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AI in the Era of ESG: Nine Steps Boards Can Take Now True
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* TAGS
* AI: THE NEXT TRANSFORMATION
* ARTIFICIAL INTELLIGENCE - ENVIRONMENTAL, SOCIAL & GOVERNANCE
* BOARDS
AI IN THE ERA OF ESG: NINE STEPS BOARDS CAN TAKE NOW
June 12, 2023 | Publication
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How boards can guide their companies in maximizing AI’s business benefits, while
responsibly balancing the welfare of a firm’s multiple stakeholders and society
at large.
The latest developments in Artificial Intelligence (AI) promise to have a
profound impact on business and society. They will test companies’ ability to
address the business opportunities and risks associated with yet another
transformative technology. They will also offer a test case for corporate
boards’ commitment to ESG and multi-stakeholder capitalism.
We offer nine recommendations for boards to guide their companies in maximizing
AI’s business benefits, while responsibly balancing the welfare of a firm’s
multiple stakeholders and society at large.
1. Engage with the technology for first-hand understanding. For decades,
companies have used AI to perform routine manual tasks and to assist human
decision-making. More recently, AI has come closer to mimicking human
thinking itself, with tools predicting behavior and, now, with “generative
AI” tools such as ChatGPT, to creating written, oral, and visual content.
For boards to provide effective oversight and make key decisions regarding
their company’s use of AI, they need to understand it. Management should
provide boards with the opportunity, in a controlled environment, not only
to see the technology, but also to engage with it first-hand, and to do so
on an ongoing basis as the tools evolve.
2. Ask management to provide an overview–and then regular updates–on how AI
intersects with the company’s business. Boards will need to develop a firm
grasp of how AI affects the company’s activities in the marketplace (the
products and services a company sells or buys), the workplace (operations
and employees), and the public space (including government relations,
communications, and corporate social responsibility). As they focus on AI,
however, some boards may benefit from a more general update on how
technology is transforming the business; according to a recent survey of 600
US C-suite executives, only 50% say their boards have a good understanding
of how the digital transformation is affecting their business.
3. Integrate AI into Enterprise Risk Management (ERM). Boards should ensure
that AI is considered as part of the company’s ERM program. This should
include not just generative AI, but predictive and other forms of AI that
raise many of the same legal, ethical, and reputation issues. It is also
critical to consider the multiple, interconnected areas of risk associated
with AI. For example, AI may serve as a catalyst for boards to view data
security, data privacy, intellectual property, and antitrust not in separate
silos, but collectively under the heading of “data protection” or, perhaps
even more accurately, “knowledge protection.”
4. Incorporate AI into “Enterprise Opportunity Management.” AI could also lead
companies to consider how they can more systematically identify, evaluate,
escalate, address, and report on business opportunities throughout the year.
The traditional annual strategic and business planning processes may not be
keeping pace with the rate of business change or fully tap the broader
knowledge within an organization.
5. Implement evolving controls. Boards should expect that the company’s
controls over the use of AI will change as the underlying technology, its
application in the company’s business, government regulation, and industry
practices develop. At the outset, boards should expect the CEO to provide
the organization with an overview of how AI is likely to affect the
company’s business as well as an initial set of principles to guide the use
of AI. A good starting list includes ensuring that any use of AI retains the
trust of your stakeholders, is fair and unbiased, protects your systems and
data, is transparently disclosed, and is fully compliant with laws and
regulations.
6. Ensure management is devoting sufficient cross-functional resources to this
area. No board wants to discover that it has skimped on data protection, and
many corporate audit and risk committees meet in executive session with
chief technology and information security officers to ask whether they have
the resources necessary to protect the company. With generative AI, boards
should ask not just whether management has the resources it needs (including
in areas such as government relations, see below), but also how management
is coordinating its efforts across corporate departments and business units
to ensure a consistent and coherent approach to this technology. As a model,
companies may wish to use the cross-functional groups they have established
to guide sustainability efforts.
7. Consider how to address AI at the board level. With upcoming SEC and EU
rules imposing obligations on boards with respect to cybersecurity, boards
will be taking a fresh look at their role with respect to data security.
That should trigger a broader discussion of how they will address AI. Boards
may want to begin by asking management to focus on AI as a discrete topic
meriting “a deep dive” at a board meeting. Soon thereafter, management
should begin incorporating AI in existing board reports and processes. AI
might, however, prompt boards to consider broader changes in how they are
structured and spend their time. Traditionally, the full board takes the
lead on strategy and operations–the opportunity side of the business.
Indeed, only 15 percent of the S&P 500 have a committee focused on
technology or science, and just two percent have a strategy or planning
committee. Even if boards do not establish a standing committee, they may
want to consider asking a few directors to focus on AI and other
strategically important technological developments.
8. Engage in the development of public policy. Government is not writing on a
blank slate here, with numerous laws on the books relating to data security
and privacy, intellectual property, and consumer protection. Nonetheless,
companies will be addressing AI against fast-moving, and sometimes
conflicting, public policy developments worldwide. Last October 2022, the
Administration announced an AI Bill of Rights; in April, the Commerce
Department issued a request for suggestions for the responsible regulation
of AI; and in May, the White House announced $140 million in funding to
support collaboration among industry, federal agencies, and academia to
drive AI breakthroughs. Meanwhile, several bills to regulate AI have been
introduced in Congress, while California, among other states, is considering
legislation and regulation of AI. In December, the EU released a draft
Artificial Intelligence Act. And countries from China to Egypt to the UK
have entered the fray. In the past, government regulation has often focused
on “shaming” companies for data breaches; generative AI presents the need
for the private and public sectors to closely partner to develop regulatory
regimes that responsibly harness the opportunities of the technology.
9. Approach generative AI with a multi-stakeholder ESG mindset. Boards will
need to balance the competing expectations and interests of multiple
stakeholders when it comes to AI. They will want to view consumers not just
as a source of data, or employees as a resource that AI bots can replace,
but as stakeholders whose long-term interests this technology can serve.
Similarly, companies should focus on their social and environmental impacts
of AI (data server farms, for example, can use a lot of energy).
Generative AI is a potential fulcrum for significant economic and societal
change. As Mo Gawdat wrote in Scary Smart: The Future of Artificial Intelligence
and How You Can Save the World, one day machines will likely be smarter in many
ways–more knowledgeable, more able to assess risks and opportunities, more
analytical and more creative–than any individual on the planet. That would place
humankind in a different place in the pecking order, potentially changing our
perspective on how we view our role in the world. That moment, if it comes, is
still years away. In the meantime, boards should approach AI with a steady hand,
an open mind, clear values, and a culture of continuous human learning.
This article was first published on the Corporate Board Member website.
AUTHORS
DOMINIQUE SHELTON LEIPZIG
PARTNER
MAYER BROWN
PAUL WASHINGTON
EXECUTIVE DIRECTOR, ESG CENTER
THE CONFERENCE BOARD
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