Revolution in the Boardroom: What Every Corporate Director Needs to Know About Generative AI

This article was co-authored by Joyce Li, CFA and Heidi Lorenzen .

Introduction

ChatGPT just turned 5 months old last weekend. Yet corporate board directors are already behind the curve if they haven’t started taking decisive action to harness its potential and mitigate associated risks.

Generative AI, a subset of artificial intelligence that specializes in creating original content or data through machine learning and natural language processing, is transforming the global business landscape at an astonishing pace. Breakthroughs in these technologies are revolutionizing industries, driving innovation, and challenging the very foundations of traditional business models. 

Directors stand at a critical crossroads, where embracing the transformative power of generative AI can propel their organizations to new heights, while hesitating may leave them vulnerable to disruption, obsolescence, and the relentless march of progress.

It is imperative, therefore, for corporate board directors to quickly gain the strategic understanding of these transformative technologies. In addition to profoundly impacting the very core of their organization, and shaping its future trajectory, embracing generative AI can also elevate board directors’ own personal decision-making and ensure they play an active role in shaping AI itself.

Generative AI impacts business strategies deeply and broadly

Productivity improvements from applying generative AI in monotonous tasks are where we already see many quick wins across industries. For example, with OpenAI’s Chat GPT-4, Morgan Stanley is radically expediting the time it takes for its wealth management personnel to locate relevant information from hundreds of thousands of pages and PDFs of research. It “effectively unlocks the cumulative knowledge of Morgan Stanley Wealth Management,” according to Jeff McMillan, Morgan Stanley’s Head of Analytics, Data & Innovation. A recent JAMA Internal Medicine study found that AI-generated responses were rated higher in quality and empathy than physician responses. Hospitals like UC San Diego Health and UW Health are now piloting generative AI for patient inquiries to help reduce staff burnout.

By staying informed about emerging AI use cases, board members can better position their organizations to seize first-mover advantages and capitalize on innovative breakthroughs:

• Technology: Generative AI can help IT professionals write code and the associated documentation - speeding software development and launch timelines. 
• Customer support: More human-sounding chatbots can offload customer inquiries, and lead to swifter resolution.
• Business development: Marketing and sales teams can create more personalized content for customer outreach at scale, leading to faster growth and stronger brand authority. 
• Product development: Product teams can prototype designs faster than ever, and continually iterate to keep up with customer preferences. 
• Business intelligence: Analyzing unstructured data, visualizing massive amounts of data, predictive analytics and scenario planning are just a few ways generative AI can be used to gain a deeper understanding of a company’s market, customers, and competitors.

Generative AI can also serve as a potent instrument for refining M&A strategies and streamlining the overall process. From target identification to due diligence and scenario-based valuation, generative AI enables the analysis of more data and variables, potentially allowing for a deeper understanding of complex situations. When it comes to integration, AI can facilitate monitoring and optimizing performance, as well as fostering organizational alignment through sentiment analysis. Crucially, adopting a forward-looking perspective on the rapid development of generative AI can transform the way companies view competitive advantages, potential M&A targets, and value creation opportunities from acquisitions.

And let’s not forget the people – employees – in the equation. Generative AI also creates massive opportunities and risks for companies in their people strategies. At a macro level, talent strategies must be revisited as the company settles into new products, business models, or simply different ways of operating with Generative AI as co-pilots. At a micro level, Generative AI offers opportunities to improve role definition, hiring, and learning & development to meet new needs. It allows organizations to better leverage the higher-value skills and talents of their workforce and potentially foster greater employee empowerment and fulfillment. The transition is complex and requires empathetic and strategic leadership skills at the board level and across management ranks to implement effectively. 

Generative AI Creates New Opportunities and Challenges in Risk Oversight and Management 

As generative AI technologies continue to transform the business landscape, and the technology is increasingly being embedded in the tools employees already use -- like Microsoft's -- board directors must grapple with an intricate web of risk oversight and management challenges. Establishing robust governance structures is of paramount importance for board members, who must guide their organizations in creating frameworks that inform strategic choices and set clear boundaries for generative AI usage. By proactively addressing potential ethical, legal, and operational issues, board directors can foster responsible AI practices that maximize benefits while minimizing unintended consequences.

Alongside governance, board directors must ensure that data protection and quality are prioritized in the implementation of generative AI. Directors should advocate for the development of stringent policies to safeguard proprietary data, and address key concerns surrounding AI's reliability, fraud, fact-checking, bias, and cybersecurity risks. By supporting clear guidelines and protocols, board members can help their organizations protect valuable assets, build trust with stakeholders, and guarantee the integrity of AI-driven initiatives. Embracing a comprehensive approach to risk management empowers board directors to harness the transformative potential of generative AI while maintaining a strong risk management posture within their organizations.

For corporate board directors, understanding the implications of generative AI for cybersecurity is essential. While AI-driven technologies can bolster security measures by identifying threats and vulnerabilities, they can also be exploited by malicious actors to create sophisticated cyberattacks. Board directors must recognize the dual nature of generative AI in the cybersecurity landscape and ensure that their organizations adopt proactive measures to mitigate risks. This includes investing in advanced AI-powered security tools, cultivating a culture of cyber awareness, and fostering collaboration between security teams and AI developers. 

The widespread adoption of generative AI could have far-reaching implications, with ripple effects that extend beyond individual organizations or industries. Even the Google executive known as the  “Godfather of AI” quit this week so he could focus on more broadly communicating about the dangers of AI.  Board directors must contemplate the potential societal and environmental impacts of AI-driven innovations, ensuring that their organizations not only remain competitive but also contribute positively to the broader ecosystem.

Leading Through the Generative AI Revolution: Key  Principles for Board Directors and Executives

Company leadership plays a pivotal role in harnessing the transformative potential of Generative AI. Boards need to remain discerning about the operating team’s ability to lead through this revolutionary shift toward accretive outcomes for the company, shareholders, employees, partners, and communities. 

Company leaders must immediately put attention toward:

• Institutionalizing data-driven decision-making: If not already the norm, prioritize making decisions based on solid data and analytics, fostering a culture of evidence-based strategies.
• Understanding and addressing employees' concerns: As disruptions occur, listening to and addressing the anxieties and apprehensions of employees, will help ensure they feel supported and empowered throughout the transition.
• Fostering a culture of agility and continuous learning: Recognize that there is no one-size-fits-all playbook for success in this new era. Encourage adaptability, experimentation, and a willingness to learn from both successes and failures.
• Strengthening interdisciplinary collaboration: Groundbreaking advancements often emerge at the intersection of various disciplines. Promote cross-functional teamwork and open communication to spark innovation and creative problem-solving.

Even a decade before the arrival of Chat GPT, adaptability was known to be a crucial competitive advantage as the pace of technological change accelerated. Generative AI is now the wake-up call to a world where the “future” is no longer the realm of science fiction. It’s here. Adapt or ignore at your own peril. 

About the Authors

Joyce Li is a seasoned board director and advisor with a strong background in audit, finance, ESG, M&A, and risk oversight. She is a thought leader in corporate governance, FinTech, and the impact of emerging technologies on the boardroom. As the founder of Averanda Partners and through her extensive experience as an investment executive, Joyce has engaged in numerous discussions with C-level executives and senior peers, recognizing the need for boards to embrace and understand generative AI to build effective, future-ready governance.

Heidi Lorenzen is a respected advisor, board member, and go-to-market tech executive who demonstrates a consistent ability to navigate the complex landscape of emerging technologies. An early adopter of generative AI and former executive of Singularity University, an institution renowned for helping leaders adapt to a world of accelerating change, Heidi is known for steering teams through transformative change to drive strategic growth, and appreciated for her ability to bridge the gap between technological innovation and market execution.