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.