Directors’ Checklist to Guard Against AI Washing in Capital Markets

In 2024, AI's prominence in corporate strategy has become more pronounced, with 36% of S&P 500 companies mentioning "AI" in their earnings calls. The same report by Goldman Sachs revealed that companies actively pursuing or facilitating AI technology have seen remarkable market performance, outdoing the equal-weight S&P 500 by a striking 19 percentage points since the year's start. In the recent earnings season, a company's stock price might surge on the mere mention of AI-related business initiatives.

This burgeoning enthusiasm for AI has sparked concern about potential ‘AI washing’. The term refers to the embellishment of a company's AI capabilities, projecting a facade of innovation and technological sophistication that may not align with reality. 

For board directors and business leaders, the imperative is to discern the substance from the hype. SEC Chair Gary Gensler's warnings against AI washing recently underscore the necessity of accurate, specific disclosures about AI's role in operations. Investors and executives must critically evaluate AI claims, ensuring that any stated AI capabilities are not only genuine but also responsibly integrated.

Here is a checklist to guard against 'AI washing' for directors and executives:

• Set the Right Expectation: Not all businesses need to be AI-first. Leaders should not be driven by FOMO (fear of missing out) on AI strategies.

• Rigorous Verification of AI Claims: Directors should demand evidence supporting claims about AI capabilities.

• Commitment to AI Transparency: Advocate for clear communication about the company's AI initiatives and data strategy.

• Active Oversight of AI Development and Deployment: Ensure continuous oversight of AI projects and adherence to ethical AI practices.

• Critical Assessment of AI Impact on Business Model: Evaluate how AI technologies align with or disrupt the current business model.

Board members should also ensure that the company's investment in AI is accompanied by robust risk management practices and compliance with emerging regulations. This oversight is crucial not only for regulatory adherence but also for maintaining a competitive edge and ensuring financial prosperity as AI continues to reshape the corporate landscape.

The stakes of AI washing transcend mere regulatory adherence; authentic AI integration is essential for securing a competitive edge and ensuring long-term financial prosperity. Investor and leadership vigilance against AI washing is not just prudent—it's a strategic imperative.