Today, National Legal and Policy Center presented a “Report on AI Data Usage Oversight” proposal at the Microsoft 2024 annual shareholder meeting.
The proposal requested the Company to increase its reporting of the risks of “unethical or improper usage of external data in the development and training of its artificial intelligence offerings” and to disclose what safeguards the Company has in place. At the annual meeting, NLPC called out Microsoft for its privacy-infringing features such as “Recall,” — which screenshots user activity — and its partnership with OpenAI. Further, NLPC noted that Microsoft’s close relationship with the US government is a dangerous concentration of power that presents the US government an opportunity to circumvent Constitutional protections and to collect data on citizens.
The company’s board of directors opposed our proposal, as explained on pages 80-81 of its 2024 proxy statement. NLPC’s response to the board’s opposition statement was filed with the Securities and Exchange Commission last month. NLPC’s proposal was endorsed by Glass Lewis, one of the two major proxy advisors. NLPC also opposed the reelection of Microsoft director Reid Hoffman for the second year in a row.
Presenting the proposal at the meeting was Luke Perlot, associate director of NLPC’s Corporate Integrity Project. A video of his presentation can be found here, and a transcript of his three-minute remarks follows:
Good morning.
Artificial intelligence is revealing itself as one of the most transformative innovations in modern economic history. AI’s potential to improve everything from healthcare to financial services is undeniable – as are its risks.
As we know, AI thrives on data, which is vast, intricate, and often sensitive. Unfortunately, this hunger for data drives developers to seek out large quantities of information from the internet and other digital sources, some of which may not be obtained ethically or legally.
Microsoft is a leading player in the AI space, thanks largely to its partnership with OpenAI. However, this partnership with OpenAI has also raised ethical concerns.
The two companies have faced legal challenges, notably from the New York Times, for allegedly incorporating proprietary information into its AI models without consent. This New York Times lawsuit alone could cost Microsoft billions of dollars in damages, in addition to the damage to its reputation.
Further, OpenAI recently appointed a former NSA director to its board, intensifying worries about government surveillance and the erosion of individual privacy, particularly since Microsoft itself has extensive ties with the US government. Additionally, Microsoft has drawn fire for its proposed “Recall” feature, which would take screenshots of user activity.
Regulatory scrutiny is only intensifying, particularly with laws like the California Consumer Protection Act and the European Union’s General Data Protection Regulation. The penalties for breaching the GDPR can reach up to 4% of a company’s global annual revenue, which would be a huge hit to Microsoft’s shareholder value.
However, the significance of Microsoft’s approach to data ethics and privacy extends beyond legal damages and regulatory fines. Microsoft’s place in the AI arms race hangs in the balance.
Consumers have consistently expressed concern with the lack of control they have over their personal data. McKinsey & Company has argued that companies that prioritize data privacy will build a competitive advantage over their rivals that do not.
As Microsoft competes with other AI giants, a privacy-first approach could be a crucial differentiator. The generative AI market is projected to reach 1.3 trillion dollars by 2032, and small percentage changes in market share will be worth tens of billions of dollars. Microsoft’s competition is too strong and the potential reward too big to not take data ethics and privacy seriously.
For these reasons, we encourage our fellow shareholders to vote FOR Proposal 9.
Read NLPC’s shareholder proposal for the Microsoft annual meeting here.
Watch Luke Perlot’s presentation of the proposal at the meeting here.
Read NLPC’s response, filed with the SEC, to the company’s opposition to our shareholder proposal, here.
