Artificial intelligence (AI) has already emerged as a transformative tool across numerous industries. However, its potential goes far beyond utility for specific applications for the workforce and extends to reshaping how companies are run. With the logistics of business management already rapidly changing from the advent of COVID-19, AI presents a multitude of opportunities for boardrooms to enhance decision-making processes, with the power to enhance corporate governance. This article explores how boardrooms might utilise AI to govern companies more effectively in the future.
In today’s data-driven landscape, businesses must compete by understanding their customers and markets. AI has the capacity to collect, analyse, evaluate and elaborate information concerning commercial performance, social media accounts, activities of competitors and financial or non-financial knowledge with great speed.1 Boards can leverage AI to gain a deeper understanding of critical business key performance indicators (KPIs), such as customer retention, engagement and market trends. AI can assist in producing accurate forecasts and projections for future quarters or financial years in seconds, allowing boards to make strategic decisions based on data.
Furthermore, AI enables boards to identify potential or existing risks hidden within data sets. For example, in the financial sector, AI can analyse data from a supply chain, including supplier performance, shipping delays and inventory levels, to identify potential risks such as bottlenecks or disruptions. The ability to find vulnerabilities in a company’s existing operations can aid the board’s short-term and long-term strategy planning to promote growth in the business.
Another huge bonus for boards is that AI can serve as a real-time data cruncher. When reviewing extensive reports and financial spreadsheets, AI can provide real-time analysis, extract relevant information and summarize key points as and when questions arise in board meetings. This real-time support will allow boards to make more efficient decisions based on accurate insights.
The importance of the above cannot be underemphasized as boards will be able to make more informed decisions backed by data and will be able to respond to changes in the market and/or customer behaviours faster, making companies more adaptable and successful. These tools could prove particularly effective for start-ups and entrepreneurs who will be able to leverage AI to squeeze the information symmetry between big companies and smaller start-ups.
Moreover, from a more academic perspective, incorporating AI into boardrooms could reduce any agency issues between the shareholders of companies and the board. AI might be a solution to situations where company directors are acting in their own interests instead of the interests of the company. As AI systems do not have any personal interests, they could be a reasonable and appropriate check on directors, ensuring that the board (the agent) is acting in the best interests of the shareholders in the company.
Another way where we could see AI systems integrate into corporate governance is in the selection process to find suitable directors for a company. In particular, in larger companies, it is not always easy to find and select the most appropriate company directors. As AI can analyse candidates based on the industry of the company and the needs of the corporate at that particular time (e.g. financial health of the company or expansion into a new field), AI can support humans in selecting shortlists for candidates based on vast amounts of data.
One potential significant issue which we could face in the future with integrating AI into corporate governance is that it may increase levels of layoffs and unemployment. It is possible that with the development and use of AI for large scale data analysis work that it could reduce the need for employees within particular teams or with particular levels of experience. Available statistics indicate that the automation of certain tasks can increase productivity by up to an estimated 40% in some industries,2 which means a very real risk that the need for certain employees with particular levels of expertise will decrease, if not be extinguished, within the next few decades.
There are commentators in the market who argue that while this may hurt certain roles within a company initially (for example, data analysts or personal assistants) the increased efficiency of each individual will inevitably lead to the creation of new jobs and more employment.3 Indeed, the House of Lords expressed in their ‘AI in the UK: Ready, Willing and Able?’ report that while AI “invariably raises the prospect of increased unemployment… it is equally possible that productivity can grow alongside employment, assuming economic output also increases”4 .
Nevertheless, even though some jobs might be at risk, it is widely accepted that the role of the board as supported by AI will be more important than ever. After all, however much AI might assist the decision-making process, the ultimate judgement as to the direction of the company remains with the board. Companies which use AI to drive competitiveness and
operational excellence will be the ones that stimulate growth and increase shareholder value in the future.
In addition, directors are (of course) ultimately legally responsible for their decisions and could be open to negligence claims if they defer such decisions to, or are overly reliant on, AI. For instance, a board of directors could rely solely on an AI-generated report, identifying potential acquisition recommendations for a company. If the board fails to conduct further
due diligence on the target companies and apply their own judgment and expertise to the AI- generated report, then the board’s overreliance on this AI-generated document could arguably be negligent.
To mitigate these risks, directors should implement robust AI policies within their companies to ensure human oversight over AI systems with respect to data governance and monitoring for bias or inaccurate responses. In addition to being able to show robust monitoring policies, boards should augment, not replace, their responsibilities with AI. Directors should use AI- generated analysis as a tool to enhance their board decision-making process, not replace their responsibilities.
AI is poised to revolutionize decision-making processes in boardrooms, offering to unlock data analysis for small and medium-sized businesses that were previously reserved for big companies with large data analyst budgets. The future of decision-making at the top will involve a harmonious collaboration between human intelligence with its accompanying real- world experience and AI, empowering companies to make the most informed decisions in an increasingly data-driven world.
1 Kaya, Baran Can, The Role of Artificial Intelligence In Corporate Governance (June 22, 2022).
2 Ricard, Sebastien ‘AI’s Effect On Productivity Now and In the Future’ (2023)
https://www.forbes.com/sites/forbestechcouncil/2020/03/20/ais-effect-on-productivity-now-and-in-the-future/
3 Gries, Thomas and Naudé, Wim, Artificial Intelligence, Jobs, Inequality and Productivity: Does Aggregate Demand Matter?. IZA Discussion Paper No. 12005
4 House of Lords (2018) AI in the UK: Ready, Willing and Able? Select Committee on Artificial Intelligence, HL Paper 100. Jones, B. (2009)
