The strong case for board oversight of AI

The strong case for board oversight of AI

While many US companies have rushed to develop AI strategies, the role of the board in this process has remained in doubt.

Technology officers? naturally. Innovators and business strategists? Challenge. Senior executives? it goes without saying. But the board of directors? I’m not entirely sure what they’ll bring to the table, other than getting in the way. It’s so technical that it’s best for the board to rule this out.

Confusion about the existence of any role for the board has been compounded by the absence (until recently) of any guidance or promulgation of relevant principles from leading public policy organizations in the field of corporate governance. Boards have been essentially independent when it comes to formulating a basic approach to deploying AI within their organizations.

But these and other legitimate questions about the Board’s involvement in AI development have been swept away by the tidal wave that is the Biden administration’s new Executive Order on Developing and Using AI in a Safe, Secure, and Trustworthy manner (“EO”).

As described in the accompanying fact sheet, the EO is “establishing new standards for AI safety and security” designed to insulate the public from potential harm. The new standards also focus on advancing the fundamental promise of AI and supporting AI research in order to enhance American competitiveness.

Although it does not say so in precise words, this massive fifty-page document describes the public policy of regulating AI in imperative terms that make the relevant interests of corporate boards clear. The federal government’s deep focus on developing, deploying, and responsibly using AI should prompt boards to consider how best to identify and manage the corresponding risks and benefits of using AI in their organizations.

The EO is the most comprehensive of several AI-related initiatives from the Biden administration, including a “Blueprint for an AI Bill of Rights” published by the White House Office of Science and Technology Policy in October 2022, and the administration receiving voluntary commitments from 15 leading companies to lead Secure and trustworthy AI development.

A series of regulatory directives within an EO provide useful suggestions to company boards on issues that may merit management oversight.

This guidance addresses important topics such as (1) the role of AI in companies’ “mission-critical activities”; (2) Develop standards, tools, and tests to help ensure that AI systems are safe, secure, and trustworthy; (3) protect consumers from AI-powered fraud and deception; (4) prevent the use of artificial intelligence algorithms to exacerbate discrimination; and (5) principles and best practices for mitigating the harms of artificial intelligence and maximizing its benefits for workers.

The Ethics Office also notes the board’s role in ensuring that AI-related regulatory functions such as risk management, corporate compliance, cybersecurity and privacy are in place – and the responsibilities of corporate officers leading these functions. In addition, the EO will likely urge the Board to consider more effective internal information reporting systems through which AI-related risks and opportunities can be communicated to the Board.

Also relevant is the recent recommendation by the National Association of Corporate Directors (“NACD”) to establish a board-level STI-style committee. The goal of such a committee could be to coordinate oversight of the operational programs, investments, and various risks of a technology-oriented company. This committee may also be an effective means through which the board can monitor artificial intelligence and other emerging technology matters, likely in coordination with the audit, compliance, and strategic planning committees.

The Biden administration’s new executive order on the safe, secure, and trustworthy development and use of artificial intelligence is, first and foremost, a major advance in the federal government’s efforts to regulate this new technology.

But they are also valuable to the extent that they indirectly reinforce the need for board involvement in the company’s development, acquisition, and implementation of AI. Any technology that attracts the same level of government interest as AI within an EO indicates a similar level of interest on the part of corporate governance.

Michael thanks his partner Alia Suleiman for her contributions to this publication.
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