A functional and accountable board is the foundation of good corporate governance. As innovative and transformational technologies such as artificial intelligence (AI) and machine learning (ML) emerge, there are now increasing ways to enhance organisations’ functionality through better corporate governance.
Using AI and ML, boards can now improve strategic business decision-making and take actionable steps to enhance compliance and risk management.
Let’s explore how AI and ML can change companies’ operations, leading to better and more sustainable practices. According to MarketsandMarkets Inc, AI governance market is expected to rise from USD 890.6 million in 2024 to USD 5,776.0 million by 2029, with a compound annual growth rate (CAGR) of 45.3%. This growth reflects how AI is being used more in corporate governance, promising improved operation and usefulness in the future.[admnager ad_id="desktop_1" placement="desktop" lazy="false"]
Corporate Governance is the system of rules and processes that manage organizations. It ensures responsibility, fairness, and openness in an organization’s dealings with stakeholders such as shareholders, employees, customers, and the wider community. Effective governance is essential for building trust, improving performance, and reducing risks.
Historically, boards manage organizations mainly through manual methods, like meetings and audits. But new technology now offers ways to improve these processes for greater efficiency and,
importantly, better insight into the business, changing the corporate governance scene.
Firstly, for Predictive Analytics: ML solutions help model and predict the future and possible risks, such as market volatility, cybersecurity issues, and operational disruption. This information allows organizations to act proactively. AI and ML can also help identify real-time anomalies and possible risks, allowing organisations to react before they become problematic.
AI has already verified its power in financial organisations because of the fight against fraud. AI has reinforced our risk management frameworks through transaction monitoring, anomaly detection, and credit risk assessment, thus enabling more potent and secure operations. Dashboards created on AI and ML enable real-time monitoring of all organizational risks.
Secondly, scenario analysis: strategic business decisions can be made such that the board evaluates the current operations to prepare for uncertain conditions. AI and ML solutions help simulate different scenarios to examine the potential impact of any strategic decision. Data analytics powered by AI and ML can predict what will happen, helping boards make business decisions. This gives the board members’ “gut feelings” and intuition an auxiliary role in planning, hinging upon facts derived from formal data-driven analysis and approach.
Enhanced compliance is a crucial consideration for every board and important for those whose businesses meet regulatory requirements. These solutions enabled with AI and ML will help to diminish the grave consequences that might arise due to non-compliance. These tools help the board execute automated monitoring, ensuring that they remain compliant on time, that the gaps are identified, that they are alert to the latest regulatory developments, and that they secure their organization satisfactorily.
Additionally, stakeholder engagement for good governance should be proper. Good communication builds stakeholder trust and portrays the organisation as responsible. AI and ML based solutions empower the board to gain insights into public sentiments toward their product and service, thereby allowing informed perspectives on public perception. Through these solutions, the board can also customise its communication for each type of stakeholder, internal or external, within the organisation. Finally, applying AI and ML technologies allows organisations to remain accountable and transparent in business transactions and dealings. Such AI and ML solutions aid in monitoring, creating, and encouraging good auditable record-keeping. Unethical or fraudulent practices are curbed.
However, while AI and ML offer immense benefits for good corporate governance, deploying these technologies presents challenges that require the timely attention of able boards in implementation. As Trust Seal elaborated on the impact of AI on finance, the use of AI and ML technologies will involve processing huge amounts of sensitive data. It helps to preserve stakeholder trust by protecting data privacy and security.
Corporate governance practices that use AI and ML require highly skilled personnel who understand the nuances of technology and corporate governance principles. Professionals experienced in corporate governance principles together with, competence in data analytics/ science/engineering must fill this big skill gap. AI must be governed to avoid abuses and ensure alignment with organisations’ corporate values and societal expectations. Organizational boards need to be aware of the creeping legal frameworks on AI usage.
AI and ML technologies rise in prominence as they mature and evolve, and boards will utilise them to provide real-time insights and recommendations.
Afolabi is a corporate governance professional with over 22 years of experience. She has certifications and skills in Data Analytics and Engineering and is a Partner at KPMG in Nigeria.
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