Good morning.
Risk is a relative term. The risk of bodily damage while kickflipping over stairs is decidedly higher for me than for my teenage son, who’s been skateboarding for years—especially when I can’t do a kickflip. Risk can be especially fuzzy when it comes to business disclosures. How many pharmaceutical commercials for seemingly benign drugs warn of possible side effects that range from mild dizziness to death?
So when I read that the number of Fortune 500 companies citing AI as a business risk is up 473.5% since 2022, I was intrigued to learn more. Yes, the study comes from Arize AI, which helps companies better deploy AI, but it accurately notes that 281 companies cited AI as a risk factor in their latest annual reports, up from 49 a year earlier.
Does that mean C-Suite leaders are more scared than excited by AI? Not necessarily. ChatGPT is less than two years old, making it hard to predict the full impact of generative AI. It’s a risk, but one that’s arguably less clear than, say, climate risk or geopolitical risk.
Since 2005, the SEC has required public companies to disclose risk factors to shareholders, amending item 105 of Regulation S-K in 2020 to make that section more concise. But companies still report a long laundry list of potential perils that may never come to pass. Why do that? It could ward off shareholder litigation—though the U.S. Supreme Court is considering a case against Facebook that accuses the company of characterizing some risks as ‘hypothetical’ that it knew to be real.
When it comes to AI, much is unknown and therefore risky. But I’ve detected an undercurrent of optimism among leaders, as does my colleague Andrew Nusca. Jason Girzadas, the CEO of Deloitte US, which is the long-time sponsor of this newsletter, talks to a lot of leaders about AI. While “the hope is far and deep that it creates business value,” he says, there are challenges.
What reduces those risks is “strong executive sponsorship and leadership,” he says, as well as a portfolio of investments that marries “short-term opportunities for automation improvements around productivity and cost takeout, and then longer-term medium-term opportunities for business model innovation that are truly transformational.”
The masters of managing risk are insurers, and few have done that for as long as Aflac CEO Dan Amos. He’s been CEO since 1990 and joined me for a discussion on the latest Leadership Next podcast about risk, family, AI—and that duck. You know what sounds risky? Being headquartered in Columbus, Georgia and making 70% of your revenues in Japan off a product that’s supplemental to the insurance people have to buy. And yet Aflac and its CEO just delivered strong earnings and have outpaced financial peers in the stock market this year. “I like evolution, not revolution,” says Amos.
“With AI and all the things that are out there, I still believe consumers want to handle claims with an individual, not a computer,” he says. “I’m excited about the future.”
More news below.
Diane Brady
diane.brady@fortune.com
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