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The impact of using AI in the boardroom

updated on 24 May 2022

Reading time: six minutes

In applying the term artificial intelligence (AI) in the boardroom, AI will be defined as the use of computers to assist, support, collaborate or even duplicate directors’ behaviours. This enables a company to function competently, successfully and with foresight in its business environment in the long-term. Global leaders from various industries have predicted that AI will have a more significant impact than the internet.

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PricewaterhouseCoopers estimate that by 2030 AI will contribute $15.7 trillion in global economic growth. NewVantage Partners’ annual executive survey 2020 reported that AI-enabled systems in organisations are expanding rapidly, with 98.8% of firms investing more than $50 million in big data and AI initiatives.

The past few years have seen increased calls for boards to have oversight responsibility at the intersection between AI and the ethical, regulatory and policy implications in a corporate setting.

In line with the rapid technological development, AI is predicted to enter corporate boardrooms in the near future, and to become the foundation of essential competitive advantage. The potentialities of AI to enhance decision making in the boardroom seem to be infinite.

When properly fed with adequate and high-quality big data, it can help the board members unveil hidden insights and valuable knowledge and provide options for directors to make more effective decisions. But it might also be capable of taking autonomous decisions, becoming a member of the board or even replacing board directors.

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The range of functions that AI can effectively perform will depend on the level of maturity of these disruptive technologies. While some features are already working or expected to become feasible soon, others are perceived as futuristic and susceptible to disrupting the current model of corporate law.

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Generally, AI can assume three roles in corporate management.

AI can play role of assistant

At the lowest level, AI may perform simple administrative tasks with very little autonomy so the decision rights exclusively belong to human beings. This approach focuses on the availability, selection and analysis of data. The supply of relevant data samples in real time will result in better knowledge, better predictions and ultimately better decisions.

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AI’s role will not exceed administrative tasks, and all decision rights still exclusively belong to human beings.  For instance, in 2016 the Nordic IT company Tieto appointed an AI application (Alicia T) as a member of the leadership team of its new data-driven businesses unit. Its role is to support data-driven decision making and innovate new data-driven ideas.

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AI could play role of adviser

In this role, AI will support decision making in more complex issues by – for instance – asking and answering the correct questions, identifying opportunities, detecting irregularities, and mitigating risks. At this level, decisions may be made by the human directors or co-determined by the human directors and the AI.

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Advisory AI will be able to support directors in consolidating human skills such as responsiveness, helping them to become more creative, and most importantly, controlling their emotional intelligence, so that the directors can work with AI to improve their decision making through data-driven evidence, reducing uncertainty and ultimately maximising the company’s long-term interests.

If this role is applied to the boardroom in the corporate environment, AI could build partnerships with human directors by providing predictions and options to the board.

More recently, Warner Bros signed a deal with Cinelytic to use its AI-driven project management system. It deploys statistics and predictive analytics to assess the historical popularity of specific actors, actresses and films within specific cinemas to ascertain whether a film should be greenlighted, and when it should be done.

In this scenario, the combination of the speed of AI in analysing information and suggesting lines of action with the intuition of the directors would be crucial to make smart decisions, such as sustainability solutions or innovative business strategies.

AI may act as decision maker

At the highest level, AI would own decision rights due to human trust and delegation. It will proactively and autonomously evaluate options and make business judgements without human involvement. Although algorithms can learn on their own, humans will still have a degree of control in deciding how they are deployed and integrated into the decision-making process. Therefore, AI plays an independent and controlling role in a ‘fused board’ where the various roles and inputs provided by the human boards are incorporated into a single software program or algorithm.

One of the main problems brought by self-driving corporations or self-driving subsidiaries as an intermediate entity for replacing human-centred boards is the accountable issues and possibilities of imposing liability on AI. It’s rather difficult and impractical to hold AI directors accountable and human directors with consciousness and a conscience would be accountable.

In any case, directors should have the final word when validating, or not, the machine’s decision. A first step in this direction was the creation in 2014 of VITAL (Validating Investment Tool for Advancing Life Science), a machine learning program capable of making investment recommendations.

It’s worth noting that the corporation legal framework is not prepared to address the several issues that may arise as a result of this new situation. Section 155(1) of the UK Companies Act (2006) provides that a company must have at least one director who is a natural person. In line with this provision, AI applications cannot be appointed as board members.

Therefore, the legislation would have to be amended to regulate the autonomy of AI in the boardroom, and other key factors such as the recognition of legal entity and the regime of liability. 

Final thoughts

We are convinced that there’s space for us to argue in favor of granting AI with legal entity status. If the participation of an AI entity would promote the effectiveness and accountability of the board and enable more informed, balanced and sustainable decisions, limiting the scope of directorship to natural persons is inconsistent with rapid advancement of AI application in a corporate setting. This is an issue that is becoming increasingly pervasive in our daily life.

Jingchen Zhao (he/his) is a professor and the co-director of the Centre for Business and Insolvency Law at Nottingham Law School. You can connect with him via LinkedIn.