You often only hear of company boards when a big crisis hits the C-suite or the whole company and the board has to step in, but this essential governance body can (and should) play a key role in shaping the company success. This week, we will explore how boards can partner with their executive teams to ensure GenAI capabilities are leveraged for long term success.
Focus On: Boards and GenAI, back to basics
In 2024 companies have moved from experimentation to substatial adoption of GenAI capabilities, which makes effective board oversight paramount. Interestingly, directors and C-suite executives often have differing views on GenAI’s primary impact. While executive teams see new business models and revenue streams, directors tend to focus on increased operational efficiency. Despite these different focus areas, both groups agree on the importance of building trust in GenAI and managing risks related to data quality, cybersecurity, and regulatory compliance. In this era, boards must go back to basics and focus on their core responsibilities and provide effective governance and ensure best in class risk management practices are in place.
That said, to provide effective oversight, boards have to master a few core areas to truly understand GenAI, such as:
- Technology Understanding: Boards need to grasp how GenAI differs from pevious generation AI, appreciate its rapid adoption, the minimal investment requirements, and its people-related challenges and opportunities.
- Risk Management: Directors should prioritise managing risks such as data inaccuracies, cybersecurity threats, and data privacy issues. This includes ensuring human oversight is in place and treating GenAI outputs as preliminary drafts, especially in customer-facing or business critical applications.
- Regulatory Compliance: With evolving AI regulations, boards must stay informed about compliance requirements and ensure the company adheres to relevant laws.
- Talent and Culture: Addressing talent gaps and fostering a culture of continuous learning and adaptation are crucial for successful GenAI integration.
The Role of the Board vs. The Executive Team
When I took my first non executive director role, I quickly learned to understand and respect the boundary between the board and the executive team. This distinction is especially important in the context of GenAI, let's try to map it:
Strategic Oversight vs. Operational Execution
- Board’s Role: The board’s primary responsibility is to provide strategic oversight. This includes setting the vision and long-term goals for GenAI adoption, ensuring that the company’s strategy aligns with its values and risk appetite, and monitoring the overall progress and impact of GenAI initiatives. Boards must also ensure that management has the necessary resources and support to implement GenAI strategies effectively.
- Executive Team’s Role: The executive team, led by the CEO, is responsible for the operational execution of the board’s strategic vision. This involves day-to-day management, developing and deploying GenAI technologies, and ensuring that these initiatives deliver tangible business value. The executive team must also address any operational challenges and adapt strategies on the fly to achieve the set outcomes.
Risk Management and Compliance
- Board’s Role: Boards play a critical role in overseeing risk management and ensuring compliance with regulatory requirements. They must understand the potential risks associated with GenAI, such as data privacy, cybersecurity, and ethical considerations, and ensure that robust risk management frameworks are in place. Boards should also stay informed about evolving regulations and ensure that the company remains compliant.
- Executive Team’s Role: The executive team is responsible for implementing the risk management strategies approved by the board. This includes developing policies and procedures to mitigate risks, ensuring compliance with regulations, and addressing any issues that arise. The executive team must also report regularly to the board on risk management and compliance matters.
- Board’s Role: Boards must ensure that the company has the right talent and culture to support GenAI initiatives. This involves overseeing talent acquisition and development strategies, fostering a culture of innovation and continuous learning, and ensuring that the company’s values are upheld in the deployment of GenAI technologies.
- Executive Team’s Role: The executive team is responsible for executing the talent and culture strategies set by the board. This includes hiring and training employees, promoting a culture of innovation, and ensuring that employees are equipped with the skills and knowledge needed to leverage GenAI effectively. The executive team must also address any cultural challenges and drive change management initiatives.
Monitoring and Evaluation
- Board’s Role: Boards must regularly monitor and evaluate the progress of GenAI initiatives. This includes reviewing performance metrics, assessing the impact of GenAI on business operations and outcomes, and making strategic adjustments as needed. Boards should also ensure that there is transparency and accountability in the reporting of GenAI initiatives.
- Executive Team’s Role: The executive team is responsible for tracking the performance of GenAI initiatives and reporting to the board. This involves collecting and analysing data, identifying areas for improvement, and implementing changes to optimise outcomes. The executive team must also ensure that there is clear communication and collaboration with the board.
Boards always had a critical role to play in a company lifecycle and, most importantly, in ensuring effective governance and risk management. Since both the former and the latter as so critical in the age of GenAI, boards should rise to the challenge, educate themselves on the topic and hold their executive teams into account.
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Disclaimer: The views and opinions expressed in Chronicles of Change and on my social media accounts are my own and do not necessarily reflect the official policy or position of S&P Global.
