Artificial Intelligence and Technology in Corporate Governance

The modern boardroom is beset by huge volumes of data that directors must digest to perform their governance functions, data that are only increasing as industries rapidly change and respond to technological disruption. At the same time, corporate scandals as a result of governance failures continue to emerge. Recent Australian inquiries show that company size does complicate, but does not excuse, board transparency and accountability. Moreover, the failure to appropriately make use of existing technology that could have prevented or mitigated corporate misconduct shows that technology can bring us only so far. It has to be supplemented by sound governance practice. The breaches of money laundering and anti-terrorism regulations by Australian financial institutions, Westpac and Commonwealth Bank of Australia, attest to this.

In a recent paper, Perspectives on the Current and Imagined Role of Artificial Intelligence and Technology in Corporate Governance Practice and Regulation, we investigate how technology and artificial intelligence (AI) are becoming essential levers for boards and organizations in making sense of mountains of data, plumbing that data for meaningful insights, making good decisions, and planning for the future.

Ours is a scoping study that examines and describes how technology and AI are currently augmenting corporate governance globally and identifies governance areas where gaps or opportunities exist for AI to become a competitive governance advantage in its own right. The article imagines how these developments might play out, highlights the challenges involved and suggests their impact on the traditional norms and understandings of contemporary corporate governance.

We begin by defining what we mean by AI for the purposes of our paper, dividing it into three categories of development: process automation; cognitive insight; and cognitive engagement based on the work of Davenport and Ronanki.  We report on the baseline of technology that boards have adopted to help manage their corporate governance responsibilities. It assists them in preparing and distributing reports, streamlining meeting preparation, and scheduling meetings. Corporate boardrooms globally are taking nascent steps towards their own digital transformation. Our investigation shows that most of the current AI applications that aid governance fall in the process automation classification (board portals, risk and auditing systems, legal compliance), with some inroads having been made in cognitive insight (risk management, internal audit, legal compliance). Systems that exercise cognitive engagement have not yet come into their own but may yet add value in the boardroom as the technology matures (smart visualisations with recommended actions, robo-advisers, capabilities enabled by the internet of things).  Helpful as it is, though, we contend that this technology doesn’t address the bigger governance challenges that boards are facing, such as engaging in meaningful strategic, pro-active risk oversight and real-time insights into company operations.

We speculate about the future advances that AI might bring in the corporate governance sphere, some of which are already being explored in current systems.  We do not argue that AI will supplant the role of directors in corporations any time soon.  Rather, we contend and suggest why AI will inevitably improve the “collaborative intelligence” of boards of directors through the provision of greater analytical accuracy and the facilitation of greater efficiencies in governance tasks.  However, boards will need to realize the untapped value of the data that are generated in their organisations and actively create and curate this data to reap maximum governance benefit from it.

Finally, we explore the challenges that current and foreseen applications of AI in the boardroom hold for directors in the fulfilment of their duties and corporate governance practices generally and consider how these challenges might influence future corporate governance theory and practice.  The availability of this intelligence and technology does not necessarily mean it will lead to better corporate governance.  AI can  not supplant human actors performing governance functions.  Aspects of governance decision-making, such as ethics and culture, remain outside AI’s sphere of influence with the result that human actors remain accountable for governance outcomes in the final instance.

REFERENCES

Thomas H Davenport and Rajeev Ronanki, ‘Artificial Intelligence for the Real World’, Harvard Business Review (online), January-February 2018, https://hbr.org/2018/01/artificial-intelligence-for-the-real-world.

H James Wilson and Paul R Daugherty, ‘Collaborative Intelligence: Humans and AI are Joining Forces’, Harvard Business Review (online), July-August 2018, < https://hbr.org/2018/07/collaborative-intelligence-humans-and-ai-are-joining-forces?referral=03758&cm_vc=rr_item_page.top_right>

This post comes to us from Natania Locke and Helen Bird at Swinburne University of Technology in Melbourne, Australia. It is based on their recent paper, “Perspectives on the Current and Imagined Role of Artificial Intelligence and Technology in Corporate Governance Practice and Regulation,” available here.