Solutons Lounge

How To Make AI Both Responsible And Ethical


This is the published version of Forbes’ CEO newsletter, which offers the latest news for today’s and tomorrow’s business leaders and decision makers. Click here to get it delivered to your inbox every week.


Are Tesla investors getting tired of the way CEO Elon Musk is running the company? It certainly looks as if that is the case. In quarterly earnings reported last week, the electric car maker had its fourth consecutive quarter of slumping profit growth. Overall profit was down 45%. Its automotive revenues were down 7% year-over-year, with total production down 14%, and deliveries had dropped by 5%.

On the earnings call, Musk dismissed the results by saying other carmakers’ discounted EVs have made it a difficult atmosphere for Tesla in the recent past. “We don’t see this as a long-term issue, but really as fairly short term,” he said.

However, investors appear to think differently, with Tesla’s stock price dropping more than 9.5% since the earnings report. The reason behind the selloff is likely that Musk himself doesn’t really seem to be too concerned with EVs either. Tesla has invested heavily in AI, chips and robotics. The company is slated to unveil its robotaxi in October, which is a more than two month delay. Last month, Musk said he believed Tesla could start selling its humanoid Optimus robot by the end of 2025. And the company is working to build its own AI chips to run its software. In an April post on his X social network, Musk said Tesla will spend around $10 billion this year training AI systems alone.

Analysts also are not impressed. UBS downgraded Tesla’s rating from neutral to sell earlier this month, saying that the company rose “too much, too soon” on enthusiasm for not-yet-delivered initiatives rather than its core car business. “We believe TSLA stock price has gotten caught up in the AI trade/phenomenon,” the analysts wrote, warning that its stock price was vulnerable “if market enthusiasm for AI diminishes.” Considering that Musk currently has six companies in his portfolio—including rocket producer SpaceX and AI company xAI—he should be adept in staying in the appropriate lane for growth, and starting new companies for new ideas. Tesla is an electric vehicle company, and analysts have said that if he focuses on that market, he has an easier path back to growth.

But then again, Musk’s personal business is tightly linked to his companies and how they are seen by the public. Following the assassination attempt on former President Donald Trump this month, Musk fully endorsed his presidential bid—even though he admitted on the Tesla earnings call that anti-EV policies likely to come with a second Trump presidency would hurt the company’s sales. One of Tesla’s largest markets is deep-blue California, and investment advisor Ross Gerber told Forbes senior editor Alan Ohnsman that Musk’s Trump endorsement damaged the brand’s standing beyond repair. “Elon isn’t doing anything with the thought of what’s best for Tesla at this point,” Gerber said.

There are few regulations governing AI, but companies do have to think of meeting the ones that are on the books, as well as ensuring that what they develop will be ethical and responsible. I talked to Wendy Gonzalez, CEO of data annotation company Sama, about what it takes to meet the existing AI regulations in the EU and how companies should be looking toward the future. An excerpt from our conversation is later in this newsletter.

ECONOMIC INDICATORS

The economy is growing faster than expected, according to federal government data released last week. The gross domestic product grew by 2.8% in Q2 of 2024, beating economists’ estimates of 2.1% and doubling the 1.4% expansion of Q1.

But, as has been the case for the last several months, the consumer experience is its own completely different issue. According to FICO, Americans’ average credit scores dropped at the end of last year for the first time in a decade, writes Forbes senior contributor Kathleen Howley. The biggest reason for the drop—to 717 in October, from 718 previously—was more consumers with late bill payments. Lower FICO scores impact individual consumers, but they also have a trickle-down effect on the rest of the economy. Consumers with lower credit scores may be less able to borrow money and make large purchases, or qualify for credit cards and make smaller ones.

Consumers probably don’t feel that they have the money to pay those bills. Government data released Friday showed that the average consumer only saved 3.4% of their income in June, the lowest monthly amount since September 2022. Consumers’ money still doesn’t go as far as it used to. Core personal consumption expenditures last month came in at 2.6% inflation, matching economists’ expectations.

The Federal Reserve’s Open Markets Committee meets this week, and while the possibility exists that they can use this data to lower interest rates—presumably giving consumers an impact they can see and feel—analysts say it’s highly unlikely. According to the CME FedWatch tracker, only 4.7% of analysts expect a rate cut this month. However, 100% project that one will come at September’s Fed meeting.

NOTABLE NEWS

After activist investment firm Elliott Investment Management took an 11% stake in Southwest Airlines last month and called to oust the airline’s chief executive and board chair, the carrier took notice. Last week, Southwest announced some big changes. The airline, which is known for its open seating policy, will start assigning seats, making roughly a third of them premium, extended legroom options. In a statement, Southwest said that 80% of customers, and 86% of potential customers, prefer assigned seats. The airline will also start offering overnight red-eye flights, which it said will provide more capacity without more capital outlay.

However, writes Forbes’ Suzanne Rowan Kelleher, Elliott said that isn’t enough. When the firm took its stake, it gave a 51-page presentation to the board that included a multifaceted turnaround strategy, including assigned seats, premium seating and baggage fees. Southwest allows each passenger to have two free checked bags. In a statement last week, Elliott said the changes come “more than a decade late, and after a 50% decline in its share price over the past three years.” It’s not clear what more Elliott might be looking for, unless perhaps it might have been clear from the beginning. Gottfried Shareholder Advisory CEO Keith Gottfried, who has worked with companies Elliott has targeted in the past, said it’s very rare for Elliott to enter an investment and immediately demand that company leaders be removed.

HUMAN CAPITAL

Uber and Lyft drivers in California are officially contractors, not employees, the California Supreme Court ruled last week. This means that the companies don’t have to offer perks they give employees, including benefits, paid leave or overtime. The ruling says the voter-approved 2020 law that says rideshare drivers are contractors—but codifies a potential 120% of minimum wage hourly salary, healthcare stipends and some insurance—is constitutional.

The contractor-or-employee battle for drivers has been raging across the country in recent years. According to Reuters, Minnesota lawmakers recently passed a measure setting minimum pay per mile or minute for drivers, while Uber and Lyft recently adopted a minimum wage for drivers in Massachusetts. Voters in that state will vote on a proposal that allows these drivers to unionize in November.

TOMORROW’S TRENDS

Sama CEO Wendy Gonzalez On Implementing Responsible And Ethical AI

Sama, which annotates data so it works better in AI and machine learning models, just went through the process to comply with the EU Artificial Intelligence Act. CEO Wendy Gonzalez knows—from both that process and the work she does—that companies need to work on their data governance and make sure that any AI systems they implement are both ethical and responsible. I talked to her about companies’ readiness to meet AI regulations, as well as what should be included in future laws. This conversation has been edited for length, continuity and clarity.

Sama recently met the standards for compliance with the EU Artificial Intelligence Act. What do you think other U.S. companies are doing to prepare for those regulations?

Gonzalez: The thing that’s really interesting about the EU Act is that it’s probably the richest set of policy work that exists globally right now. And it was overwhelmingly passed. When it went up to vote, it was a landslide. It’s really a reflection of a couple of things. One is that yes, governments need to ensure that AI that’s being built in their countries is for the benefit of humanity. I also think it’s a recognition of how impactful AI is going to be on our economies. Some predictions are 30% to 40% of work could be automated in the course of the next 20 years through things like generative AI.

Companies are looking at this from the standpoint of both sides. One is compliance. I think the other component is: How can we ensure that our brand and what we’re delivering out in the market is going to be effective? Is it doing what we expected it to do? Misinformation and [loss of] reputation is a potential [impact from] AI. I think both companies and governments recognize that.

I think that enterprises in general are looking at how do we build trustworthy AI that is explainable, that will be positive for our product and our customer experience? And to do so, you need to do it with a responsible AI framework in mind. What data is going in? How am I checking to make sure it works? How do I know there’s some level of connecting validation? How can I assure that it’s providing the right information and it’s not driving any risk or bias? I also think, on the flip side, governments are moving towards that. Not only are clients probably thinking about it for their own brand, they’re also thinking about it in terms of risk. It drives into a place where more and more of what we’ll see is enterprises having chief AI officers. CISOs being more prominent in data privacy and really incorporating into the strategy leadership around AI development best practices.

You’ve said it’s important for AI to be both responsible and ethical. Looking at the companies out there developing AI systems, how are they doing now toward meeting those goals?

There’s a lot of thought leadership out there about the right practices. The question is whether companies are holding themselves accountable. I think there’s a great opportunity for large companies to lead the way in both thought leadership, but also in action. And some are doing a pretty great job of it. Microsoft has their AI Centers For Excellence and a set of practices for their developers. Google’s doing the same thing. Meta has done an incredible job of creating open-source tools—that also by definition are part of responsible AI because they’re documented. You understand the parameters.

With the smaller companies who maybe don’t have some of the resources for the oversight, what are we going to do about [allocating funds to] that? I think that that’s really where the rubber hits the road and putting actions behind your beliefs.

[For example,] you can be a company that wants to become a Certified B Corp. It takes a lot of reporting. It’s like being SOC 2 compliant. It takes a lot of work. If you’re an innovator and not a giant company, will you be able to have the resources to support that? That’s where innovation versus compliance is a really, really fine balance.

If you were able to write a law to regulate AI, what would it entail?

Parameters around data governance are near and dear to my heart. All of AI is built and trained upon data, so it is hard to avoid garbage-in-garbage-out. Even with generative AI, which is basically leveraging the data on the internet, does anybody think the internet’s unbiased? What are we expecting our AI to do? Taking a thoughtful approach towards what we think all the different data sources are. How do I capture that? How do I ensure that the data set is complete? [This] is a critical component. If we start without having that in mind, it’s very difficult to go back.

FACTS + COMMENTS

Hasbro beat profit and revenue expectations in its most recent earnings report, largely on the strength of its digital gaming business.

20%: Year-over-year revenue increase in digital gaming, as well as the decrease in traditional toys

$212 million: Quarterly operating profit, up from a $188.6 million loss a year ago

‘We’re going all-in on becoming a digital play company’: CEO Chris Cocks said

STRATEGIES + ADVICE

As companies and responsibilities grow, CEOs should hire other leaders. But this isn’t about passing the buck. They also need to lead them.

AI is powerful, but it’s not a magical cure-all for your business. When looking at implementing it, clear-headed thinking is a necessity.

QUIZ

The Paris Olympics started on Friday. Which country pays the biggest cash bonus to its gold-medal-winning athletes?

A. Slovakia

B. Hong Kong

C. Moldova

D. New Zealand

See if you got the answer right here.



Source link

Exit mobile version