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Jul 05, 2024

Rise of the ‘robo-director’: How AI is shaping the future of corporate boardrooms

Experts discuss future impact of AI and related technologies on corporate governance

Corporate boardrooms – along with the rest of the world – are waking up to the fact that AI has the potential to reshape industries at breakneck speed. Its impact on how boards operate and how companies handle governance is only just beginning to be realized.

A recent Governance Intelligence Webinar, sponsored by Nasdaq and titled ‘How AI will influence the future of the boardroom’, brought together a panel of industry experts to discuss AI’s transformative potential in governance.

Moderated by Ben Maiden, editor-at-large of Governance Intelligence, the panel included: James Harley, principal product manager for governance solutions at Nasdaq; Ki Hoon Kim, associate general counsel at Hewlett Packard Enterprise; and Usman Sheikh, partner and chair of the emerging tech and fintech practice group at Baker McKenzie. They shared insights into how AI is set to revolutionize boardroom operations, strategic decision-making and oversight functions in the near future.

Early steps

Most boards are in the early stages of adopting AI, as Harley pointed out. ‘Boards are starting to adopt AI mainly to support decision-making. Much of the data and reports they use are already AI-driven, even if not visibly so,’ he explained. He likened this cautious adoption phase to the initial steps into the world of electric vehicles, with growing enthusiasm reflecting the broader trend of AI integration across various industries.

Rise of the robo-directors

Imagine a board meeting where an AI named ‘robo-director’ offers insights alongside its human counterparts. While it sounds like science fiction, it is happening now. These AI models provide unbiased input by examining vast datasets, although their legal status and liability remain uncertain.

‘The term robo-director refers to algorithms or AI models appointed to a company’s board,’ said Sheikh. ‘These tools assist boards with making smarter decisions, offering impartial insights and avoiding conflicts of interest.’ Examples like Vital, Alicia T and Aidan Insight show how AI is being integrated into corporate governance, albeit in a purely advisory capacity for now.

AI in M&A

AI is also transforming M&A activity by enhancing strategy, efficiency and due diligence, though it’s not without its pitfalls. ‘AI can streamline pre-deal activities by analyzing market trends, competitor strategies and identifying targets,’ noted Sheikh. ‘AI is error-prone, however, so it should be trusted but verified. Regulatory and legal uncertainties also remain, including data privacy and oversight.’ This dual-edged sword highlights the need for cautious optimism in leveraging AI.

Investor and regulatory concerns

Investors and regulatory bodies are closely examining AI integration into business strategies and governance. Shareholders are particularly interested in how boards are staying educated on AI and its governance as well as how AI is being integrated into business strategy and being overseen by the board.

As Kim noted: ‘Shareholders are concerned about how the board stays educated on AI and the governance surrounding it. They’re asking about AI integration into our business strategy and the board’s oversight function.’ This growing scrutiny underscores the importance of transparency and proactive governance in AI implementation.

The panel also discussed how companies must keep in mind the legal and ethical complexities of AI incorporation into the boardroom. Regular audits, clear governance structures and the establishment of advisory boards for AI ethics are essential.

‘We’ve established an advisory board for AI ethics and governance, defining ethical principles for AI deployments,’ said Kim. ‘This body reports to our enterprise risk-management function, which then reports to the board.’

Oversight and governance

Effective AI governance requires boards to establish oversight committees, integrate AI governance into risk-management frameworks and ensure ongoing education for board members.

‘Establishing AI oversight committees alongside risk committees is essential,’ Harley said. ‘Boards should balance risk management with opportunities for data-driven decisions and new business prospects. From a governance perspective, ensuring proper frameworks, ethical standards and continuous education for board members is crucial.’

He added that educating boards through seminars and workshops, as well as ensuring that AI skills were a key criterion in board recruitment and succession planning, should be a priority.

AI and corporate strategy

AI can significantly enhance corporate monitoring, executive talent acquisition and investment decisions. The panel discussed how in the future, AI will enable real-time information access and automated governance processes, such as minutes and agenda planning, freeing up governance professionals for more strategic issues. Sheikh predicted a world where ‘AI serves as an additional data point for the board, giving governance professionals more time for strategic issues.’

Transparency regarding AI strategies and risks is non-negotiable, however. Shareholders demand it and boards must ensure consistent, clear communication. ‘Shareholders want transparency,’ Sheikh said. ‘Boards must ensure proper disclosure and oversight.’ This transparency is crucial for maintaining trust and accountability.

What next?

The key to unlocking AI’s full potential lies in striking a balance between embracing its opportunities and implementing robust oversight. Boards must foster a proactive culture around AI from the outset, ensuring the organization is prepared to navigate the evolving landscape. As Harley emphasized: ‘Setting the right culture around AI early is crucial for the organization’s success.’

As AI continues to evolve, its influence in the boardroom will only grow, transforming governance activities and decision-making processes. By proactively integrating AI, establishing robust oversight and maintaining transparency, boards can harness its power to navigate the future with confidence and strategic foresight.