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Whether or not you use AI to assist with drafting your proxy statement, annual report or other SEC-required documents, an important question to ask now more than ever is: “Who is actually reading these documents?” The answer to that question may be surprising, and it could influence the approach that a company takes when presenting the required and additional information included in the document.

In more recent years, technology has played an increasingly important part of the shareholders’ playbook when it comes to conducting the analysis necessary to make informed voting decisions. For some time now, we have observed that proxy advisory firms have effectively leveraged technology to conduct an analysis of a company’s compensation and governance practices relative to proxy voting guidelines, and institutional investors have been increasingly doing the same. With the rapid development of AI models, we are now observing significant changes in the approach that asset managers take to their stewardship efforts.

Earlier this year, JPMorgan Chase announced that JPMorgan Asset Management will no longer rely on outside proxy advisory firms when evaluating proxy statements and determining how to vote on proposals at portfolio company annual meetings, and instead, the asset manager will use an internally developed artificial intelligence platform, called Proxy IQ, to assist with making voting decisions. Soon after JPMorgan’s announcement, Wells Fargo’s Wealth & Investment Management announced that it had launched its own internal proxy voting service and would no longer utilize ISS for its voting recommendations. These announcements likely represent the start of a significant new trend, as it becomes increasingly possible for asset managers to deploy highly sophisticated AI-powered analytical technologies on a more cost-effective basis than utilizing the services of a proxy advisory firm.

An important consideration in all of this is that computers do not read in the same manner as humans. Humans are often prone to considering things visually, thus encouraging the presentation of information in charts and graphs. Computers, on the other hand, are focused on synthesizing all of the proxy statement text into a series of ones and zeros that the computer can readily process. As the analytical technology utilized by proxy advisory firms and investors has increasingly migrated to AI-based models, now more than ever it is important that the proxy statement and other documents be presented in a machine-understandable format, so that no important information is lost in translation. For this purpose, it is not necessary to completely abandon the stylized proxy statement format that is de rigueur today, but it is important to now include any of the data and other information that is presented in those charts, graphs or images that are not machine readable. Further, it may now be a good time to consider the overall structure and presentation of the proxy statement, to ensure that information is presented clearly and in a logical manner that would facilitate analysis and interpretation by an AI model. It is also helpful to identify and correct any internal inconsistencies in the proxy statement that could require the AI model to determine which information is accurate.

This DFIN blog from earlier this year offers several tips ensuring that your disclosures are ready for AI synthesis:

– Standardize terminology across filings, including narrative sections and investor communications.
– Improve document hierarchy and headings.
– Confirm that your Inline XBRL tagging is accurate.
– Align language and messaging on investor relations websites with SEC filings.
– Clearly structure risk factors.
– Ensure executive biographies are consistent across filings and investor communications.
– Create ESG metrics that are measurable and comparable.
– Reduce duplicative statements to avoid overcounting.
– Revise contradictory statements for greater clarity and accuracy.

While it might be a little creepy to think that we have entered an era where machines write disclosure that is then analyzed by other machines, that is where we are, whether you like it or not. Because these considerations can make a difference for outcomes in the upcoming proxy season, now is the time to focus on your disclosure approach. For more AI coverage, be sure to check out our “Artificial Intelligence” Practice Area.

– Dave Lynn