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Hi, enjoy this weeks curated risk and business updates.

As Artificial Intelligence driven initiatives, products and competitors increase, risk disclosures will also grow, however, we are at the beginning of these disclosures. Informal research published by Weil, Gotshal & Manges LLP in November showed that “approximately 6% of S&P 500 companies and 5% of Russell 3000 companies made disclosure relating to AI in the notes to the financial statements.” in 2023. DelCreo expects this trend to accelerate in upcoming filings.

Several companies, including Meta and Alteryx have disclosed an overall AI related risk in their 10k Risk Disclosures: “We may not be successful in our artificial intelligence initiatives, which could adversely affect our business, reputation, or financial results”

Other disclosures tended to describe the impact of AI on previously disclosed risk areas.  Companies might consider AI related disclosures in areas such as privacy, cybersecurity, system failures, reputation, competition, intellectual property ownership and infringement, and third parties, products liability, labor and employment, insurance, consumer protection, corporate governance, national security, ethics, government policy, and regulation.

Based on these disclosures and other research, AI risks to consider adding to your existing risk universe or inventory include:

• AI model and systems training data

  • Faulty training data

  • Intentional “poisoning”

  • Copyright infringement

  • Model/ algorithm flaws

  • Model bias/ discrimination

  • Outdated frameworks

• Third party

  • Use of proprietary (e.g. customer data) or copyrighted materials

  • Concentration of AI vendors

• Products

  • Slow/ Fast adoption/ demand for AI products

  • Misuse by customers

  • Impact of AI on product/ service (value, cost, quality, etc.)

  • Dependence on AI related initiatives

• Competitor

  • Adoption of AI

  • Disruptive AI innovations

• AI Regulatory Compliance

  • Banned applications

  • High risk systems

  • Required guardrails

  • Consumer complaint rights

• Privacy

  • Use of biometric data and facial imaging

  • Customer data use

• Cybersecurity

  • AI driven cyber-attacks

• Operational

  • Dependence on AI technology

  • AI system failures

• AI Reputation

  • Social impacts

  • Unethical uses

Request more information on DelCreo’s Risk Universe and risk assessment services.

As a reminder, here are our Risk Universe categories that we leverage to tackle and understand risk which include:

• External Risk

• Governance Risk

• Strategic Risk

• Product Risk

• Business Operations Risk

• Legal & Compliance Risk

• Financial Risk

• Technology Risk

These high-level risks are fairly consistent between different companies and risk profiles.

We leverage our understanding of risk maps and risk universes to better advise our clients in strategic business decisions and to optimize the management of risk throughout the enterprise.

Weighing the Risks

Weekly Highlights

• Developing technologies create opportunities for strategic utilization but conversely opens up vulnerabilities in related areas

• Massive amounts of AI activity brings attention to the fact that there is not one comprehensive framework through which AI and its pitfalls and benefits can be understood and leveraged

• The way managers think about their employees is changing as continued shifts in trends and loyalty might bring adjustments to hiring practices and training processes

Risk Universe Weekly Updates

External Risk

• ‘What the Hell?’ Europe Chafes at America’s Protectionist Tilt

  • Despite assumptions that Biden would reverse protectionist economic political stances installed by Trump during his presidency, the Biden administration maintains protectionist trade barriers and increased restrictions

  • EU officials are unenthusiastic about Biden’s international economic stance but continue to work alongside Biden with shared climate goals

  • Managers should be wary of imposed restrictions on “Chinese access to American technology” and how this may affect market demand and access

Governance Risk

• Corporate America's loyalty problem is on display in Big Tech

  • Prevailing sentiments over the relationship dynamic between employer and employee are changing with fewer and fewer employers and employees feeling like long-term employment is a viable option

  • Technology companies were previously touted as the marker for work life balance and company culture but continued and substantial layoffs leave the validity of this comparison in question

  • Hiring practices and management expectations may need to adjust in light of changing short and long-term goals of employees which may mean a cost analysis related to average employee tenure and cost to train ratios if these numbers were previously determined based on outdated data and practices  

Strategic Risk

• Reddit’s March IPO could buoy its ads business – but ‘it’s a tightrope walk,’ experts say

  • With an impending IPO, Reddit stands to benefit from its unique and loyal users if they are able to properly balance the environment they have been able to cultivate and the potential for ad revenue following their listing

  • Reddit will make for an interesting case study on how to manage cultivated authenticity while providing shareholder value during the shift from a private to publicly listed company

• More Retailers Tapping AI for Marketing and Sales: Survey

  • Surveyed middle market management teams are looking to utilize AI for Marketing, Sales, and other key Strategic functions

  • These adjustments will bring new areas of risk that management teams will likely not have completed and tested frameworks to monitor and mitigate these risks

Business Operations Risk

• Panasonic puts productivity boost ahead of new EV plant in U.S.

  • Panasonic holds off on massive investment of a third Electric Vehicle manufacturing plant, instead looks to improve efficiency of current plant

  • The company also takes into account slowing EV demand in the US and international markets

  • Panasonic serves as a useful study case to monitor as their move toward maximizing efficiency over blind expansion plays out  

Legal & Compliance Risk

• US launches inquiry into AI deals by Microsoft, OpenAI, Google and Amazon

  • FTC is investigating leading tech companies and whether or not recent AI-centered investments and dealings promote anti-competitive market conditions

  • Similar inquiries are taking place in the United Kingdom

  • These inquiries could lead to hindered AI investment by Big Tech companies

Technology Risk

• SOFTWARE RELEASED TO MAKE YOUR ORIGINAL ART POISON AI MODELS THAT SCRAPE IT

  • Nightshade is a software that provides a level of risk mitigation to programs that are designed to automatically process and train AI models off artwork housed online

  • Nightshade is an early response to the risks inherent to developing technology and brings to light ethical concerns of large open source learning models and the data they utilize to learn

• LoanDepot says 16.6M customers had ‘sensitive personal’ information stolen in cyberattack

  • Ransomware attack results in customers temporary losing access to online accounts and breach of sensitive information pertaining to the accounts

  • Cyberattacks continue to be a pervasive issue in our increasingly digital world and the goalposts for appropriate cyber protection may be continuously moving — management teams should consider increasing resources allocated to monitoring and improving protections