A Revolution in Governance: How AI Will Make Boards More Effective

The modern board of directors has its origins in medieval merchant guilds and developed in the age of sail: a safeguard for investors when companies like the British East India Company crossed the seas to trade in distant ports. Since then, the purpose of boards has not changed: to provide a system of informed, independent and accountable corporate oversight.

 

But boards have had their limitations right from the start too. The East India Company was nationalised after governance failures, just as Credit Suisse, Silicon Valley Bank, Volkswagen and Lehman Brothers have been in more recent times.

Complex challenges and heightened expectations

 

While the board’s primary role has not changed, the challenges it faces have evolved dramatically. Contemporary boards face a range of difficulties: global markets are highly complex; CEOs like Sam Altman and Jeff Bezos wield outsized power; technology is disruptive and fast moving.

 

The series of high-profile governance failures mentioned above has also added pressure on boards in the form of increased expectations and responsibilities. All those corporate scandals featured dysfunctional boards that failed to identify or control crises.

 

AI: better, further, faster

 

AI’s recent explosion into public consciousness has stoked both tremendous hope and dark fears for the decades to come, not least in relation to the future of work. AI thus poses an immediate challenge for boards.

 

Having conducted extensive research into the uses of AI, we turned to its implications for boards. Happily, we found that fears about AI and corporate governance are largely misplaced. Board members won’t be replaced by robots. Instead, AI will enable human directors to see better, further and faster.

 

As we show below, AI will provide transformational support across five core challenges – challenges that boards have faced since their inception – enabling boards to meet them more effectively than ever before.

 

AI solutions to the five challenges to board effectiveness

 

1. Information: knowledge and competence

For a board to function effectively, its members must understand information given to them about their business and the world it operates in. A problem for many board members is that this information usually comes from the executives they oversee: it can be selective, skewed to show success and hide failure. And information often arrives just before a meeting and is written for expert executives, not for board members.

 

Meanwhile, complex global markets make it challenging for the board to grasp relevant competitive, technological and regulatory changes. Contemporary AI is unrivalled in its ability to synthesise information. Used effectively, AI will enable directors to match executives in their understanding of a business and its contexts.

 

AI can synthesise regulatory findings, financial figures, employee feedback and much more. This means boards will have more time to make decisions and think strategically – areas that many boards admit are shortcomings. 

2. Time: efficiency and insight

 

 

Boards typically meet only a few times a year and members often don’t have time to process the information provided to them: they end up focusing on the short term, such as validating financial results, and rarely taking the time to consider long-term strategies. 

 

AI can help directors prepare for meetings more swiftly. In addition, AI can recall previous discussions accurately, including integrating relevant new insights. It can also shape pertinent questions to ask executives.

 

Governance will change its rhythm as a result: rather than operating around sporadic sessions, board work will be continuous, reactive and anticipative. Boards will be able to focus on operational issues and more strategic thinking. 

3. Action: confidence and decisiveness

 

If finding the time to have an adequate discussion is difficult, it is even harder for a board to put deliberation into action. If directors have not had time to reflect and do not feel at ease with complex information, they can lack the confidence to take necessary action – or act in haste without really understanding what is at stake.

 

Our research identifies this problem in leadership transitions. General Electric, for instance, faced major difficulties after CEO Jack Welch retired in 2001. It took GE two decades to address the issue. In the end, GE split into three more focused businesses in 2023. Under Welch, GE had drifted too far from its original purpose – developing leading technology – focusing instead on building a financial house. This became clear when GE went down in the 2008 global financial crisis.

 

AI can provide a near continuous stream of good information. It can also provide efficient forecasts, scenario analyses and risk assessments. Armed with these tools, boards can act swiftly and with greater foresight.

4. Emotion: respect and empathy

 

 

The board’s task is in many ways an objective one. However, the high stakes can make the relationships between board members – and between boards and executives – emotionally charged. This can have significant impact on mutual trust and board effectiveness. A functional board requires members to have confidence in and empathy for each other. A board where rivalry, cynicism and frustration lurk will not govern well. 

 

Even in the realm of emotions, AI can provide support. First, AI can monitor meetings and note disengagement, tensions, repetition and even fatigue, prompting intervention. Second, by analysing behavioural, decision and communication data over time, AI tools can help ensure that board members are still “fit and proper” for their roles. Increasingly, AI will also play a role in selecting directors. Third, AI can help boards to identify the patterns of deference and control that emerge when, for example, former CEOs serve as chairs, or a chair has become too sympathetic towards a CEO. 

5. Spirit: purpose and integrity

 

 

Board members’ emotional relationships matter deeply, but above that is the sense of “spirit” the directors must feel: their sense of purpose and responsibility, intellectual courage and moral integrity. When this sense of spirit weakens, a board ceases to be effective.

 

The 2023 governance failure at OpenAI, where the board dismissed CEO Sam Altman only for him to return a few days later, was partly caused by the board missing changes in spirit at OpenAI. The firm began as a non-profit foundation but clearly started moving (with Altman bringing in Microsoft as a key partner) towards the commercial promise of AI.  

 

Evidently, AI cannot make a direct intervention in matters of the spirit. However, the spirit of the board is only strong when the four other foundational challenges are addressed effectively. Boards often struggle to meet all five challenges: failure in one dimension cannot be offset by greater energies in the others and typically leads to board ineffectiveness. But as we have seen, AI will help boards to meet the challenges of information, time, action and emotion.

Working in partnership

 

How AI will impact the future remains unknown. But one thing is clear: any fears that AI will make humans redundant on governing boards is misplaced. In fact, we think that the opposite is true: AI will allow boards to be the informed, accountable and anticipative institutions they need to be. As business becomes increasingly automated, boards will need to work effectively to keep their organisations human-centred.