Artificial intelligence (AI) is rapidly having a dramatic impact in all industries. As a result of this influx of technology, board members have a responsibility to understand just how AI impacts their specific companies, as well as the accompanying risks that may be involved with this new technology. AI has become a highly important “To Do” for boards today to assure compliance with their fiduciary duties of loyalty and care. 

What Is Artificial Intelligence (AI)?

At its most basic level, AI enables machines to “perform human-like tasks.” AI is much more than this, though. AI also enables machines to learn from their own experiences and to adapt to new and continually changing environments. In short, machines improve in the performance of human-like activities over time. AI accomplishes this by gathering and analyzing huge amounts of data and identifying patterns and directing appropriate actions. A notable example of AI in action is the self-driving car. Other examples are seemingly everywhere, and it is very clear that AI is transforming our industrial world.

The actual term “Artificial Intelligence” first appeared in the 1950s as early computers were able to handle simple problem-solving. In the 1960s, the US Department of Defense engaged in the first extensive work with AI as it programmed computers to simulate basic human reasoning. DARPA, the Defense Advanced Research Projects Agency, undertook street mapping projects in the 1970s using AI. In fact, DARPA had developed Siri-like personal assistants as early as 2003. This work laid the groundwork for today’s AI opportunities.

The Importance of AI to Industry

It is hard to argue with the notion that the future of AI is now. As AI search engines have improved dramatically, searchers can now typically find an answer to a question from a few random words. The newest technologies will be capable of telling us what questions we should be asking.

Jim Goodnight, CEO of SAS Institute, highlights some of the reasons AI is important for industry in today’s world:

  • “AI automates repetitive learning and discovery through data.” More than straightforward automation of manual tasks, AI steps further with the automation of sophisticated computer tasks;
  • “AI adds intelligence to existing products.” Think the addition of Siri to a family of Apple products; and
  • “AI adapts through progressive learning algorithms to let the data do the programming.” A critical differentiator from that past, AI software algorithms can now learn from their own use and continually improve.”

Risks of AI that Boards Must Consider

With the increasing presence of AI and the enthusiasm about its potential value, there exists a basic fear among many that human usefulness may, at some point, be eliminated, and, stretching a bit with the inspiration of science-fiction movies, that mankind will be overtaken by AI machines. There is no doubt that AI has already made many jobs obsolete (e.g., automated phone systems, with voice-recognition software replacing some customer-service operators). There are also increasing cybersecurity risks associated with AI related to data privacy.

In addition, as computers and machines steadily evolve into deeper and deeper learning, it may become increasingly difficult to discern how massive amounts of unreliable data may be analyzed through AI. Additionally, it seems that, almost daily, there is a new headline about companies being hacked; thus, there are important concerns about privacy and protection of data in an AI universe.

Background on Fiduciary Duties for Boards

Delaware law, consistently viewed as the “nation’s corporate law,” requires board members to adhere to the fiduciary duties of loyalty and care.  In re PLX Technology Inc. S’holders Litig., C.A. No. 9880-VCL (Del. Ch. Oct. 16, 2018). Board members have a duty to act in the best interests of the corporation and its shareholders, Frederick Hsu Living Trust v. ODN Holding Corp., 2017 Del. Ch. LEXIS 67, *43–*44 (Apr. 14, 2017).

More specific board member duties have arisen from the duties of loyalty and care. For example, board members have the specific duty of oversight, frequently referred to as a Caremark duty, after the name of the case that initially created the duty. The duty of oversight calls for, among other things, boards to establish reporting and monitoring systems that enable the board to identify potential risks to the company. This information and reporting system has been described by the courts as part of a risk-management program that allows the directors to be properly informed and to become aware of any developing trends or activities at their company that may create a risk of liability for the company. Importantly, directors cannot delegate to non-directors “in a very substantial way their duty to use their own best judgment on management matters.”

The Board’s Duties Regarding Artificial Intelligence

In order to adhere to the above duty of loyalty and care and those deriving from it, boards should initially make a determination as to whether AI can help to improve their companies’ business practices, or whether AI can be a direct benefit to the board itself, by assisting as the board considers and makes informed decisions.

To the extent that AI, by automating a given activity, can lighten employee workloads or reduce overhead costs in general, the end result of AI’s input could be to increase profits for the company. For example, AI is likely available to most companies to analyze trends in the marketplace and dramatically improve marketing efforts. If the board does not keep abreast of these AI advances, then it could certainly be argued that the board is falling short in meeting its duty of care. Thus, it is increasingly critical for the board to stay abreast of AI developments that can have a significant impact on the business.

The board’s understanding of AI cannot be superficial. In order to comply with its duties, a board must take the time and employ the necessary resources to learn how its company operates at the “data usage” level. Will AI be truly effective? Ultimately, this is the core question that the board must answer.

Employing AI to enhance the board’s decision-making capabilities and its understanding and analysis of reams of data will become more and more the norm. If a board decides to embrace the use of AI, it is again important that this decision is the board’s and is not delegated to the IT department or others. AI technologies can make decisions based on data interpretations. Understanding and recording the facts that made this decision possible is often more difficult. This is perhaps the area in which the board must take its most active role to avoid even an appearance of allowing machines to make its decisions.