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Proliferation of Algorithms Adds to Boards’ Risk Oversight Responsibilities

A Wall Street Journal report by Deloitte staff observes that the rapid proliferation of algorithms presents risks that require board oversight. The writers note that while algorithms can increase performance by automating processes and tackling new activities previously not feasible using manual processes, algorithms are subject to misuse and open to cyber threats. Potential algorithmic risks include inaccurate financial reporting and monitoring of data, which can lead to regulatory issues, breaches of contract, shareholder dissatisfaction and reputational loss. Algorithms also contribute to risk of disruptions in firms’ operations and sales/marketing functions. The Deloitte authors list questions that directors may present to management and outline board considerations in approaching algorithmic risk. They recommend that boards, among other approaches, develop a knowledge base of algorithms and how they work, strategize with management to establish a risk tolerance level, and continually review and monitor algorithmic risk.