Boards & Artificial Intelligence – The Future of Corporate Governance

Liselotte Engstam has many titles: Non- Executive Board Director, Chair, Advisor, Research Scientist & Board Trainer. Most recently, she’s the co-author of the book AI Leadership for Boards – the Future of Corporate Governance, where they share in-depth insights and relevant guidance on how corporate boards should respond to the challenge of AI and big data.

 

What is your general view on the board’s knowledge about new technologies?

The knowledge of digital impact has become more acute as the pandemic has reminded us that we need to have more people with this insight. For example, if you don’t understand what AI or blockchain can do for your business, it is harder to guide the management and help them bring the company into the future. 

If you don’t understand what AI or blockchain can do for your business, how can you guide its development?

How can boards leverage all the investments in data and digital tools?

Boards need to ensure they receive input from many sources, also outside of the company and its management. Balancing this is increasingly important. We also see that we sometimes are stuck in old ways of conducting board work and that, in the long run, we need to work more with different approaches. We have fixed committees in terms of audit and remuneration, for example, but an increasing number of boards also utilize technology or digital committees. Our research tells us that more progressive companies are starting to have a more defined tech strategy and assigned committees specifically for innovation. They don’t make decisions; they work more on preparing the information and present it to the board while saying, ‘This is what we are missing.’

 

Which companies are already implementing this?

You can see it starting to spread mostly in companies subject to an increased speed of disruption and change—as companies in travel, banking, telecommunications, etc. 

 

Where do you think boards generally stand today in regards to AI?

We find that the biggest problem is that they are overwhelmingly introduced to AI on a very technical level with less understanding of applying it to their business. That’s why we decided to write our book (AI Leadership for Boards – the Future of Corporate Governance), where we share how companies can understand the less technical side of AI. It’s less about boards using AI to make decisions, but to understand what relevant areas boards need to focus on in the coming years to adapt faster when AI becomes more widespread. 

 

How can boards master this art of being digital?

Using committees or advisory boards is one good way to ensure part of the board spend more time to revisit the impact of AI and then present it as a discussion to the rest of the board. Data, for example, is a necessity for AI, and it isn’t technical. However, data is collected mostly on current business, and fewer discussions are had over which data is needed for tomorrow’s business to complement the existing business. This data mostly comes from other sources. For most companies, it’s not just going to be your internal data but a combination with other companies’ data. 

Data isn’t technical; data is data.  

What has surprised you the most when researching best practices?

I had a hypothesis that banks would be a good source of inspiration regarding best practices on governing AI, as they have worked with regulated algorithms for the last 15 years. Nevertheless, what we found in the interviews is that it’s almost the opposite. They mainly concentrate on areas where they are regulated, they have good practices there, but they don’t take those practices to other parts of the business. For example, one regulation says that you need to register where you use your algorithms, how you use them and test the outcomes once a year. A practice that would be great to apply to all parts of their business where they also use algorithms. 

Companies also tend to only focus on the AI they have developed while forgetting the AI they use from other providers. 

 

How do you think boards will find and recruit this talent and competencies needed to add value?

Gathering talent is another part where committees or advisory boards are great. You can have a couple of board members from the company work with both internal and external experts. Having all the talent recruited to the board will ultimately slow us down. You can’t just wait for that; you need to find other ways to get that knowledge into the board.

Traditionally, you would ask a consulting company or a corporate finance advisor to come with some advice or insights on these matters. One way is to find ways to collaborate more with them. If you are on a temporary committee on tech and you’re investigating these things, and you’re doing it partly together with the management team, and partly with experts, you will have gathered many actionable insights within half a year. 

I’m also biased for action, in the sense that I think chairs can use more of their insights to learn about digital tools even for the board’s work. I wonder why we believe that the way we operate boards today is the best way to do it. We need to bring digital tools and experiments also into the boardroom. 

 

How can boards evaluate this work? How can you, as a chair or shareholder, follow up?

Be clear. What are we here to do? Boards today are often more supervision focused than guidance focused. We need to ensure we balance that and then evaluate against that. 

The excellent chairmen are already doing this naturally, and we find that they bring that competence from their prior leadership experience. They also reach out more individually to the board members to discuss the board’s focus and what they should do—not primarily running it in a board year structure, which is the same over the years.

Many current evaluations focus on hygiene questions. Like: Do we get the material on time? We can do all hygiene correctly and still lose market share. We need to ensure that the focus is also on doing the right thing, not just doing something right. We need to ensure we also evaluate our approach. Asking how we can improve things more often leads to daring to do things differently. 

We find it interesting that in Sweden and several Nordic countries, board evaluations serve as a communication vehicle with their key investors through the nomination committees. This practice can also be valuable in other jurisdictions. It’s a good way for investors to have more meaningful discussions with the chairman on improving things.

Read more about the future of Corporate Governance in AI Leadership for Boards – the Future of Corporate Governance. More info here.

 

Written by William Röhl

Follow BoardClic

Learn more about corporate governance

Why boards should evaluate their CEOs

Why boards should evaluate their CEOs

The CEO is the link between the top functions in an organisation – from the board of directors down through to the management team. His or her decisions resonate throughout the entire business. Hence, the importance of ensuring a strong and effective leadership from your chief executive cannot be stressed enough.