Dr. Niraj Gupta | Ms Fernanda Torre*

In late August 2024, the Indian Institute of Corporate Affairs (IICA) hosted a virtual Power Talk focused on "Boards and AI," drawing insights from academic research and the book Boards' Oversight of AI: The Future of Corporate Governance by Fernanda Torre, Next Agents, Professor Robin Teigland, Chalmers University of Technology and Liselotte Engstam, Digoshen and Boards Impact Forum. 

Pursuant to the web discussion with the board directors, as members of Independent Director’s Databank, a National Level initiative at India which is lead by Dr. Niraj Gupta, Head Corporate Governance & Public Policy at IICA, a survey on the theme was conceived and developed by the same research team for assessing the progress at Indian boards on AI integration.

This article unpacks the results of the survey, which drew responses from 385 participants, 43% of whom were board members and 57% aspiring board members and senior business leaders, revealing the current state of AI integration in corporate governance and the divergent perspectives between senior executives and boards. Key findings, challenges, and recommendations offer a roadmap for boards to close the gap in AI governance, education, and strategy.

While some boards are making strides in incorporating AI into their education and AI maturity assessments, many still have significant room for improvement in areas such as strategy with long-term resource allocation, alignment with sustainability, ethical considerations, cyber resilience. strategy, and oversight processes. For boards to fully harness AI's potential, continuous learning and adaptation will be critical.

Interestingly, executives tend to have a more optimistic view of their boards’ AI readiness, governance, and oversight than board members themselves. This gap may stem from the executives' closer involvement in day-to-day AI operations, compared to board members' more strategic oversight roles. The disparity highlights a communication gap between board and executive levels, particularly regarding AI-related efforts with resource allocation, and ethical and cyber impact oversight. Closing this gap will be essential for effective AI governance and long-term success.
 

1. Board Education on AI:
- 57.7% of boards are actively educating themselves on AI trends and ethical considerations. This reflects a majority, but there’s still room for improvement in making AI literacy a priority for all boards.
- 60.1% of executives believe their boards educate themselves on AI trends and ethical considerations. This slight difference suggests both groups recognize the need for enhanced education, with executives showing slightly more confidence.

2. Understanding AI Maturity:
- 46.9% of respondents agree that their board has a clear understanding of their organization’s AI maturity and its strategic implications. Less than half of the boards feel confident in assessing their AI readiness.
- 64.2% of executives believe their boards understand the organization’s AI maturity. This higher confidence level may indicate that executives feel more involved in AI operations and see more progress than board members perceive.

3. Revisiting Board Competencies for AI:
- Only 38% of boards have revisited their competencies and processes to more effectively oversee the impact of AI. This suggests most boards are still in the early stages of adapting their structures for AI governance.
- 51.4% of executives believe their boards are making these adjustments. This indicates that executives may see more effort being made on AI adaptation than board members, perhaps due to their closer involvement with operational changes.

4. Ensuring Long-term Resources for AI:
- Only 36.2% of boards ensure sufficient long-term resources are allocated for AI initiatives, recognizing that AI transformation requires sustained effort. There is still a significant gap in long-term planning for AI.
- 55.5% of executives believe their boards are ensuring long-term resources for AI. This suggests that executives have a more optimistic view of resource commitments than board members, possibly reflecting greater exposure to operational budgeting.

5. Ethical AI Practices:
- Only 36.2% of boards supervise the establishment of ethical AI practices, ensuring compliance with laws and transparency in data management. Ethical AI governance is still developing for many organizations.
- 52.3% of executives believe their boards oversee ethical AI practices. This optimism may stem from a stronger emphasis on operational implementation of ethical standards compared to the board’s focus on broader governance.

6. Cyber Resilience and AI Threats:
- Only 41.5% of boards are overseeing their organization’s cyber resilience, focusing on AI-related threats and vulnerabilities. This indicates a growing awareness of the risks AI introduces to cybersecurity, but there is room for greater attention.
- 64.1% of executives feel their boards are ensuring cyber resilience against AI threats. This stronger confidence suggests that executives may feel more involved in cybersecurity measures, while boards might need more visibility into these efforts.

7. AI’s Role in Sustainability:
- Only 33.1% of boards encourage management to use AI to support the organization’s sustainability goals. A third of boards are actively leveraging AI for corporate responsibility initiatives, but there is potential for stronger alignment.
- 64.2% of executives believe their boards guide AI’s contribution to sustainability. This significant difference suggests that executives may see more direct impact from AI in sustainability initiatives than boards currently acknowledge.

8. AI Support for Board Processes:
- Only 28.5% of boards are exploring how AI can support their own internal processes, guidance, and oversight. This points to an emerging trend of using AI not just within the organization but also within the board itself.
- 50.5% of executives believe AI supports the board's own processes. This difference may suggest that executives see more practical applications of AI for board functions than board members, highlighting a possible underutilization of AI at the board level.

9. Continuous Improvement in AI Oversight:
- Only 36.2% of boards consider themselves well-prepared for AI oversight and are committed to continuously improving their capabilities in this area. This reflects a recognition that AI governance needs to evolve.
- 46.3% of executives believe their boards are committed to continuous improvement in AI oversight. This difference may reflect executives’ closer involvement in identifying and acting on areas of improvement compared to the board’s strategic viewpoint.
 

Board Practices Considered Critical by respondants to better guide and supervise AI:

* Periodic AI Discussions:
   - Boards should discuss AI developments regularly.
   - Suggested practices include circulating AI-related reading materials and ensuring ongoing education.

* Board Education and Awareness Programs:
   - Some respondents emphasized the need for formal AI education programs to increase board members’ understanding of AI and its implications.
   - Proposals include board awareness programs and periodic AI updates to keep board members informed.

* AI Policy Development:
   - Boards should focus on creating formal AI policies and governance frameworks to guide AI use and ensure compliance with ethical standards.
   - Specific suggestions include establishing risk assessments, cross-functional AI teams, and dedicated AI oversight committees.

* Ethical AI Considerations:
   - Boards are encouraged to integrate ethical considerations into AI governance, ensuring practices like reducing bias and preventing AI "hallucinations" (errors in AI-generated data).

One Improvement Action survey participants could consider to take was
   - Many respondents suggested enhancing personal and board-level AI education.
   - Other actions include workshops fostering AI working knowledge and engaging in continuous learning and upskilling in AI technology.
   - Several respondents also emphasized the importance of risk assessments related to AI and establishing robust frameworks for monitoring AI impacts.

Recommendations for Boards Based on Survey Insights:

1. Enhance Communication: Foster stronger dialogue between boards and executives to align on AI governance, readiness, and resource allocation. Ensuring a shared understanding will help bridge gaps between strategic oversight and operational execution.

2. Commit to Ongoing AI Education: Prioritize continuous, structured AI education for board members, enabling them to effectively oversee AI strategies and make informed decisions in an evolving technological landscape.

3. Explore AI’s Impact on Productivity, Offerings, and Business Models: Boards should actively assess AI’s potential to enhance organizational productivity, evolve product and service offerings, and transform business models. By staying ahead of AI advancements, boards can better anticipate shifts in the market and guide the organization towards sustained growth.

4. Ensure Experimentation and Implementation: Promote a culture of experimentation with AI within the organization, ensuring that AI innovations move beyond theoretical discussions and are implemented into real-world operations. This will allow boards to stay informed of practical outcomes and scalability opportunities.

5. Strengthen Ethical AI Oversight: Develop and implement clear ethical frameworks for AI use, ensuring that the board actively monitors compliance and mitigates potential risks related to AI ethics.

6. Improve Cybersecurity Transparency: Increase transparency in cybersecurity initiatives, ensuring that boards are fully informed about AI-related threats and the strategies in place to mitigate them. This will support better risk management and resilience.

7. Leverage AI for Boards Own Efficiency: Encourage boards to explore how AI can be integrated into their own internal processes to streamline decision-making, oversight, and governance functions.

By addressing these areas, boards will be better equipped to navigate the complexities of AI governance, drive strategic transformation, and ensure long-term success in the digital age.

For more information: https://boardsimpactforum.com/ and https://4boardsai.wordpress.com/ 

*Dr. Niraj Gupta is Head of School of Corporate Governance & Public Policy and Nodal officer, Independent Directors’ Databank, at Indian Institute of Corporate Affairs (a think-tank of Ministry of Corporate Affairs, Govt of India)

*Ms. Fernanda Torre is a leading expert in the field of sustainability-driven innovation, currently CEO of Next Agents, and Operations Director for Boards Impact Forum, the Nordic Chapter of the Climate Governance Initiative from the World Economic Forum. Fernanda is also a visiting teacher at the Stockholm School of Economics affiliated with the House of Innovation and part of the Stockholm School of Entrepreneurship faculty. A co-author of the book "AI Leadership for Boards – The Future of Corporate Governance," Fernanda’s research seeks to empower corporate boards in the governance of sustainability and responsible AI.