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Exploring Trust and Transparency in Artificial Intelligence Governance

Summary

Artificial Intelligence (AI) is a rapidly developing technology that is predominantly owned and controlled by a small, powerful group of private companies operating under the laws and administrative structures of the United States. This raises concerns about the important role […]

Exploring Trust and Transparency in Artificial Intelligence Governance

Artificial Intelligence (AI) is a rapidly developing technology that is predominantly owned and controlled by a small, powerful group of private companies operating under the laws and administrative structures of the United States. This raises concerns about the important role that American corporate governance plays in regulating AI in a manner that benefits humanity as a whole.

To address this challenge, lawmakers should look to the existing infrastructure of American corporate governance. Alongside federal regulatory guidelines, corporate governance should shift its focus away from prioritizing shareholder primacy and adopt a stakeholder model similar to the Delaware public benefit corporation (PBC).

Currently, American corporate governance is largely designed around the concept of shareholder primacy, as espoused by Nobel laureate Milton Friedman. This ideology posits that the primary purpose of a corporation is to generate wealth for its owners or shareholders.

However, an alternative theory known as stakeholder capitalism is gaining traction in management strategies, investment philosophies, and governance structures. Based on the work of Edward Freeman at the Darden School of Business, University of Virginia, stakeholder capitalism recognizes the interconnected relationships that are vital for a healthy company, economy, and society. It asserts that every company depends on fulfilling its unique network of stakeholders, including founders, managers, employees, users, customers, suppliers, partners, local or affected communities, and even the natural environment.

This is not a new theory. Many prominent corporate executives and investors, including Salesforce’s Marc Benioff and BlackRock’s Larry Fink, openly discuss the importance of taking a stakeholder approach in managing operations and assets, as well as the associated risks. Benioff succinctly summarized in the latest Salesforce Stakeholder Impact Report that “when we focus on stakeholder value, alongside shareholder value, our companies will be more successful, our communities will be more equitable, our societies will be fairer, and our planet will be healthier.”

Lawmakers are also working towards redefining the purpose of corporations. The Delaware PBC offers a valuable framework for how directors and executives can incorporate stakeholder management. Established in 2013, it has proven to be quite functional and even popular. Major investors have poured billions of dollars into PBCs, and there are nearly twenty publicly traded PBCs on American stock exchanges, including Allbirds, Warby Parker, Lemonade, Planet Labs, and Laureate Education – not to mention publicly held subsidiaries with PBC status.

One central characteristic of a PBC is the obligation for directors and managers to consider the interests of those materially affected by the company’s conduct and balance them with the shareholders’ interests and the public benefits defined in the company’s charter. Under the rules of a PBC, there is no fiduciary duty to prioritize one set of interests over another, as long as the decisions are rational, informed, and impartial – that is, free from conflicts of interest.

As a result, the governance structure of a PBC embodies the theory of stakeholder capitalism through a relatively straightforward process – requiring directors and managers to identify and communicate with stakeholders and enable them to raise concerns that may not align with traditional fiduciary duties.

The success of PBCs suggests that the path to responsible AI governance can be built on transparency and trust. Using the PBC model, companies utilizing or producing generative AI technologies should be mandated to establish internal management and oversight systems to assess impacts and identify materially affected stakeholders. They should develop metrics to monitor and mitigate harm, gather objective information from these metrics, and report to shareholders, the government, and the public.

This is not an unattainable goal. Anthropica, a generative AI company founded in 2021 as a PBC, relies on stakeholder capitalism with a public mission to “build reliable, interpretable, and controllable artificial intelligence systems.” Anthropica’s value has skyrocketed, and it recently entered into a $4 billion partnership with Amazon.com Inc., reportedly considering other billion-dollar deals.

For Anthropica, the requirements of a PBC are strengths, not weaknesses. The company states that “the PBC structure gives our board the legal freedom to balance the long-term and short-term external effects of decisions – whether to deploy a particular AI system, for example – alongside the financial interests of our shareholders.”

There are still no guidelines on how to balance these interests when they come into conflict. However, failing to undertake this consideration and balancing process can expose Anthropica to shareholder litigation. Additionally, Anthropica has established a purposeful delegation under Delaware law aligned with Anthropica’s public purpose, providing it with specific governance rights to ensure the company fulfills its obligations to the PBC. How this structure will function in practice remains to be seen.

As society grapples with significant changes driven by new AI technologies, we have the opportunity to redefine the purpose of corporations. By building directly on the Delaware PBC model, any new corporate governance rules applied to AI-related companies should incorporate proven and tangible benefits of stakeholder capitalism – and may discover it provides competitive advantages.

This article does not necessarily reflect the views of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

FAQs:

1. What is stakeholder capitalism?
Stakeholder capitalism is an alternative theory of corporate governance that emphasizes the importance of considering the interests of all stakeholders, including employees, customers, suppliers, communities, and the environment, alongside shareholder value.

2. What is a public benefit corporation (PBC)?
A public benefit corporation (PBC) is a type of legal entity that is required to balance the interests of shareholders with specified public benefits in its charter.

3. How can companies practicing AI adopt responsible governance?
Companies utilizing or producing AI technologies can adopt responsible governance by establishing internal systems to assess impacts and identify affected stakeholders, developing metrics to monitor and mitigate harm, collecting objective information from these metrics, and reporting to shareholders, the government, and the public.

Sources:
– [Bloomberg Law](https://www.bloomberglaw.com/)
– [Bloomberg Tax](https://www.bloombergtax.com/)