics board or a similar governing body tasked with overseeing AI-related topics.” ISS did not include as an indication of oversight references to AI in business strategy or executive officer expertise. You may be surprised at the distribution among these three categories: ISS found that, among the S&P 500, “13% of companies have at least one director with AI expertise on the board, compared with 1.6% with explicit board or committee oversight of AI and 0.8% with an AI ethics board.”
ISS found that over 15% of companies in the S&P 500 disclosed board oversight of AI, including 38% of companies in the Information Technology sector, 18% of companies in Health Care and 15% of companies in each of the Communication Services and Consumer Discretionary sectors. ISS expects more explicit disclosure about board oversight in these sectors in the future.