TheCorporateCounsel.net

If your leadership team is in the midst of considering the impact of AI on your business – which many are – it may be time to ask, “What, if anything, should we say about this in our SEC reports?” If you raise that notion, you also inevitably will be asked, “What are our peers doing?” This 14-page Weil memo will give you a great head-start on that analysis. Based on an informal survey, it says that over 40% of S&P 500 companies and 30% of Russell 3000 companies included AI-related disclosures in their Form 10-K this year. The Weil team also looked at 10-Qs and proxy statements.

The memo shares examples of how tech-based companies – as well as companies outside of the tech sector – are discussing the impact of AI in response to various disclosure line items. It also shows common risk factors that are being updated to reflect AI risks, and notes that some companies (mostly in the tech industry) are adding standalone risk factors – again, with a sample. The memo urges companies to take these steps to enhance AI disclosure compliance:

– Conduct a Thorough Review. Reexamine the company’s AI-related disclosure to ensure that disclosures are accurate, and consider whether additional disclosures are necessary given this emerging disclosure trend and the SEC’s disclosure requirements.

– Assess Material Impact. Identify foreseeable AI issues that could affect your company’s performance and that may be material to an investor’s understanding of your company’s business and financial condition.

– Update Risk Factors. Consider areas of risk related to AI and, for calendar fiscal-year end companies update risk factors in the upcoming Form 10-K to be filed in 2024. Risks should be specific to the company and should not be presented as hypothetical if the risk actually has materialized itself.

– Consider Featuring Management Expertise. Consider whether to highlight management’s experience with AI, particularly as it relates to cybersecurity. As a reminder, new Item 106 of Regulation S-K requires in Form 10-K a description of management’s role in assessing and managing material risks from cybersecurity threats.

– Monitor Regulatory Developments. Stay vigilant to regulatory developments related to AI to ensure ongoing compliance and evaluate for disclosure in SEC filings.

Going beyond disclosure, the memo also suggests steps to take to approach the corporate governance aspects of AI issues and to ensure that you have the right company policies in place.

While we’re on the topic, take a minute to participate in our survey about how your own legal team is using AI.

– Liz Dunshee