Introduction

The concept of corporate governance emerged from the need to address severe deficiencies in corporate oversight and accountability of managers towards shareholders, and over the management of the affairs of the company. These deficiencies spurred regulatory reforms, leading to the development of corporate governance frameworks, aiming to enhance transparency, accountability, and protect shareholder interests. Corporate governance has now been embraced as the system of rules, practices, and processes by which a company is directed and controlled to ensure transparency, accountability, and long-term sustainability.

As the business environment continues to evolve, the implementation and practices of corporate governance have also undergone significant transformation. The integration of technology and artificial intelligence (AI) has transformed traditional governance models, enabling more effective risk management, enhanced decision-making, and improved regulatory compliance. These technological advancements offer tools that can analyse vast amounts of data, predict market trends, and detect potential frauds, thus facilitating a more proactive and informed governance approach. Furthermore, AI-driven systems streamline board operations, enhance communication, and foster a culture of innovation and ethical standards within organizations. As businesses increasingly operate in a digitalized environment, the role of technology and AI in corporate governance is not only a catalyst for efficiency and growth but also a crucial factor in maintaining stakeholder trust and securing a competitive edge in the global market.

How has AI and Technology impacted Corporate Governance?

1.      Enhanced Decision Making: AI and data analytics significantly enhance the decision-making processes within corporate boards by providing real-time insights that are critical for informed and strategic choices. These technologies enable the analysis of vast amounts of structured and unstructured data quickly and accurately, uncovering patterns, trends, and anomalies that human analysis might miss. AI-driven analytics tools can predict market trends, assess financial health, and identify potential risks or opportunities, thus allowing boards to make proactive and data-driven decisions.

2.      Improved Compliance and Risk Management: AI plays a crucial role in risk management as AI-powered risk management systems can continually monitor and analyse vast amounts of data from diverse sources, including financial data, market trends, regulatory changes, and internal controls. By leveraging machine learning algorithms, these systems can detect patterns and anomalies that may indicate potential risks or fraudulent activities. This proactive approach to risk identification allows companies to respond swiftly and take appropriate measures to mitigate risks before they escalate into major issues.

3.      Efficiency and Automation: AI can automate various processes for a board to enhance efficiency, such as compliance reporting, agenda preparation for board meetings, scheduling and coordinating meetings, tracking action items and follow-ups, and even assisting in governance document management. By automating these processes, AI reduces administrative burdens by allowing board members to focus on higher-value discussions and strategic matters. This efficiency gains can result in more productive board meetings and optimized use of board members’ time.

4.      Board and Stakeholder Engagement: Leveraging technology and AI can help companies transcend barriers and facilitate better board and stakeholder engagement. Through the use of AI-powered chatbots, social media, virtual meetings and webinars, online surveys and data analytics, board members have a more direct line of communication with the company’s stakeholders. This better equips them with data in making more informed decisions at a board level. Until the advent of technology, board members relied majorly on information given to them by the executive management of these companies. Technology has now democratised access to information and real-time data.

5.      AI Systems as Board Members

By virtue of its numerous benefits, AI has become widely adopted in corporate governance. A survey on the state of AI in early 2024 conducted by McKinsey & Company, revealed that companies are now using AI in more parts of the business. Half of respondents say their organizations have adopted AI in two or more business functions, up from less than a third of respondents in 2023. Unlike most of the companies surveyed by McKinsey & Company, Deep Knowledge Ventures; a venture capital firm in Hong Kong, went as far as appointing an AI system as a member of its board.  VITAL (Validating Investment Tool for Advancing Life Sciences) was a machine learning proprietary software for board management, appointed to prove that artificial intelligence could be an instrument for investment decision-making.

AI undoubtedly plays a vital role in corporate governance but the integration of AI technology raises important ethical questions that must be addressed to ensure responsible and trustworthy governance practices.

Ethical and Legal Considerations

The appointment of an AI system as a director poses many interesting questions, foremost of which is whether or not AI systems have legal personalities. By the definition of Section 269 of the Companies and Allied Matters Act, a director of a company must be a person. Toeing that same line of reasoning, can the same system be held liable and accountable in an event of breach of a fiduciary duty? Can an AI system be described as a person in this regard?

Accountability is a core pillar of corporate governance and it ensures that the board and management are answerable for their actions and decisions. The application of AI in decision-making can be opaque, making it difficult for humans to understand and explain the decisions, which can undermine accountability and trust in AI systems. In addition, AI relies on large volumes of data, often including sensitive and personal information. Data privacy breaches and bias are a significant risk that arise from the extensive data collection and processing involved in AI systems. AI may analyse data at an exponential rate but lacks the ability to use human judgment. Although there is much talk of autonomous decision making and AI, the need for human input, sense and oversight remains clearly apparent. Certain aspects of corporate life thrive on human interaction like corporate deal-making, the art of which is distinctly human.

In summary, ethical considerations and accountability are crucial in the adoption of AI in corporate governance. Companies must actively address algorithmic biases, prioritize data privacy and security, promote transparency and explainability, and ensure appropriate human oversight to uphold ethical standards and maintain stakeholder trust. By integrating these considerations into their governance frameworks, companies can navigate the ethical challenges posed by AI and foster responsible AI practices.

Conclusion

The rapid development of technology and by extension AI, makes its adoption and assimilation into the corporate governance sphere inevitable. The integration of AI in corporate governance has proven to have many significant benefits ranging from improved decision-making, operational efficiency, and risk management. However, as highlighted in this article, its ethical challenges are yet to be addressed. If companies are to fully harness the benefits of AI, the boards will have to prioritize transparency, accountability, data privacy and maintain responsibility for the control and oversight of their AI systems.

Incidentally, the first comprehensive legislation on AI, the Artificial Intelligence Act (AI Act), was adopted by the European Parliament on March 13, 2024. The EU AI Act aims for transparency, requiring users to be informed that they are interacting with an AI system. This is an important provision, especially for boards that have integrated AI systems as a member of the board of directors.

In administering effective and efficient corporate governance practices in Nigeria, companies have embraced the use of technology in board management. The use of data analytics, deployment of board management software, conducting virtual meetings, and the use of advanced security protocol to protect sensitive information are examples of leveraging technology in board management.

There are indications that companies in Nigeria will begin to adopt the use of AI in board operations, as its adoption in more developed economies filters into the Nigerian economy. The most important consideration is the establishment of a comprehensive legislation in Nigeria, that properly addresses the use and deployment of Artificial Intelligence in Nigeria.