The implications of artificial intelligence for boards

The role of boards and directors has evolved in recent years to meet increasingly complex regulatory requirements, sophisticated technological developments in business processes, and a broad array of community demands—once considered beyond the remit of boards.  

Here, Directors Australia Board and Governance Principal, Christine Hawkins, discusses the meteoric rise of artificial intelligence (AI) and the associated implications for boards.  

Increasing board focus on innovation 

There has been a significant shift towards innovation in board agendas. Boards are implementing technology solutions as a panacea for issues around: 

• skills shortages 
• process improvement 
• cost control, and  
• organisational performance. 

The explosion of ChatGPT and Google Bard has taken the potential for technology solutions to an unprecedented level of excitement. The governance media reels with the potential impact on the nature of work and the consequences for employees. Digital transformation is the buzzword as boards seek to appoint directors with lived experience of this business strategy. 

The history of AI 

AI is not new, it dates back to Alan Turing’s work in the 1950s but, until recently, the impact has been largely confined to business operations. It has not typically been a significant feature of boardroom strategy or risk discussions.  

The terminology is unclear and there appears to be no end to the possible applications for this technology and its impact on business and society. AI conjures up visions of robot armies, cute human-looking machines, and equally sinister figures that are designed to take over the world. 

What is AI? 

AI at its simplest is computer code that collects and aggregates data. It uses this information to identify and learn from patterns without human intervention or direction. Artificial intelligence, however, is not a single technology. It includes: 

• robotics and sensors 
• biometrics 
• computer vision 
• voice recognition, and 
• machine learning. 

Robots are already widely used in manufacturing, distribution and defence. They have transformed these operating environments where they are deployed. AI bots are increasingly being used by companies to interact with customers. Voice recognition is providing solutions for a diverse array of applications from identifying telephone customers to recording parliamentary sessions and operating household appliances. 

Reliance on technology to improve business processes 

The increasing reliance on technological solutions to improve business processes has evolved at a staggering pace. The focus is now turning to AI cyber security to gain a deeper understanding of: 

• ethical limitations 
• the issues of information privacy 
• breach of copyright 
• bias in the data 
• difficulty verifying the accuracy of AI content, and 
• unintended consequences of the technology. 

Boards using generative AI 

Generative AI programs offer executives and boards new and more efficient data analysis for forecasting, business development and strategic planning. Generative AI can write your annual report, refresh your website copy and prepare your board papers. 

Some of these methods are already in general use (big data) but are boards querying the validity and veracity of the models? Is this too technical for boards? Boards should have policy that clearly sets out the company’s expectations regarding the use of AI in the business and the board’s appetite for risk related to AI applications. 

AI endemic in business 

Technology has now advanced to the stage where it is endemic in business and critical to innovation in products, services and processes. AI is propelling business into areas that haven’t been rigorously evaluated for risks or benefits. Companies are becoming increasingly reliant on technological improvements to drive process improvement. 

The extent to which AI is currently used in many businesses is perhaps not obvious, even to directors, as they celebrate ‘innovation’ and companies become increasingly reliant on technological improvements to drive process improvement. 

When reliance on AI goes wrong 

A recent case study for directors was the Federal Government’s Robodebt Scheme debacle. It should have immediately alerted directors to the issues associated with reliance on digital transformation of their businesses. 

The Royal Commission into the Robodebt Scheme, while at an early stage, has published submissions received from many parties and some of these raise issues of significant concern for boards and directors. Interestingly, these issues are being flagged mainly in IT-related publications rather than in governance publications. 

Board and director responsibilities utilising AI 

Use the following AI ‘health check’ to see what guidelines your board has in place to mitigate risk and maximise synergies. 

1. Is AI used in your business? If so, how is it used? 
2. What is the board’s risk appetite for AI applications? 
3. What are the risks of using AI? How are they managed? 
4. What is the board’s policy for using AI? 
5. Do the board’s strategic discussions include the benefits and risks of AI in supporting innovation? 
6. What reporting does the board require to understand the impact of AI and other technology on the business? 
7. Are there ESG implications in utilising AI technologies in your business? 

Directors’ skills and digital transformation 

Boards often seek directors with IT skills and experience to enhance the board’s understanding of the challenges of rapid technological developments, but is that all it takes in today’s rapidly changing environment? 

The nature of AI issues indicates that traditional board approaches to strategy require deeper insight into the use and risks of technology. 

Enhancing your board composition and committee structures 

How your organisation interprets digital transformation should be clearly understood. This might feed into committee structures, such as a data governance committee, with independent specialist expertise. These questions are relevant not just in IT, but across complex decision making and ethics. 

Digital transformation committees could be responsible for: 

• advising the board on developing an AI company policy 
• reviewing the use of AI in the business and the impact of digital transformation 
• reviewing risks associated with using AI in business, including ethical considerations that could create reputational risks or otherwise jeopardise the company’s values and publicised ethics, and 
• testing the impact of AI processes and use in the business on cyber security, privacy and data risks and compliance. 

Boards should consider their approach to strategy and whether this needs to be more integrated with technology issues to fulfill their care and diligence responsibilities for the company. Many boards rely heavily on their management and restrict directors’ involvement in strategy to agreement with high level objectives and KPIs. Directors should ask themselves whether this sits comfortably with the issues emerging from the increasing use and sophistication of AI. 

Directors Australia can advise appropriate board composition and committee structures to meet these contemporary challenges.

Board advisory experts at Directors Australia can support directors in restructuring their boards and committees to include contemporary risks and opportunities such as AI.  

Directors Australia works with the boards of publicly listed, government, private, APRA-regulated and not-for-profit organisations across all sectors and industries Australia-wide to achieve real, ‘best fit’ corporate governance appropriate to the organisation’s nature, and thus enhance board and organisational performance. 

As the roles of boards and directors continue to evolve, Directors Australia’s deep industry expertise can advise your board on the best way to traverse this rapidly evolving technological world. To learn more, visit the Directors Australia website or contact us.