By Emmanuel Ejeu*
Source: Phonlamai - Getty Images/iStockphoto
Corporate governance is the system by which companies are directed and controlled. This system is dynamic enough to include notions of ownership, company law, stakeholders and regulatory compliance, among others. Recommendations made in the seminal Cadbury Report, published in 1992, seek to mitigate corporate governance risks and failures. Furthermore, this report has been a benchmark to develop other corporate governance codes in member states of the OECD and EU, and the US, among other countries, which provide it with global acceptance.
An important relationship between corporate governance and artificial intelligence (AI) is emerging. AI refers to any activity devoted to making machines act with human intelligence, including the ability to learn, reason, perceive things, and act accordingly. In the case of corporate governance, this intelligence should encompass the quality that enables an entity to function appropriately with insight, foresight, oversight, and hindsight with respect to its environment. For example, data gathered by AI enhanced processes offer valuable insights like financial and market trends among others. This information allows directors to make better decisions, perform informed predictions (foresight), and fulfill their oversight responsibilities by the actions they take. Board members should interest themselves with the basics of AI in order to fulfill their fiduciary duties and lead the entities they represent effectively and responsibly.
While AI technology is not new, many organisations world over are now starting to explore ways to leverage it for business effectiveness, with management teams at the forefront. There is growing evidence suggesting how vital AI has been for companies when running various operations. For example, Facebook uses AI to automatically catch and remove problematic images or videos that are posted on its site, such as those deemed sexually explicit. This has made it easier for those tasked with manually deleting pornographic content and at the same time, it enables the Facebook board to fulfill its oversight responsibility more effectively. However, the importance of AI for corporate management and governance has long been ignored or given little attention.
Peter Drucker, in his article “The Manager and the Moron”, noted, “The computer does not make decisions, it only executes commands. It’s a total moron.” In the past, Drucker could have been right; the computer must have been a total moron. However, the advent of technology with accelerated developments across various industries has changed this notion. We are now living in an era where the systems in place have voluntarily or involuntarily forced people to increasingly and heavily rely on the machines to perform a series of tasks.
Increasingly, companies that embrace and explore ways of leveraging the technology stand a better chance of fulfilling some of their fiduciary responsibilities and effectively leading their organisations. Entities that have adopted AI in their strategy have seen a substantial growth. On the other hand, entities that have resisted or delayed embracing the technology have seen a great decline or collapse in their business. Here is a list of classic examples of corporate entities that failed to innovate and adopt even a small bit of artificial intelligence. Where are they now? It is worth noting that the former Nokia CEO once ended his speech saying, “we didn't do anything wrong, but somehow, we lost.” This remains a valuable lesson to corporate management.
As AI becomes more prominent, organisations need to start recognising its role and having periodic discussions around its use. This is where leadership from corporate boards can become key: from the basics of using board management software to practical applications of AI technology to deep engagements by management teams on key developments that may require the technology. Progress could be seen on board decision-making processes going forward. The board could also engage in periodic trainings about AI with management teams in attendance.
As board members get ready to adopt AI technologies, they should ask themselves key questions that will help them identify key risks (organisation, industry, and global), current expertise, stakeholder engagement, and uses of AI. Some of these questions include, but are not limited to;
What are the uses of our data?
Is all our data collected into a central repository?
How are we managing all our data sources?
Which datasets are coming from the industry where their organisation is a key player?
Which other industries could be encroaching into ours with non-conventional substitutes?
Does our company have a clear vision to lead with AI?
AI is permeating all industries. Corporate board members are urged to strive to understand the technology more and its impact to business models, strategies, and risks in a fast and ever changing environment. This will help enhance the effectiveness of the board members as they undertake their fiduciary responsibilities of loyalty, care, and skill.
*Emmanuel Ejeu holds a Bachelor’s of Science in Computer Science and a Master’s in Business Administration from Makerere University. He also holds a certificate in Leading with Artificial Intelligence from the Global Leadership Academy in Partnership with ITCILO. Emmanuel is an entrepreneur and seasoned consultant with experience in business analysis, technology, research, corporate governance, program management and organizational development.