The Securities and Exchange Commission (SEC) exists to protect investors by maintaining orderly markets and to facilitate capital formation. It does not exist to protect workers and their interests. However, that does not mean that readers of this blog should ignore the Commission’s activities. It regularly engages in activities that impact unions, union pension funds, and workers. This post gives but one example. 

Last year, the SEC’s Investor Advisory Committee (IAC) hosted a panel examining the impact of AI on company operations. One of the panelists was corporate law scholar and OnLabor contributor Matthew Bodie. Following that panel, the IAC approved a recommendation calling on the SEC to require that publicly traded companies disclose the impact of AI on operations in two broad categories. The first category is consumer-facing matters. For example, airlines are using AI to determine how much a customer should pay for a flight. The second category is the impact of AI on internal operations. That includes the disclosure of layoffs resulting from the use of AI, and disclosures on spending to upskill workers, or, to use the language of corporate governance, human capital. To make sense of what this means for workers and their unions, I need to explain securities regulation.

Labor law and securities law both require companies to disclose information to make their regulatory systems function. Under the Supreme Court’s decision in Detroit Edison, management is required to furnish information to a union that is relevant to the negotiation or administration of a collective bargaining agreement. If a company claims that it is insolvent, or facing financial difficulties, the Board can order companies to provide unions with relevant financial information proving as much. That way, unions can verify for themselves the employer’s claims of poverty. The same holds true in securities law.

Securities law requires that companies that are publicly traded provide disclosures to investors on any matter that is material to the investment decision so that they can verify the financial condition of the company. The Supreme Court has defined material as “a substantial likelihood that the … fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” That way, investors who purchase company stock can make an informed decision by evaluating both the upside and the potential downside of purchasing a stock. Whether something is material to investors is context specific, but in general a rule of thumb that many investors use is questioning whether a matter can impact 0.5% of gross profit. 

The SEC has issued some rules requiring companies to provide specific information about its business. Specifically, the SEC requires companies to disclose information on human capital management (HCM). For example, the SEC requires that companies disclose “[a] description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).” 

These rules are not perfect. A study by George Georgiev concluded that the rule needs to be reformed to include: 

• (1) more detailed information; 
• (2) information on both employees and contingent workers; and 
• (3) AI technology’s impact on human capital. 

The IAC recommendation sets out a frame for giving financial markets more consistent information about AI generally that investors care about in making investment decisions, but workers should care about it as well. If the SEC implements these IAC’s recommendations, it would provide workers at publicly traded companies (many of which are household names) with more information about the true intentions of their employers. Right now, workers are hearing contradictory messages. On the one hand, there are an estimated 50,000 workers whom AI replaced last year. The World Economic Forum forecasts that 41% of companies will layoff workers due to the emergence of AI. On the other hand, some employers are claiming that they will use AI to upskill their current work force to make them more efficient, but do not intend to layoff workers.  

From the perspective of workers trying to hold on to their jobs, a company’s AI disclosures provides the employer’s answer to the age old question raised by Pete Seeger … “which side are you on”. The recommendation calls for companies to quantify, and monetize, how much companies have spent in either upskilling their human capital or saved in making them redundant. In that way, the IAC recommendation moves beyond platitudes and toward monetizing the impacts of AI for investors such as union pension funds and the workers they provide benefits for to observe.

So, what’s next for this recommendation? Under Dodd-Frank, the SEC must respond to any IAC recommendation in writing. Two of the members, including the Chair, have made public statements about the matter indicating coolness to the proposal. At least one commercial law firm viewed the recommendation as a potential blueprint for companies to implement in the absence of further action by the SEC. 

What could these disclosures look like? Two employees of the Brattle Group business consulting firm recently published a study analyzing AI disclosures by the S&P 500, and noted a 700% increase in AI disclosures between 2019 and 2024. Those companies disclosed legal, regulatory, reputational, and cyber-security risk, but the report was silent about human capital disclosures. 

In some ways, that omission is not surprising. The United States lacks federal AI regulation, and there is scant regulation of AI at the state level. As a result, companies have very little legal or regulatory risk arising out of activities in the United States to disclose. However, companies could disclose how the use of AI to replace their workforce or deskill it could create a human capital risk in the risk section of their disclosures. Similarly, companies could also disclose plans to integrate AI throughout the company (or refrain from doing so) and its plans to manage its human resources when describing their business. 

Unions, investors, and workers will want to monitor these disclosures to ensure that companies are not AI-washing. In that way, workers can become an important co-enforcer of federal anti-securities law fraud much like they do with OSHA. Regardless of what the Commission does with the recommendation, workers and their unions could use the recommendation as a blueprint for the kind of information that they can demand when at the bargaining table. Indeed, if companies deem it material for their investors to know how they are using AI, then it should be material for the workers whose very livelihoods hang in the balance.