Should Companies Be Using AI to Draft Their Proxy? An Example to Scare You

Key Takeaways

• AI generates generic, boilerplate proxy language lacking company specifics
• Human drafts link compensation to precise performance metrics and targets
• Lack of material detail can attract proxy‑advisor criticism and litigation risk
• Over‑reliance on AI may obscure board judgment and strategic nuance
• Effective proxy drafting balances efficiency with tailored, fact‑based disclosure

Pulse Analysis

The rapid evolution of large‑language‑model (LLM) AI has sparked excitement across corporate legal departments, promising faster document creation and cost savings. Yet, proxy statements occupy a uniquely high‑stakes arena where precision and materiality are legally mandated. Hallucinations—fabricated facts or overly generic phrasing—remain a persistent flaw in AI outputs, and regulators such as the SEC scrutinize proxy disclosures for accuracy and completeness. As companies race to adopt AI tools, the balance between efficiency and compliance becomes a critical governance challenge.

A side‑by‑side comparison of an AI‑generated CD&A paragraph and a human‑crafted version illustrates the gap. The AI text offers vague praise for "strong performance" and generic metrics, while the human draft specifies an 18% compensation increase, ties it to exceeded targets, and references strategic initiatives and a relative TSR modifier. This level of detail satisfies proxy advisors, reduces the likelihood of shareholder dissent, and mitigates exposure to securities litigation. Investors increasingly demand transparent, fact‑based narratives that demonstrate clear pay‑for‑performance alignment; generic language can be interpreted as evasive or misleading.

Practitioners should therefore view AI as an assistive aid rather than a replacement for seasoned disclosure lawyers. Implementing robust review workflows, maintaining version control, and embedding subject‑matter expertise into AI prompts can capture efficiency gains without sacrificing accuracy. Companies might also establish governance policies that require dual‑layer validation—AI‑drafted content followed by attorney and board committee sign‑off. By combining technological speed with human judgment, firms can produce high‑quality proxy statements that meet regulatory standards, uphold investor confidence, and protect against costly legal challenges.