April 14, 2022

Artificial Intelligence: The Next Corporate Governance Frontier

Eagle-eyed members may have noticed that we recently added an “Artificial Intelligence” Practice Area to the site. Shortly afterwards, Debevoise published this 5-page memo – which does a great job of explaining why you’ll need to get your arms around AI if you’re advising boards. Here’s the intro:

As more businesses adopt artificial intelligence (AI), directors on many corporate boards are starting to consider their oversight obligations. Part of this interest is related to directors’ increasing focus on Environmental, Social and Governance (ESG) issues. There is a growing recognition that, for all its promise, AI can present serious risks to society, including invasion of privacy, carbon emissions and perpetuation of discrimination. But there is also a more traditional basis for the recent interest of corporate directors in AI: as algorithmic decision-making becomes part of many core business functions, it creates the kind of enterprise risks to which boards need to pay attention.

The memo goes on to outline current regulatory considerations and how Caremark claims could play out in this area. Especially at companies where use of AI is significant and could present an enterprise risk, the Debevoise team suggests that boards consider:

1. Having AI as a periodic board agenda item – and evaluate whether it’s a topic for the full board or a specific committee

2. Staying aware of the most critical AI systems the company employs – along with risks & steps taken to mitigate risks

3. Getting periodic updates on resources devoted to AI development & operations, along with regulatory compliance and risk mitigation

4. Assigning AI responsibility to a particular management position or committee

5. Directing management-level AI compliance and reporting structures to facilitate board oversight – including procedures for responding to material incidents, whistleblower complaints, and managing vendor risks for critical resources

6. Board briefings on material AI incidents

7. Documenting AI oversight activities and management’s compliance efforts in board minutes and supporting materials

Our new Practice Area covers regulatory developments and guidance on board oversight and AI risks. To get access if you’re not already a member, you can sign up online, email or call 1-800-737-1271.

Liz Dunshee