If you aren't using AI, you risk falling behind someone who does, and generative solutions have massively boosted individual employee productivity. However, employees often utilize public models that don't align with business values.
An employee's choice of which model to use for tasks is up to them, but if it goes against their company's expectations, then conflicts of interest may arise. This is known as shadow AI, where an employee uses a model or AI solution outside of approved company channels.
Why Shadow AI is a Risk
Shadow AI can take many forms, from someone briefly using a public LLM for copy adjustments to generating graphics in an image generator, and it is easy for employees to rely on unapproved solutions that are faster when workloads pile up. Shadow AI occurs because employees who want to increase productivity leverage quick solutions when approved AI tools are too slow or don't meet their needs.
Shadow AI is a risk because if an employee uses a model outside approved company channels for work-related tasks, they could be feeding it proprietary information that will remain in the unapproved model's system.
The company has no safeguards against the misuse of its sensitive data, which is now accessible in an unapproved environment, directly conflicting with the company's data management needs and expectations. If this data is leaked or exposed, especially depending on the variety of the data (healthcare or financial information), many liabilities and compliance risks can arise.
The Risks of Unauthorized AI Use
Data exposure and leaks: Sensitive company or customer data entered into unsanctioned AI tools may be stored, logged, or reused, creating a risk of data leakage or unintended sharing.
Compliance and regulatory violations: For companies operating under strict data-protection laws or industry regulations, unsupervised AI use undermines their ability to manage compliance and privacy risks.
Security vulnerabilities & attack surface expansion: Unauthorized tools may introduce malware, create backdoors, or bypass existing security controls, exposing the company infrastructure to new threats.
Lack of governance and auditability: Outputs from unapproved AI tools may be informed by sensitive data, making it hard to trace responsibility, ensure quality, or audit decisions.
Intellectual property risk: Sharing proprietary code, strategic plans, or internal data with an external AI tool can jeopardize IP and expose the organization to brand or competitive damage.
What to Do?
To reduce the risk of shadow AI, leadership teams need to clearly distinguish which models are approved for use and which aren't. This may require time and research to identify public models that align with the company's data management and use cases.
There are models that offer customizable settings for safer data retention practices and models with in-memory processing and limited context windows, so even if proprietary data was input through shadow AI, its retention in an unapproved environment may be extremely minimal.
Another route companies can take to reduce shadow AI is to implement a private solution they fully control, such as FluxAI's private AI platform. Nonetheless, companies need to establish comprehensive frameworks of approved solutions to demonstrate they recognize the benefits of AI. Still, they are only willing to adopt solutions that meet their requirements and align with data management standards.
By proactively building governance to outline approved and unapproved models, companies can better enable trusted AI tools that reduce shadow AI, turning what was once an ungoverned risk into a structured opportunity.
Eliminate Shadow AI with Private AI Infrastructure
FluxAI provides organizations with the approved AI solution employees actually want to use—eliminating shadow AI by design.
Why Shadow AI Disappears with FluxAI: - Employees get capable AI: ChatGPT-level functionality without data exposure concerns - IT gets complete control: 100% on-premises or private cloud deployment - Security gets auditability: Complete audit trails and role-based access controls - Compliance gets peace of mind: HIPAA-ready, GDPR compliant, data never leaves your infrastructure
FluxAI Platform: - SovereignGPT: Private AI chat that employees will actually use - AI Agents: Approved workflow automation with 400+ integrations - Prisma Suite: Secure document intelligence - Complete Platform: Runs entirely on your infrastructure
Stop shadow AI before it becomes a data breach. Give your teams approved AI they'll actually want to use.