As companies rush into digital transformation, even traditional bricks-and-mortar companies are turning to artificial intelligence (AI) and machine learning (ML) to reach new customers and create new products and business models. We only have to look at the global spending on digital transformation – expected to exceed $1 trillion this year – to realize the scale of this movement.
Data – the heart of AI and ML – is now widely recognized as the most valuable resource companies have. Every company faces immense pressure to use its data through AI and ML, but AI is not just a slick set of algorithms – it demands fundamentally new human capital, technological skills and investment.
What does this mean for boards of directors overseeing ambitious digital transformation agendas at their company? In one sense, AI doesn’t change a board’s role or create new responsibilities. Boards have fiduciary duties, and those duties don’t change just because their company is undertaking AI-focused digital transformation. Boards should still be guided by their basic duties of care and loyalty in this context. A board’s responsibility for overseeing management, versus managing the enterprise itself, is not changed.
In another sense, however, when considering the size, complexity and uncertainty of digital transformation, something is different. When seen through this lens, AI requires special attention, and boards that turn away from understanding – and even asking – the hard questions about AI are missing the greatest area of corporate opportunity and risk today.
Indeed, some of these questions will have new and important implications for the composition of the board itself. Moreover, the lack of standards, precedents and histories in this area will likely tempt boards to over-rotate from their oversight role into a more hands-on and dangerous management role.
IT’S TIME TO ASK NEW QUESTIONS
From a board perspective, data creates a frustrating dissonance. It has become every company’s most valuable asset, and yet there is no ‘data’ category or line item on the balance sheet, which can challenge a board’s traditional approach to overseeing critical company assets.
Another difficulty for directors can be found in assessing the company’s digital transformation strategy itself. In an area where technology is changing at record speed, and where few standard practices exist, it may be hard for directors even to know what questions to ask.
Boards will need to balance patience with urgency. The hard truth is that most companies have a long road ahead of them to become ‘data-mature’; there is no such thing as an overnight AI strategy. Success demands sustained action from management that will test companies without deep skills sets and experience in the space, and thus will test boards’ oversight responsibilities.
Although there is no single list of questions, here are some key areas directors should probe:
- Will the AI projects be performed in the company’s data centers on-site or in the cloud? What precautions will be taken to aggregate, move, secure and manage the vast amounts of data required to perform the projects?
- Is the company even collecting and using the right data? Is it sufficient? What is the quality and accuracy of the data itself?
- In a fast-changing and balkanized regulatory environment, what are the legal risks? What is the company’s data governance and privacy strategy?
- How is the company building or acquiring the skills needed to deploy AI projects and use their results? The demand for talent is most acute in terms of data scientists and others who can deploy AI solutions, and the global talent war for these skills will not abate anytime soon
- How is management measuring progress and gauging success? How is the data being used? What is being prioritized? What is being deprioritized?
The wave of lawsuits over data breaches is well known. But shareholder concerns over data are hardly limited to headline-making issues, or relegated to plaintiffs and their class-action lawyers. Increasingly, shareholder groups and institutional investors are taking an active interest in data-related and AI-related issues from an overall governance perspective, creating implications for a board’s fiduciary responsibilities.
ESG reporting and disclosure are quickly becoming a high priority for the world’s largest investors. Although ESG is often thought to consist principally of issues such as diversity, climate change and political activity, I believe it will not be long before a company’s data-privacy policies and data-governance practices are routinely included as part of an overall ESG profile.
Indeed, we are already seeing the early signs of this, with Facebook data privacy issues reportedly being identified by ESG investment screens. It is safe to assume that institutional investors will increasingly focus on data governance and privacy programs and practices, and that boards will need to be capable of understanding and responding to those concerns.
LOOK IN THE MIRROR
Boards are well versed in assessing risks and opportunities even in complex, rapidly changing areas. They now need to rise to the challenge when it comes to overseeing AI-driven digital transformation. Among the many strategic, operational and legal questions directors will ask, perhaps the most important of all is not about management’s plans, but about the board itself: do we as a board still possess the necessary talent and skill to exercise our fiduciary duties in this area?
Just as digital transformation is pressuring companies to assess and adjust their human capital needs, data-driven AI may require new types of expertise not represented in a board’s current composition. Just as there is a talent war among companies deploying AI, so there may be competition for such skills and perspectives at board level.
The hot topics of board refreshment and diversity must include an honest and thoughtful discussion of its ability to oversee management’s AI strategy. Now is the time for directors to look in the mirror and consider whether they need to address potential deficiencies by augmenting the board with new people who have new backgrounds and perspectives.
Matthew Fawcett is NetApp’s senior vice president and chief legal officer