In Part 1, we explored how Artificial Intelligence
("AI") is transforming legal and compliance functions,
offering both new efficiencies and new risks.
In Part 2, we turn to the crucial question you need to answer:
how can companies manage the legal, regulatory, and
reputational risks of using AI?
The answer lies in thoughtful AI governance – creating internal frameworks, policies, processes, and culture to ensure AI enhances your business without creating unintentional harm.
Why AI Governance Matters Now
As AI adoption increases, so does regulatory scrutiny. Poorly managed AI – use of AI without clear internal oversight – could lead to investigations, penalties, lawsuits and reputational damage.
Real-World Lessons: When AI Goes Wrong
Several headline-making cases illustrate why governance matters:
- Amazon's Recruitment
AI
Amazon shut down an internal AI hiring tool after it was found to discriminate against women, reflecting biases in historical data – proving that AI can perpetuate existing inequalities if not carefully managed. - Predictive Policing
Tools
AI systems used by law enforcement agencies to predict crime patterns have faced intense criticism for disproportionately targeting minority communities. These controversies have sparked lawsuits, legislative bans, and demands for stronger oversight. - Data Privacy Missteps
Financial institutions have faced GDPR penalties after using AI systems that collected and processed personal data without proper consent. Poorly configured AI compliance systems can create privacy liabilities as quickly as they reduce other risks.
Each of these failures share a common theme: lack of governance and transparency, and a failure to anticipate ethical pitfalls.
Strong AI governance is no longer optional. It's a competitive advantage and a legal safeguard. Here's how to get it right:
Building a Practical AI Governance Framework
Here are key steps companies should take today:
- Establish an AI Governance Committee
Create a cross-functional team (Legal, Compliance, IT, Risk, HR) to oversee AI use across the organization. This committee should review AI applications, approve use cases, and monitor ongoing risks. For high-risk tools, executive or Board review may be warranted. - Develop Clear AI Use Policies
Set clear written boundaries on the permissible business use of AI. Policy elements should include:
- Requiring human oversight for high-risk decisions.
- Prohibiting unauthorized input of confidential data into public AI tools.
- Mandating explainability and fairness reviews for AI-driven outcomes.
The Wallenstein Law Group can help draft policies or provide tailored, fit-for-purpose templates for your business.
- Update Codes of Conduct and Training
Add AI ethics and acceptable use to your company's Code of Conduct. Train employees – especially those involved in legal, compliance, and data processing roles – on responsible AI practices. - Prioritize Data Privacy and Security
Ensure that AI tools comply with data protection laws like GDPR, U.S. state privacy acts, and industry regulations. Review vendor contracts carefully to address data ownership, usage limits, and breach notification terms. - Monitor and Audit AI Systems
Regularly test AI outputs for bias, accuracy, and compliance. Document monitoring activities and build in policy update cycles as the technology and regulations evolve.
Moving Forward: Ethical Innovation Wins
The companies that will thrive in the AI era are not the fastest movers, but the ones who are the most responsible. Robust AI governance today helps businesses:
- Use AI efficiently and ethically
- Stay ahead of evolving regulations
- Build trust with customers, regulators, and employees
- Avoid costly AI-related missteps that may lead to reputational harm
AI offers incredible opportunities – but only for those ready to lead with purpose.
At The Wallenstein Law Group, we help clients craft AI policies, navigate regulatory expectations, and design ethical frameworks that align innovation with integrity. If you need support, or would just like to chat, contact us today!
To read Part 1, please click here.
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.
