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Our Take on AI

| 1 minute read

What Should Public Companies Disclose about AI Risk?

One of the challenges facing public companies entering the artificial intelligence (AI) era is what to disclose (and when) regarding possible risks related to AI. Examples of recent AI risk factors can provide guidance to public company lawyers as to disclosure issues and trends to consider.

As summarized in the linked Intelligize article, a number of public companies are including AI risk factors in their public filings. Disclosures range from Ziprecruiter warning of potential reputational risks of using AI to Lemonade Inc. warning that its proprietary artificial intelligence algorithms “may not operate properly or as we expect them to".

Some key takeaways to remember when considering potential AI risk disclosures to make:

1 — Although there are currently no mandatory AI-related disclosures imposed on public companies, the touchstone in considering risk factors to disclose remains materiality to the company’s business.

2 — Materiality analysis of AI risk disclosure remains a review of the company’s core business, facts and circumstances, and the likelihood of being viewed by a reasonable investor as having significantly altered the “total mix” of information.

3 — Depending on those circumstances, public companies should be focused on potential disclosures relating to issues such as increased AI regulation, competition from AI, intellectual property rights, reputational impact and errors in AI models.

At least for now, risk factors like IP, accuracy, inadvertent discrimination, and others send a clear message that while issuers acknowledge AI’s potential, they believe there must still be a human mind reviewing its output and decision making.


public company disclosure