The excerpt set out in the previous section is from the insightful response provided by our Managing Partner, Monish G Chatrath, while addressing the question of artificial intelligence's ('AI') role in improving corporate governance within boardrooms.

Monish had shared his perspectives at this afternoon's Panel Discussion, which was organized by the Institute of Internal Auditors, India, during their National Conference for 2024 in New Delhi today.

It is clear and evident that AI is progressively marking its presence in corporate boardrooms. Traditionally, the decisions of boards of directors have depended on human judgment and experience, but now AI is being incorporated to improve the decision-making process. The following are some ways AI is influencing boardrooms:

• Data-driven insights: AI is being used to analyze vast amounts of data to provide valuable insights to board members. With AI, boards can delve into vast troves of financial data, market trends and regulatory filings, while extracting actionable insights that can blend well with their personal intellect and experience, as they make strategic recommendations.

• Stakeholder engagement: AI has transformed the way companies engage and communicate with their shareholders. AI-driven chatbots and virtual assistants enable corporations to interact with shareholders in real-time, swiftly addressing inquiries and delivering personalized information and services. This level of automation enhances transparency, accessibility, and responsiveness in shareholder communications, cultivating a sense of trust and bolstering confidence in the company's governance practices.

• Risk management: AI-driven solutions have revolutionized corporate governance by their ability to analyze data from both internal and external sources. This empowers boards to identify emerging risks, analyze predictions of future trends and assess the potential impact of the same on a company's operations and financial performance. By leveraging predictive analytics and data-driven insights, companies can effectively manage risks, optimize resource allocation, and enhance decision-making processes. This positions them for long-term success in an ever-changing business landscape.

• Decision support: Complex decisions demand intelligent systems. By combining machine learning, data science, and domain-specific knowledge, AI can provide recommendations for strategic choices, mergers, acquisitions and digital transformations. AI-powered analytics tools can assist boards in decision-making by providing data-driven insights and scenario analysis, facilitating well-informed decisions that are aligned with the company’s strategic objectives.

• Compliance & Environmental, Social, and Governance (‘ESG’) Practices: AI can help boards stay compliant with regulations. It can analyze legal documents, track changes in laws, and ensure adherence to governance standard. With the rising importance of ESG factors in corporate decision-making, boards are exploring how AI can be used to enhance ESG practices. AI technologies are being applied to assess and manage environmental impact, improve diversity and inclusion efforts and strengthen corporate social responsibility initiatives.

Simultaneously, AI introduces a range of unique risks and ethical issues such as these...

AI algorithms trained on historical data may perpetuate existing biases entrenched in societal norms. Consequently, organizations need to be vigilant in identifying and mitigating algorithmic biases to uphold principles of fairness & equity in AI-driven decision-making processes. At the same time, intellectual property rights may be at jeopardy if proprietary algorithms, software, or datasets are used in AI technology. To avoid disputes over ownership or violation of intellectual property rights, boards must address matters pertaining to the ownership, licensing, and protection of intellectual property linked with AI systems.

Secondly, unlike traditional human decision-making processes where the reasoning is transparent or can be elicited, AI algorithms operate as ‘black boxes’ making it difficult to understand the reasoning.

Thirdly, while the usage of integration of generative AI can produce novel ideas and solutions, these can also raise concerns about intellectual property rights, accountability, and the potential for unintended consequences. Confidentiality and security of sensitive corporate information must be top priority as there can be a risk of unintended disclosure or exposure of confidential information (especially since AI systems process and retain user interactions as training data).

Fourthly, since AI systems often rely on vast amounts of data, including sensitive information about employees, customers, and stakeholders, boards must ensure compliance with data protection laws to avoid potential fines and legal liabilities resulting from data breaches or misuse of personal data.

In summary

The regulatory landscape surrounding AI technologies is rapidly evolving, with new regulations and guidelines being proposed and implemented by governments and regulatory bodies worldwide. Boards must stay abreast of regulatory developments and anticipate changes in the legal framework governing AI to adapt their governance practices and ensure ongoing compliance.

While AI offers immense benefits, it is essential to address its limitations and ethical implications. Businesses and individuals must weigh the pros and cons carefully when adopting AI technology.

Should you require any clarifications or assistance, please do not hesitate to reach out to us at contactus@mgcglobal.co.in.

Best regards,

Markets Team

MGC Global Risk Advisory