Nearly half (45%) of large global companies put themselves at risk of litigation by failing to check their technology for racial or gender bias, research by City law firm Hogan Lovells has found.
The report, Litigation Landscape: How to prevail when technology fails, also said that more than half (54%) of big businesses were finding it increasingly challenging to assess the risks involved in tech partnerships and joint ventures.
Researchers said companies ranked bias in data and programming second on their list of top ethical considerations, with only privacy concerns being ranked higher.
“Discrimination often comes up in relation to the use of algorithms and AI technology to scan and review CVs in the recruitment process.
“There are concerns that the algorithms underpinning this software incorporate biased logic and therefore discriminate against people who live in particular areas or have certain names.
“If technology is purchased rather than developed, you may not know whether it contains biases.
“The very least you should do is seek warranties and assurances that procured software does not contain biases, and conduct due diligence to check it.”
The report recommended three steps for businesses to take to tackle ethical risks posed by new technology.
They should “establish and publish principles that govern how it will be used”, ensure that the “entire business” discussed ethical issues and hold suppliers to “their own ethical standards”.
Stefan Martin, partner at Hogan Lovells, said: “We have already seen cases brought under the Equality Act 2010 where businesses have inadvertently discriminated against protected groups through the use of flawed AI.
“Businesses need to be alive to the risks that exist in this area. It is illegal to make hiring or lending decisions based on race, gender or sexual orientation, yet algorithms make assumptions based on the data sets they are trained on, which are not always sufficiently diverse.”
Hogan Lovells commissioned the report from independent researchers, who gathered responses from 550 GCs, heads of legal, chief information security officers, COOs and CEOs around the world – 100 of them in the UK.
The businesses had annual revenues of over $200m and some of them over $1bn.
The report found a growing appetite by companies to acquire or partner with tech companies over the next two years.
Almost half (47%) wanted to launch a joint venture, compared with the 39% that had done do in the past two years. More than a third (35%) wanted to acquire a tech firm.
Two-thirds of businesses (66%) predicted that firms would set up joint ventures with companies in markets in which they did not currently operate in order to get access to the most innovative technology.
A similar majority (65%) said companies in their sector would increasingly launch joint ventures with start-ups, and 60% joint ventures in emerging markets.
However, 54% said it had become “more challenging to assess all of the risks and liabilities associated with acquiring and partnering with technology companies”.
Researchers said that in order to spot and resolve issues that could be challenging once a deal is agreed, businesses needed to spend more time and resources on due diligence.
They found that a narrow majority of firms (54%) had spent more time overall on due diligence relating to joint ventures and only 43% relating to mergers and acquisitions. When it came to examining risk and liabilities, the figures were 48% and 33%.
Researchers commented: “You should involve internal and external legal counsel in the deal at the earliest opportunity. And legal teams should remain involved once the deal is in operation to help identify and manage any risks that materialise.”