Shareholder Activism in the Age of AI: What This Means for Large-Scale Companies in the UK

Article by Sarisha Harikrishna

The United Kingdom has borne witness to a spike in cases related to shareholder activism, particularly in the aftermath of Brexit, powerful shareholder rights and the fluctuating pound. In January 2022 alone, 47 companies were the targets of shareholder activism, compared to 41 companies the year before. This increase may not be defined as a ‘sharp increase’, but it is still alarming. Now that the world has gravitated more towards the alluring pull of artificial intelligence (AI), it is imperative that an in-depth study be conducted into the risks of AI being weaponised by shareholder activists. 

What is Shareholder Activism?

Shareholder activists are individuals who attempt to make full use of their rights as shareholders to bring about change within or for the corporation’s interests. Now, this change can be good when it is in line with the company’s goals and can give full effect to the genuine interests of the shareholders. When properly carried out, shareholder activism can lead to more transparency and accountability in the company as change is enacted when needed, leading to more economic growth. On the flip side, it could lead to intentional exploitation by shareholders. However, the plethora of dilemmas that can arise from this is appalling as there are various manipulative tactics that cunning shareholders can employ to achieve their own personal gains with no regard for the company’s wellbeing. Examples of phenomena where shareholder activists have displayed their ingenious tactics include purchasing more shares in the company to increase their voting power on important decisions, supporting the removal of a director that they may not necessarily like using their voting rights and exploiting the usage of media channels to publicly expose the future actions of a company. The various scenarios arising from shareholder activism cannot properly be speculated, and the possible upheavals at multiple levels are difficult to predict.

How Does AI Affect Shareholder Activism in the UK? 

The rampant and unmonitored usage of AI further aggravates the difficulty in nipping the phenomenon of shareholder activism in the bud. AI has already made commendable changes to the legal profession, with the UK government 2021 unveiling its new ten-year plan to elevate the UK to the status of an enviable AI superpower on the global stage. Shareholder activism in private and public limited companies (PLCs) would inevitably differ from one another. Private limited companies mean that the personal liability of shareholders is limited to the value of their shares, whereas PLCs can offer their shares to the public. Presently, a clear-cut regulatory framework on the usage of AI is not available, but law firms such as Clifford Chance have shed some light on the landscape of AI in the UK.

With the influx of AI, shareholder activists could further abuse it to push for access to pivotal company information, leading to concerns about the issue of data privacy. Cybersecurity is a significant area gaining traction, especially in the 21st century, where corporate bodies are eager to safeguard the sanctity of their information. Confidentiality of information is also a pertinent issue close to the heart of a company, and the use of AI by shareholders could lead to a potential breach of information and the overhaul of a company. 

Besides, the use of AI could be leveraged by shareholders to help them conclude the possible solution that would best benefit them. However, this could be counterintuitive as it would lead to unpredictable and illogical outcomes. AI could make a decision that does not mirror the best interests of all stakeholders. Undeniably, AI helps to increase efficiency, which is incredibly important in the business sector, but the possibility of bad decisions heavily outweighs the advantages. Humans, in general, are more drawn towards finding the fastest method in coming to a decision, but this may not necessarily be the best path in coming to a rational and logical decision.

In addition, issues of complexity and misinterpretation come with the usage of AI by shareholder activists. It is incredibly easy to key in relevant information into AI processors to come to a decision. Still, due to the fallacies of human nature, the human analysis of the AI-generated decision could lead to a poor decision. Misinterpreting AI-generated decisions would lead to chaos in a company as the shareholders would rely entirely on the decisions’ authenticity and legitimacy. Overreliance on AI would further exacerbate this issue as shareholders would place their blind trust in AI’s decisions and use it as a tool for misguided activism. Further, it can also be adduced that AI-driven shareholder activism would lead to a degradation in the fundamental ethical principles that drive a company, namely transparency and accountability. Ergo, placing complete trust in AI to make decisions would make it even more challenging to navigate this already convoluted maze of shareholder activism in the age of AI.

Presently, the level of literature that has been conducted on the offsets of the usage of AI is only at the surface level, thereby creating a grey area in the law. AI has proven incredibly useful when integrated adequately into companies. However, its use should be monitored appropriately to ensure that it does not become a Pandora’s Box in the field of company law.