SEC denies Apple and Disney’s bid to exclude pioneering AI proposal

US financial watchdog rejects firms’ arguments that new proposal is micromanaging.

Rendering of a computer chip with 'AI' written on top.

The US Securities and Exchange Commission (SEC) has rejected Apple and Disney’s bid to exclude a pioneering shareholder proposal calling on the US firms to ramp up disclosures around artificial intelligence (AI). 

US union fund AFL-CIO is behind the resolution, which calls on each to publish an AI “transparency report” disclosing whether they have “adopted any ethical guidelines to protect workers, customers and the public from harms related to the use of AI”.  

The proposal was also filed at Comcast, Netflix and Warner Brothers Discovery, 

AFL-CIO stated in a recent blog that large firms are “rushing to adopt AI technology”, which in the entertainment industry can be “used to create literary material and replace human performances”. 

Both Apple and Disney sought to exclude the proposal via the SEC’s “no action” process, the mechanism by which companies ask the regulator for its blessing to omit a shareholder request from going to the vote.    

They argued that the resolution fell foul of the regulator’s rule on micromanagement – Rule 14-8(i)(7) – by delving too deeply into the day-to-day running of the companies.    

But yesterday (Wednesday), the SEC published its view, stating that it was “unable to concur” with the companies’ arguments, meaning that the proposals will be put to investors.  

Shareholder proposals on the topic of AI are a new feature of the US proxy landscape, with the first one going to the vote at Microsoft last month, attracting the support of more than one-fifth of investors (21 percent).  

The support was impressive given it was a first-time proposal, and that influential proxy advisers ISS and Glass Lewis opposed it. Although, Responsible Investor understands that ISS did back it in its dedicated SRI offering.   

The Microsoft resolution was put forward by US activist Arjuna Capital and asked the tech giant to report on how it is managing financial risks and those to “public welfare” that may arise from its “role in facilitating misinformation and disinformation disseminated or generated via artificial intelligence”.   

Among the supporters of the Microsoft proposal were several large investors, including the manager of Norway’s trillion-dollar sovereign fund, Norges Bank Investment Management (NBIM); The Office of the New York City Comptroller, which oversees the city’s five pension funds; Californian public pension fund CalSTRS; and Dutch giant PGGM. 

Those opposing it include Dutch asset manager APG and Californian public pension giant CalPERS.

Speaking with RI in December, Arjuna’s co-founder and managing partner Natasha Lamb said that Microsoft is one of several technology stocks in its portfolio it will be engaging with on the issue.

Given that 2024 is an election year in the US, she added, “we are acutely aware of the risks that disinformation and misinformation pose to our democratic process”.

Misinformation is a topic Arjuna has engaged on for several years with social media firms, but the emergence of AI has raised new questions as to where the responsibility lies.

“Social media companies have been able to hide behind Section 230, arguing that harmful content is generated by users – but with generative AI, the content is created by the technology itself,” said Lamb. “So who’s left holding the bag when something goes wrong? Investors?”

She added: “There are more questions around AI than there are answers, which is why, as investors, we’re concerned. I expect more and more investors will be seeking clarity on how AI is ethically governed.”