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Introduction
Most Boards are now grappling with AI as a matter of enterprise risk and strategy. AI poses risks and opportunities that will differ between company and industry, all of which require understanding and engagement from the Board.
Boards have also turned their attention to a related but different question: whether and how AI should be used in the Boardroom. The proliferation of generative AI tools and genuine potential benefits has made sure of this. For example, questions are being asked as to whether it is appropriate to use AI in the preparation of Board papers, the analysis of those Board papers, the conduct of the meeting, and in preparing minutes. There are questions around the over-reliance on AI and the impact that this might have in the long term. For example, if a Director uses AI to review and propose questions on Board papers first, prior to their own review, does this encourage an over-reliance on AI? Are Directors at risk of substituting their own diligence with AI’s assessment? These are separate questions from the oversight of AI at an enterprise level and raise separate Directors’ duties considerations.
The Starting Point: Directors' Duties
It is worth restating the baseline: Directors must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise in the same circumstances. In the context of Board meetings, this includes:
- reading and understanding Board papers before meetings;
- appropriately challenging management and seeking more or different information from management if required;
- bringing an independent and informed mind to Board deliberations;
- making decisions on a reasonably informed basis.
These duties are not displaced or modified by new technology. The question is whether AI can assist Directors in meeting their duties and, if it is to be used, how risks are managed.
Relatedly, in exercising those duties, directors are entitled to rely on information provided by management under section 189 of the Corporations Act, but that reliance must be reasonable. The question is whether using AI might impact on the reasonableness of any reliance on information provided by management.
The Wish List: How and should AI be used?
We have heard many instances of how Boards and Company Secretaries are or would like to be able to use AI. Some use cases are more risky than others. It goes without saying, all suppose that appropriately secured enterprise platforms or ‘bots’ are used, rather than uploading confidential Board papers into ChatGPT or similar alternatives.
We have set out below some common use cases, but this is by no means comprehensive. It simply illustrates that all bring potential benefits and challenges with particular use cases, beyond the core risks that apply in relation to data security, integrity, transparency and consent. The challenges set out below are not roadblocks and we are currently working through how they can be managed or removed altogether.
| Use case | Potential risks to consider |
|---|---|
|
Transcribing or taking notes of Board meetings
|
Discoverability Could the recording and/or transcript be discoverable in the context of litigation or compulsorily produced to a regulator? Short answer, yes. Every off-the-cuff remark, tentative view and half-formed question could be produced to a regulator or in a courtroom. This would be a material and unwelcome change from the current position where minutes are the primary record. Accuracy Whilst the technology is continuing to improve, current platforms often find it hard to distinguish between different people and find discussions (or people talking over each other) difficult to accurately record. Chilling effect Directors may self-censor if they know every word is being recorded, undermining the quality of debate and challenge. This has long been the argument against recording Board meetings (even without the use of AI). Human judgement is essential Preparing minutes of meeting is an art – AI-generated minutes may capture too much, too little or the wrong things, as could a human. Naturally, any minutes produced by AI would require review from the Company Secretary, who will understand nuance and broader context that AI does not. |
|
Assisting Directors in reviewing or analysing Board papers
It is worth noting that management could provide the above information within the Board paper in the first instance, either with or without the assistance of AI (but recognising that AI certainly provides efficiency gains – e.g. where several Board papers need to be summarised to remind Directors what has previously been reported on a topic). |
Duty to read and understand Directors cannot outsource their duty of care to an algorithm. Quality of and variation in AI output Current AI tools can hallucinate, miss context or mischaracterise nuance. An AI-prepared executive summary is not the same as one prepared by management who understand the business context – all of which can be addressed with human oversight and checks. Is a director entitled to “rely” on the AI summary in the same way that he or she could rely on information provided by management? That question is currently unanswered, but quite possibly, no. Relatedly, if each director is asking AI to generate a summary, there is a real risk that each director is reading and relying on a different summary – this may impact the effectiveness of debate, but also create issues if any dispute arises around what has occurred at a Board meeting and how the Board as a whole has approached critical decision-making. False confidence AI tools may give directors a sense of comfort that they have adequately engaged with the material, when in fact they have engaged with an algorithm’s interpretation of it. Ultimately, a key risk sitting across the use of AI in the Boardroom is that it subconsciously undermines human diligence. Discoverability As above, if Directors are asking AI to answer questions about Board papers, could those questions (and AI’s responses) be discoverable? Directors may believe they are sharing questions, reflections and worries with ‘AI’ but could those remarks ultimately be read one day by a regulator or plaintiff? Short answer, yes. |
|
Preparing Board papers
|
Accuracy and accountability A framework would need to be developed to support the use of AI in preparing Board papers, to protect Directors and other officers. This certainly seems to us to be lower risk that Directors generating their own summaries. |
Where to from here: a meeting of the minds
- The first step is a conversation – first with the Chair and then the Board – about how AI can and should be used. This requires a ‘meeting of the minds’. Directors see the opportunities to harness the use of AI in the Boardroom and we often receive calls about AI being used without the awareness or consent of other stakeholders - which is entirely inappropriate.
- Once the Board has landed on a position, we suggest adopting a governance framework for AI in the Boardroom. This is likely to be more nuanced and deliberate than the Group-wide AI policies that most large organisations have now adopted. In our view, this is a sensible foundation for all Boards wishing to embrace AI in the Boardroom. It can address many of the challenges described above but will of course need to be reviewed as the AI landscape evolves.
- Any framework would apply to Directors (executive and non-executive) as well as those engaging with Board papers. For example, if AI is to be allowed in the preparation of Board papers, then those using AI will need to comply with certain guardrails relating to review of the AI-generated draft and warrant that they have done so for the Directors.
- The Board may decide that AI should not currently be used in the Boardroom and/or in the preparation of Board papers and minutes. While we expect that AI will enter all Boardrooms in one way or another over time, this decision may be appropriate particularly where there is any concern around an overreliance on the AI. However, what is important is that all Directors and other stakeholders are on the same page.
- It is worth acknowledging that this may not mean agreement; there may be differing opinions across the Board around how or if AI should be utilised. The job of the Chair (supported by internal and/or external advisers) will be to seek to achieve consensus or otherwise find a path through the difference of opinions, as with any debate.
- Ultimately, the risk with not engaging with AI in the Boardroom in a deliberate way is that AI inevitably evolves and creeps into Board processes in an ad hoc way and creates unintended and unmitigated risk, without the knowledge and consent of stakeholders. Deliberate and informed
engagement with AI, with appropriate guardrails, will have the added benefit of ensuring that the Board gains a basic familiarity with AI and developing technology, which itself is becoming an important skillset for all Directors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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