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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TOP NEWS
Hedge fund founder warns of recession
Mark Spitznagel, founder and chief investment officer of hedge fund Universa Investments, told Fortune that he’d be “surprised if we’re not in recession by the end of the year” as the Federal Reserve keeps interest rates fixed amid high levels of debt. Banks like Goldman Sachs and JPMorgan are less pessimistic, with Goldman economists lowering their recession odds from 25% to 20% over the weekend. Fortune
Two new CEOs take the lead from home
Incoming Starbucks CEO Brian Niccol and incoming Victoria's Secret CEO Hillary Super are both allowed to work remotely as a condition of their offers. Representatives from both companies say a remote schedule makes sense given the travel needs of executives, but a 2021 study suggests that such policies could rub employees the wrong way. Fortune
REI purpose-driven approach put to the test
REI CEO Eric Artz told Fortune that the outdoor equipment retailer will not compromise its co-op ideals despite reporting a loss of $311 million in 2023. Competitive pay and investments into nature have kept workers and customers happy, but REI must now find a balance between profitability and purpose. Fortune
AROUND THE WATERCOOLER
Ken Griffin says Citadel hires ‘winners in life’ because finance winners don’t always cut it by Marco Quiroz-Gutierrez
The tail wags the dog: Top recession indicator now slows the economy, creator says by Jason Ma
Block shares are undervalued and underappreciated says senior BoA analyst by Luisa Beltran
Bill Gates ‘terrified’ employees at his foundation, book claims, where meetings felt like a king holding court by Sydney Lake
Google’s ex-CEO isn’t licensed to give financial advice, but he thinks you should buy Nvidia by Christiaan Hetzner
Amazon is testing product search results that don't show customer review 'star' ratings or review count totals by Jason Del Rey
Mark Zuckerberg gave his ex-Facebook engineer startup advice at 2 a.m. over chess—now she’s a founder with over $8.5 million raised in funding by Orianna Rosa Royle
This edition of CEO Daily was curated by Joey Abrams.
