AI agro

Amid the hype surrounding the benefits of artificial intelligence comes profound concern from internal auditors.  A survey reveals that 78% believe AI will undermine cybersecurity, and data security, while more than half, 58%, say it will increase fraud.

The survey of more than 900 internal audit chiefs, conducted by the Institute of Internal Auditors (IIA), also says the next biggest risk from AI is the digital disruption it could cause.

Anne Kiem, chief executive of the IIA, says AI can have positive and negative effects.

“Our research has shown that chief internal auditors are alert to the threats and this should bring some comfort to those organisations that have a strong focus on risk control, risk mitigation, and having a well-resourced internal audit function. Internal auditors remaina force for good.”

Dual-class duel

While debate simmers in London over loosening the rules for dual-class shares, French academics have taken a swing at similar reforms on the way in Paris.

French reforms would allow dual-class shares for new IPOs and also introduce a ten-year sunset clause (with the possibility of an additional five years). Paul Oudin, at Oxford, and Olivier Gossner, of Ecole Polytechnique and London School of Economics, wonder: what’s the point?

On restricting shares with multiple voting rights to new listings, the duo say it could have been allowed for existing companies, providing them with an “additional tool to shape the governance of their company at no obvious cost”.

On the sunset clause arrangements, the pair are equally mystified. “Justifying the mandatory sunset clause by considerations of good governance, as the report from the Finance Commission does, paternalistically assumes that shareholders cannot decide for themselves on their company’s best governance structure.”

Interestingly, they support the case for longer-term voting powers by citing AI: a controlling shareholder may want to guarantee AI is used in the “interests of humanity above profits”.

We’re not sure that would have stopped Skynet, but the point is well made. However, the article also goes to show that dual-class—or multiple voting rights—shares never come without a squabble.

Should I stay or should I go?

More research results (from earlier in the year): non-executives hanging on too long to their board positions can create governance issues for boards and shareholders.

The probe, by staffers at the University of Bath, finds that it is a yearning for “status” that compels non-execs to cling onto their positions long after they should have shuffled off.

Dr Johanne Grosvold from the university’s school of management, says: “Our findings show that for some NEDs their identity as a board director is more important to them that acting in the interests of shareholders.

“When it’s healthy time to step down, they don’t want to relinquish an important part of who they are, so instead they ignore their accountability to shareholders.”

Another planet

The supreme US financial regulator “cooked its own books” when estimating costs of implementing new climate risk reporting rules, according to petitioners pursuing a legal suit.

The claim comes in filings for the legal case against the Securities and Exchange Commission (SEC) and its attempt to introduce the new reporting rules on climate risk and carbon emissions. The launch was suspended once the legal case, headed by the US Chamber of Commerce and the National Centre for Public Policy Research, became apparent.

Cydney Posner, a corporate lawyer, surveys the legal papers for the Harvard governance blog, noting claims that the climate rules are “unlawful several times over” because they would “exceed the SEC’s statutory constitutional authority”; that “compliance with the proposed rule would cost more than double the costs of compliance with all major existing SEC disclosures combined”; and the rule “purports to solve a ‘securities’ problem that the SEC failed to show exists.”

Observers from the UK and Europe may look on in wonder. UK companies are already reporting according to TCFD guidelines and will likely soon use new rules from the International Sustainability Standards Board. In Europe, companies are coming to terms with the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive.

All hefty governance requirements. Still, with any luck, the US may have its reporting rules sorted by the time climate Armageddon finally comes around. Fingers crossed.