Leadership and Governance of Artificial Intelligence
This week I had the opportunity once again to attend the annual 2023 NACD Summit in Washington, D.C. It’s something I attend every year, schedule permitting, to learn from amazing plenary and breakout speakers, reconnect with colleagues, meet new directors, and speak to aspiring directors who will sit in boardrooms of the future. Of the 20,000+ members of NACD nationwide, we generally have around 1,500 attending every year in person, and a few hundred who sign up for the virtual option.
In addition to hearing from leaders of the organization, plenary speakers on Day One included Matt Devost who spoke on tech disruption, Ian Bremmer on timely topic of geopolitical recession and crisis, serial entrepreneur Jon McNeill who inspired the audience with his thoughts on board excellence and management interaction, and Doris Taylor who floored the group with her story of growing a human heart. Each topic, as disparate as they might have been, drove home the immense responsibility board leaders have in how we guide, coach, challenge, and support our organizations in the world of public, private, and nonprofit companies.
Every year I attend and participate in this Summit, I find myself inspired by the incredible level of commitment these directors have toward continuing education and learning. Key to excellence in board service is the ability to stay current and relevant about today’s challenges so that we are best equipped to bring an informed and valuable perspective into the boardroom. CEOs and executive teams today are faced with significant challenges. Shifting workforce demands, strategic complexities, and digital innovation are taking place against a backdrop of exponential change and disruption. The days of board meetings consisting of a line of management presentations each followed by short Q&A on only the slides presented are short-lived if not extinct. Instead, fulsome conversations, grounded in current perspective and experience, are needed to help senior executives make the right decisions around strategy, talent, and capital allocation.
I had the pleasure of participating in a panel that covered the topic, “How Boards Govern Artificial Intelligence”. The panel included Helmuth Ludwig, Benjamin van Giffen, Debra Everitt McCormack, and me, representing the perspective of academics, professional services, and of course, directors in the boardroom. Engagement in the standing-room only session was lively, and Q&A was energetic as we addressed some important aspects of how AI impacts organizations. Some highlights:
Strategy and Risk
As machine learning and generative AI influence data that we collect, analyze, and from which we draw conclusions, there is no doubt there are business models that will be significantly altered or perhaps even eliminated. We are all inundated by inbound suggestions for products and services based on our past behaviors. The concept itself is nothing new…companies have been buying mailing lists for decades, hoping that the predictive power of data can increase hit rate on sales. What is new is the speed at which information can be gathered, the type of information that is now available, and the low barriers to entry that now exist thanks to the digital world. In manufacturing environments, AI will be a powerful predictor of equipment downtime, supply chain management, and obsolescence due to incredibly fast pattern-matching that human judgment might preclude.
The architecture of a company’s business model could/should fall under strategic scrutiny in examining the impact of AI. Are the changes incremental or is the business itself threatened? Does the advent of machine learning threaten the nature of what we do (is this an Amazon moment) or do we harness it to improve on a strong architecture that is sustainable?
Workforce implications
A June 2023 McKinsey Global Institute Report indicates that by 2030, activities that account for up to 30% of hours currently worked in the US could be automated. Alternatively, in that same period of time, the study suggests that more than 5 million more health care positions will be in demand (approximately 3 million on top of today’s 2 million shortfall), as well as an estimated increase of 23% in STEM related positions. AI will also likely create new positions that don’t exist today.
Organizations will undoubtedly be faced with the task of retooling the workforce as more mundane or repetitive tasks become automated, and higher-value activities requiring collaboration, problem solving, or innovation are more in demand. This will also have a huge impact on hiring practices as more companies are reportedly dropping requirements for a college degree. Against a backdrop of shifting workplace culture, these changes will elevate the importance of the CHRO in the organization (much more than just covering compensation and benefits) and increase the value of having that perspective in the boardroom. If you haven’t already, I’d put “human resource experience” on that board skills matrix!
Compliance and Internal Control
As the value of generative AI is considered in our enterprises, there will no doubt be an increased concern around its use and access. Cybersecurity risk will elevate and, in some instances, result in increased regulatory control and compliance requirements. There is no doubt that the quantity and sophistication of hacking and phishing scams will increase in both our professional and personal lives.
Companies and boards need to also understand the implications of using tools like ChatGPT. After all, generative AI by definition learns, and so it will include record of its actual use by individuals and organizations (i.e., do you allow employees to use it while at work?). Protecting IP and sensitive data will be paramount to maintain a competitive edge and retain critical talent.
The question of bias is also one that warrants increased focus. Software that is biased will only exacerbate inequities that might currently exist. If the reliance on AI goes unchecked, organizations can unexpectedly “hardwire” bias into decision making regarding strategic options, compensation, and talent selection.
Capital Allocation
One of a board director’s greatest responsibilities is helping to prioritize and allocate the use of capital. As generative AI opportunities arise, there are no doubt efficiency projects that need investment; current IT systems and plant/equipment must be adequate to integrate AI input. Systems required to forfend increased cyber-attacks will need to be installed. Additionally, there are areas of growth and experimentation that organizations should explore to understand the potential that AI can bring. Businesses and functional departments alike should think about how machine learning can improve decision making. Can a manufacturing plant better predict maintenance downtime as a result of AI input? Can the HR department use AI to better anticipate unwanted attrition based on workload, absences, or decreasing engagement? How can marketing better understand changing consumer habits and emerging preferences? In many instances AI can uncover patterns and trends that aren’t picked up due to complexity, time, or bias.
As with all other capital allocations decisions, projects need to be prioritized so AI is not seen as an ancillary activity and first to get cut when the budget cycle faces challenge. If AI is seen as strategic rather than tactical, the likelihood of giving it the right priority level increases.
Our panel was only one of dozens, in addition to plenary sessions, where directors got our brains stretched and our paradigms challenged at the NACD Summit. Continuing education for directors is no longer a luxury we enjoy, but a responsibility we have in order to best serve our boards, investors, and stakeholders. I so appreciate being surrounded by professionals who are equally committed to continued learning and support for one another!
Until next year!