We operate in a highly regulated industry and our strategic partners are starting to integrate AI into their workflows. How do we audit their AI tools to protect our business from liability and safeguard our eventual exit valuation under the Step by Step Exit framework?

Question

Tyler Smith · Accepted Answer

In a heavily regulated industry, your liability does not stop at your own front door. As you prepare your business for a transition under the Step by Step Exit framework, potential acquirers will thoroughly audit your third-party vendor supply chain. If your strategic partners are using unvetted AI systems that touch your clients' sensitive information, you are exposed to significant regulatory and compliance risks. To mitigate this, you must systemize your vendor compliance process. Begin by raising this issue in your next Level 10 Meeting™. Direct your team to audit every key partner who has access to your operational systems or data. Your evaluation must answer three critical questions. - First, what specific AI engines are your vendors using, and does their data policy guarantee privacy? - Second, how do they validate their AI outputs to prevent compliance errors or regulatory infractions? - Third, who is the human on their Accountability Chart held liable for those outputs? Make these compliance requirements a standard part of your vendor agreements. By ensuring your partners run clean, compliant operations, you protect your own business from unforeseen legal liabilities. When it comes time to exit, you can hand over clean compliance records that command a premium from risk-averse buyers.