Is AI Better Than Your Board?
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There’s an unspoken, growing and unacceptable crisis in corporate boardrooms — disengaged directors. As they balloon personal fortunes and artificial prestige, their silence fuels risk, abets rogue executives and empowers board cliques.
What’s worse is that complicit senior leadership colleagues tolerate it.
Nearly half (48%) of over 700 corporate directors surveyed by PwC and The Conference Board favored replacing at least one fellow board member. Further, almost 20% acknowledged that peers are “reluctant to challenge management.”
A follow-up study with over 600 c-suite leaders revealed that only 29% of executives rated board performance as “good or excellent.” That’s disturbingly poor, as only 21% think boards “spend enough time fulfilling their responsibilities” and two-thirds indicated that their boards fail to “ask probing questions.”
Such complacency is hardly commensurate with the over $300,000 annual average total compensation paid to S&P 500 directors last year. With AI’s burgeoning omnipresence, robots could offer far cheaper and arguably better co-governance.
Zero Effort
In today’s tech era, it’s inconceivable and unacceptable that a board member can be so unprepared for meetings as to ask zero questions — in some cases, ever.
To the contrary, in mere seconds, ChatGPT, in response to the rudimentary query, “what questions should a board member of a public company ask?” yielded a (free!) ten-point board agenda organizing framework and initial diagnostics:
- Strategic Direction and Performance: What are the key strategic goals for the company? How are we progressing towards achieving them? What are the current market trends and competitive dynamics affecting the company's industry? How does our current performance compare to our peers and industry benchmarks?
- Risk Management and Compliance: What are the major risks facing the company, and how are they being managed? Are there any compliance or regulatory issues that need to be addressed? How is the company addressing cybersecurity and data privacy concerns?
- Financial Health and Governance: Can you provide an overview of the company's financial performance, including revenue, profit margins, and cash flow? How does the company manage its debt and capital structure? Are there any concerns about the accuracy and transparency of financial reporting?
- Executive Compensation and Talent Management: How does the company attract, retain, and develop top talent? Are executive compensation packages aligned with company performance and industry standards?
- Corporate Social Responsibility (CSR) and Sustainability: What is the company's approach to CSR and sustainability? How does the company manage its environmental, social, and governance (ESG) responsibilities?
- Innovation and Technology: How is the company fostering innovation and staying relevant in a rapidly changing business landscape? What is the company's technology strategy and how is it investing in emerging technologies?
- Customer and Stakeholder Engagement: How does the company gather and respond to customer feedback? What steps are being taken to enhance customer satisfaction and maintain positive stakeholder relationships?
- Mergers and Acquisitions: What is the rationale for any potential mergers, acquisitions, or divestitures? How will these actions align with the company's overall strategy and create value for shareholders?
- Crisis Preparedness: Is the company adequately prepared to manage and respond to potential crises? What crisis management plans are in place to mitigate risks to the company's reputation and operations?
- Board Effectiveness: How is the board ensuring its own effectiveness and good governance practices? Are there any areas where the board's composition or functioning could be improved?
Of course, the machine’s response is hardly complete nor company-specific, but it’s far better than too common silence and perilous disengagement. As a minimum, the one-minute, costless AI list generation exercise sharply contrasts lock-jawed board members quite content to “go along and get along” for hefty pay and stellar meals.
Two Paths
Beyond any due diligence or governance checklist, boards need credible leaders with the insight to solve increasingly complex challenges. That leaves two options:
Choice 1. Drive change.
A bit of sage, old management advice applies aptly to boards — “you can change your people or change your people.” The former rarely works.
And Spencer Stuart’s 2023 S&P New Director and Diversity Snapshot reveals tough competition ahead for board seats. Nominating committees ranked board composition and CEO succession as the top focus areas in the coming year.
Despite the cries for greater cyber and tech expertise, financial experience intriguingly tops the list of recruitment priorities (38% of survey respondents). Spencer Stuart observed, with Sarbanes-Oxley two decades old and board tenures averaging about eight years, companies are now saddled with a third (or fourth) audit committee turnover. To meaningfully address corporate responsibility expectations and capital market requirements, boardrooms need inquisitive minds and courageous governance far more than a proxy’s orchestrated matrix and auditors’ affirmation.
Otherwise, consultants reap vast fortunes from futile exercises intended to drive high engagement, but flop with the board docility that entrenched insiders truly prefer.
Choice 2: Eject.
Third Creek Advisors founder Adam J. Epstein offers directors another viable, but far less popular, option — resign. He wrote, “I have discussed this issue with [a] lot of board members over the years. I can’t tell you how many times I’ve heard things like, ‘The CEO was the wrong person to lead the company…for many reasons. But the other board members were good friends of the CEO, and I was on an island’ [or] the other board members weren’t experienced enough to know that the finance team was not only understaffed, but it was also amateur hour. I could just tell that this was heading to late filings and a potential restatement situation. All the indicators were there, but I couldn’t get any of the other board members to see the problem.”
He adds, emphatically, “And all those poignant reflections ended the same way, ‘I should have resigned from the board.’ None of them did. All of them regretted it.”
Childish excuses prevent petrified directors from considering preemptive resignation. They fear “looking bad,” posture allegiance to bureaucratic norms, harbor deep insecurities — or they quantify success with money. Yet, the “easier” path can often end in desperation, discovery, deposition, bankruptcy and/or personal emptiness.
As artificial intelligence co-piloting supplants standard workflows, boardrooms are not immune. In fact, such simplistic, albeit imperfect algorithms, if cleverly deployed, can inform and elevate human engagement and eradicate stewardship slack.
Who’s forging the future or soon to be coded out of it? There’s still time to change the road you’re on…