Companies Grapple With Limits in Bringing AI Into the Boardroom

The newest member of the corporate boardroom may add just the impersonal touch companies are looking for.

Increasingly, some companies are using generative artificial intelligence in corporate governance decisions—from sales and marketing issues to finance and legal services. Many boards are treading slowly, however, both due to privacy and security concerns and because, according to recent surveys, most directors aren’t knowledgeable about using AI tools.

Nonetheless, directors see advantages in bringing Gen AI into their decision-making process expecting their co-pilots are leading them to better conclusions. It lightens their burden and provides the best options backed with massive amounts of data produced in real time.

“It thinks differently than your group does. It’s just like another person at the table,” said Nora Denzel, board director of Advanced Micro Devices. Denzel, chairman of the board’s nominating and corporate governance committee, also is a board member of the National Association of Corporate Directors.

Companies have focused on AI use, strategy, and impact for various purposes. A report released by Deloitte and the Society for Corporate Governance on Friday shows that companies use AI for sales and marketing purposes the most, reaching 42% of respondees.

With multiple answers allowed, 35% said they use AI for product management, and approximately 25% each use it for finance and accounting, legal, and human resources. The Board Practices Quarterly report surveyed in-house counsel and other governance professionals who represent around 100 public companies.

Competitive Advantages

Directors have started to use Gen AI to boost sales, marketing, and for financial analysis with some leading tech companies having already adopted it in assisting decision-making procedures, industry experts say.

“It definitely helps you with decisions,” said Denzel. AI can help the company with real-time data and risk analysis, scenario planning, and predictive analysis. It helps gain a competitive advantage, predicting competitors’ moves based on their past actions.

In a recent AMD earnings call, directors used Gen AI to summarize financial analysis reports and tracked down the most common, important, positive, or negative information within a few hours, which used to take days, Denzel added.

Directors also use AI in predicting consumer behavior and establishing trends in marketing. It helps display and market fast-moving consumer goods, according to Jim Nevels, board director of WestRock, a corrugated packaging company.

AI can also benefit human resources, especially in diversifying the workforce. “AI attracts, retains, and motivates a diverse population,” said Nevels. AI can help HR to find what talented employees from diverse background look for beyond the company’s brand name. Nevels is a former board chairman of Hershey Co. and has sat on the boards of eight companies.

David Jaworski, principal product manager of Microsoft Teams Engineering, said the use of a new, more effective generation of AI prompts sets up businesses to be successful.

“When I built my own copilot, I’m educating it about me, my organization, mission and values, data history, and letting it start to use that body of knowledge.” Jaworski is one of the founding members of Microsoft Canada and has worked with global companies including Nasdaq for their digital transformation.

AI can provide and analyze massive data on compliance and risk management on a real-time basis, according to Hillary Sale, Agnes Williams sesquicentennial professor of leadership and corporate governance and professor of management at Georgetown University. “Judging whether certain risk scenarios might be good for compliance, and overseeing risk and compliance is a key to what the board of directors does.”

Directors have also brought AI for board meetings—it creates meeting minutes, summarizes documents, and lists action items. “It minimizes mundane parts of the meeting, from ingesting the information and distilling down what’s most important,” said Denzel.

AI’s Downsides Restrict Use

Board directors focus more on oversight of AI use—intervening when it’s misused and taking appropriate monitoring functions—rather than directly using it in decisions, according to Nevels.

“It’s in the top of the first inning. You don’t see it [AI use] unless you’re a tech company,” he added.

Some industry experts argue that directors using Gen AI is too risky for decision-making. It can arouse ethical concerns, including introducing AI hallucinations—which make false information that isn’t based on real data— as well as creating bias and invading privacy.

“It’s very high risk for boards to rely on AI for decision making, so I don’t think that’s on anytime soon,” said Scott Baldwin, board director and co-founder of DirectorPrep.com. “While AI can provide an organization with an advantage and make our operations more efficient, board members need to ask the right questions to ensure that those risks don’t outweigh the benefits.”

One of the major problems is privacy because the information shared with Gen AI becomes public. “We’ve seen companies put their own policies into ChatGPT,” said Jackie Lyons, chief financial officer executive partner at Gartner, a technology and research consulting firm. For example, if a company runs its account payables through ChatGPT, that puts the information in the public domain. Anyone who asks can find out what the company’s thresholds are, she added.

Experts recommend using private AI channels to protect confidential information. Advanced AI tools, such as Microsoft’s Bing Chat Enterprise, protect company’s privacy by not saving chat data and not allowing access to a user’s data.

“AI is a smart assistant that never takes a break, but the assistant sometimes lies and gives you answers that you like but are not true,” said Denzel from AMD. “There’re not many regulatory things yet. I’ve seen a lot of self-governance and you just use common sense right now.”

According to the Board Practices Quarterly report, only 13% of companies have an AI policy or code of conduct. Around one-third don’t have the protocol and another one-third are currently considering enacting it.

The report also shows that only 9% have revised corporate policies to include privacy, cyber, risk management, and record retention. About one-third haven’t revised yet, but 42% of companies said they are considering a change.

Lack of knowledge

While more employees and management use AI, relatively few directors are knowledgeable with how to use AI tools nor have been receiving proper education.

“There’s minimal experimentation so far,” according to Baldwin. “Many directors who have heard of it are not even yet trying to play with Chat GPT.”

Robert Mundhiem, counsel for Shearman & Sterling and professor of corporate law and finance at the University of Arizona’s James E. Rogers College of Law, agrees but doesn’t see that as insurmountable. Directors who aren’t familiar with AI can learn from other directors who have better knowledge of it.

“Certainly not every member of the board needs to be an expert in artificial intelligence,” he said.

The bottom line: the gen AI evolution isn’t going away, leaving corporate boards forced to deal with it.

“Boards should be thinking about AI as part of their regular agenda,” said Jaworski. “There should be a line item in there that says, AI education.”