Understanding the AI landscape and AI’s role in competitive strategy is an emerging area of focus under the board’s responsibilities for strategy oversight.
The G20/OECD Principles of Corporate Governance, a set of recommended guidelines, provides a framework for understanding the board’s oversight responsibilities for AI.
Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders. (Principle VI.A)
When considering questions about the company’s competitive strategy, board members must make efforts in good faith to be fully informed about:
- Management’s use and plans for applying AI in its competitive strategy, including anticipated benefits, progress in achieving those benefits, alignment with core values and ethical standards, and ameliorating possible internal and external risks associated with such a strategy
- Its competitors’ use of AI, and the competitive threat to the organization
- How AI is changing competition in its markets and industries
- Management’s plans and actions for ensuring AI is implemented ethically and responsibly.
The board should fulfil certain key functions, including reviewing and guiding corporate strategy, major plans of action, risk-management policies and procedures, annual budgets and business plans; setting performance objectives; monitoring implementation and corporate performance; and overseeing major capital expenditures, acquisitions and divestitures. (Principle VI.D.1)
AI-related topics that boards should review and guide may include:
- Management’s approach to using AI within the company’s business and overall competitive strategy
- Whether management’s plans of action involving the use of AI are consistent with the company’s ethical standards or introduce new ethical risks
- The alignment with, and performance of, the company’s current use of AI to advance its strategy
- The major actions and expenditures planned for using AI, and their progress towards successful implementation
- Management’s awareness, plans and actions for ameliorating the risks: 1) of using AI in the organization’s strategy; and 2) from competitors’ use of AI
- Whether, and how, AI should be factored into performance objectives for management
- Whether the company’s acquisitions are strengthening or affecting its ability to use AI to advance its strategy, and whether they introduce new risks
- Whether management anticipates compliance with upcoming laws and regulations, and possible impacts on individuals’ rights, society and ethical values.
This section includes three tools to help directors oversee management’s competitive AI strategy.
The knowledge assessment tool helps board members rate whether they possess, or have access to, the knowledge required to independently judge management’s knowledge and leadership on AI and competitive strategy.
The performance review tool consists of questions boards can ask management about their knowledge of AI and competitive strategy, and the progress and performance of their actions. It offers the SCEPTIC framework to help directors assess the answers they receive.
The guidance tool offers possible suggestions for further action in an “if, then” format.
(All links as of 23/7/19)
- Anastassia Lauterbach and Andrea Bonime-Blanc, The Artificial Intelligence Imperative: A Practical Roadmap for Business (Praeger, 2018).
- Erik Brynjolfsson and Andrew McAfee, The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (WW Norton and Company, 2014).
- Kai-Fu Lee, AI Superpowers: China, Silicon Valley, and the New World Order (Houghton Mifflin, 2018).
- Larry Downes and Paul Nunes, Big Bang Disruption: Strategy in the Age of Devastating Innovation (Portfolio/Penguin, 2014).
Reports and articles
- Mark Purdy and Paul Daugherty, “How AI Boosts Industry Profits and Innovation”, Accenture 2017.
- Michael Chui, James Manyika et al., “Notes from the AI Frontier: Applications and Value of Deep Learning”, McKinsey Global Institute, 2018.
- Sam Ransbotham, David Kiron et al., “Reshaping Business with Artificial Intelligence: Closing the Gap Between Ambition and Action”, MIT Sloan Management Review in collaboration with Boston Consulting Group, 2017.