How AI's Risks, Opportunities Are Forcing Corporate Boards To Get Involved

Corporate boards are becoming increasingly insistent on receiving more information from Csuite executives and managers about the opportunities AI presents to the companies for whose governance they are responsible - but also about the threats and risks it presents, not the least of which is the legal liability they themselves may have to incur. 

As a result of this demand for information, a cottage industry of legal and management consultants is emerging to provide insight, guidance - and assistance. As with many other new technologies, these support groups will likely drop aside as enterprises, their executives and board members become more conversant with AI, but that is likely years away. For the foreseeable future, prudent organizations are doing all they can to educate themselves, ask tough questions and prepare for the challenges. JL

Emily Glazer reports in the Wall Street Journal:

Public company board members say the swift rise of AI in the workplace is an issue that is keeping them up at night. (So) board members are on the front lines of making rules on where and how it should be used. Board members are educating themselves on how gen AI can affect a company’s profit—potentially boosting productivity but also bringing risks that will be difficult to assess. Some point to concerns around employees putting proprietary code into ChatGPT, companies using gen AI to incorrectly source content or worries about hallucinations where gen AI produces false or inaccurate information. (And) board members worry they could be held liable in the event AI leads to company problems.

At a recent bank board meeting, directors were treated to a surprise. They listened to the chief executive talk strategy—except it wasn’t actually the CEO talking.

 

It turned out to be a voice-cloning model that was trained, using the CEO’s prior earnings calls, to generate new content. More boards are undertaking such staged exercises to better grasp the impact—and potential risks—of generative artificial intelligence, says Tariq Shaukat, CEO of coding company Sonar, who was briefed on the exercise but declined to disclose the name of the bank.

“There’s a lot of risk [with AI] and they think they need to understand it better,” says Shaukat, who himself serves on corporate boards. 

Public company board members say the swift rise of AI in the workplace is an issue that is keeping them up at night. Some point to recent concerns around employees putting proprietary code into ChatGPT, companies using generative AI to incorrectly source content or worries about so-called hallucinations where generative AI produces false or inaccurate information. 

Tariq Shaukat, CEO of coding company Sonar Photo: Sonar

Adding to their nightmares, board members worry that they could be held liable in the event AI leads to company problems. In recent years, some legal actions from shareholders have focused on whether board members—not just executives—exercised sufficient oversight of company risks.

Board members, or directors, sit a level above management. Their job is to take a more independent view of company oversight, from risk management to culture to hiring the next CEO. Emerging technologies have been both a boon and a headache for companies. Now that AI is front and center, board members are on the front lines of making rules on where and how it should be used—guidelines that could be crucial to the course of the powerful and fast-evolving technology.

Clara Shih, CEO of Salesforce’s AI division, says she has talked with a couple of dozen board members, whether CEOs or peers who reach out to her for advice, who are trying to better understand AI. Often discussions center on topics including data security and privacy, mitigating AI hallucinations and bias and how AI can be used to drive revenue growth and cut costs. “In the last year, we recognize that generative AI brings new risks,” says Shih, who was on the Starbucks board from 2011 to 2023. An audit or risk committee, for instance, needs to know how a company uses AI, down to an individual employee not leaking confidential information using AI tools, she adds.

Yet companies that shun AI risk becoming obsolete or disrupted. AI questions pop up so frequently that Salesforce made public its guidelines for responsible development and use of AI, Shih says. She has also shared Salesforce’s AI training, called Trailhead, with friends who are public-company board directors. “AI is a moving target,” she says. “Every week there are new models being open sourced, there’s new research papers being published, and the models are getting more powerful.”

 

AI’s rapid rise has many boards racing to catch up. In 2023, 95% of directors said they believed the increased adoption of AI tools would affect their businesses, while 28% said it wasn’t yet discussed regularly, according to a survey of 328 public-company board members by the National Association of Corporate Directors, the largest trade group for board members. That is changing as more board members say they are educating themselves on how generative AI can affect a company’s profit—potentially boosting productivity but also bringing risks that will be difficult to assess. 

The NACD recently formed a group to focus on how to tackle emerging technologies, especially AI, at the highest levels of companies. Business schools are incorporating generative AI case studies into their training for board members. A number of senior AI executives and advisers have gathered this year to discuss that very topic at conferences across the world. In March, European lawmakers approved the world’s most comprehensive legislation on AI, with other regions expected to follow suit. 

A seismic shift

This isn’t the first time that a disruptive technology is making waves in the boardroom. Board members and advisers point to the early days of the internet, cloud computing and cybersecurity as key technological inflection points. But AI could have an even broader effect.

 

The release of ChatGPT in November 2022 sparked a seismic shift in how people use technology, says Nora Denzel, co-head of the NACD commission on board oversight of emerging technology and the lead independent director of the board of chip maker Advanced Micro Devices. “I’ve seen such an uptick in directors coming to anything we offer with AI in the title,” says Denzel, who co-leads the commission with Best Buy board chair David Kenny. “I’ve never seen such fervor to understand it.” 

Nora Denzel, gesturing, speaks at a National Association of Corporate Directors event on technology and innovation. Photo: NACD.

As a way to get a handle on this technology, Denzel, who also is a director at NortonLifeLock and a former tech executive, says she suggests directors specifically evaluate different functions of AI, such as customer support, language translations or coding assistance. For instance, she has recommended directors follow visual mapping used by consulting firm McKinsey, creating a color-coded matrix that shows at a glance the business areas in a company where AI could have the biggest impact. It looks at industries, such as banking, education and transportation, and functions, ranging from marketing and sales to product development to strategy and finance. 

David Berger, a partner at law firm Wilson Sonsini Goodrich & Rosati whose work includes advising boards on generative AI, says he recommends they ask how AI can have a positive impact on their business and where any threat related to AI is rooted. That can differ by business, he says, whether customer privacy, data security or content intellectual property.

David Berger, at lectern, a partner at Wilson Sonsini Goodrich & Rosati, spoke in April at a conference on AI and governance co-sponsored by the Italian university Luiss. Photo: LUISS

Berger and his firm have co-hosted three conferences so far on AI governance, with more in the works as directors and others in the sector aim to discuss the emerging technology more. “The smart boards see the tremendous opportunities that AI can bring,” he says. 

Laurie Hodrick, a board member at companies including TV streaming company Roku, said during a recent AI conference co-hosted by Wilson Sonsini that public-company directors should regularly be asking around a dozen key questions on AI. Those include: Who in senior leadership focuses on AI? Where is AI being used within the company? How are tools being identified and ranked for risk? How are third-party providers using it, and how are boards monitoring evolving regulatory regimes and litigation?

Laurie Hodrick, a board member at companies including Roku, says public-company directors should regularly ask questions on AI. Photo: LUISS

Learning the ropes

More board members are seeking help as they try to catch up.

Janet Wong, a board member at companies including electric-vehicle maker Lucid Motors, says AI governance has been a key discussion point among directors at training sessions led by business schools for directors this summer.  Harvard Business School’s program in July included a case study on how an online education company uses generative AI in reshaping its products. At the annual Stanford Directors’ College in June, she says, directors talked about managing risks of AI, such as the possibility of re-creating the voice of a CEO to make requests. At this early stage, simply making boards aware of how the technology can be used is a big focus.

The Watson Institute at Brown University and Dominique Shelton Leipzig, a partner at the law firm Mayer Brown, in March held a second annual digital trust summit for board members and CEOs to discuss AI governance, with more than 100 people attending.

Staying up-to-date on AI risks and talking about it in the boardroom has been front and center for Logitech, says CEO Hanneke Faber. The provider of computer peripherals, videogame accessories and videoconferencing hardware walked through its AI governance framework during a March board meeting and continues to adapt that framework. 

Logitech CEO Hanneke Faber Photo: denis balibouse/Reuters

The board also brought in AI experts, responding to feedback that directors and management wanted to better understand how AI affects the company’s business—for instance, examining how it uses AI for productivity as well as in its software, video and audio. “It’s very high on the agenda for the board,” she says. 

Not all board members are cut out for such work. 

Leo Strine, the former head of Delaware’s influential business courts and now a lawyer at Wachtell, Lipton, Rosen & Katz, said during a recent AI governance conference that the technology is quickly changing business practices, and directors who are no longer active executives at companies may struggle to keep up with emergent uses, unless they commit to constant learning. 

“AI is exceedingly complex,” he says, “putting stressors on generalist boards and their reticence to demand explanations from management.”