What Role for Tech Committees in the AI governance?

Maria Lillà Montagnani - Bocconi University;

Maria Lucia Passador - Bocconi University.

-- AI can surely play a significant role within large listed companies to innovate in terms of business model, to manage risk more efficiently – especially in those sectors where it serves as an essential profile of business activity, such as financial and insurance –, to facilitate more detailed corporate reporting, and to increase the frequency, value, and role of M&A events across multiple markets. This is possible as AI can extract information from large volumes of data and use it to perform a series of tasks, including predictive ones, its employment also raises several risks where improper use of AI may amplify efficiency and transparency issued, similarly to what already occurred in the past, following financial scandals, as Enron in the US or Parmalat in Europe.

To understand the level of AI governance in place, in our recent empirical study, "AI Governance and Tech Committees: an Empirical Analysis in Europe and in North America," we analyse the role for tech committees in dealing with AI within European and North American listed companies.

The baseline was the creation of an ad hoc dataset using WRDS-BoardEx, combining data concerning directors serving on a given committee in a specific geographic environment, and those regarding individual directors sitting on the board. Then, we considered both the 2000-2019 period and the year 2019 alone, to respectively study the trends in the adoption of tech committees and such committee’s composition and functions.

The study explores tech committees from a quantitative and qualitative dimension.

First, with respect to the quantitative analysis, the paper shows that, in the time frame under analysis, tech committees initially made their appearance overseas and gradually spread across the pond, albeit in much smaller absolute terms and in slightly smaller percentage terms compared to all listed companies. Nevertheless, in the EU, those committees have a greater weight in terms of capitalization in the relevant national market. Also, it is particularly interesting to highlight that, in continental Europe, these tech committees are mainly established in banking companies – an aspect which presumably reflects the potential that these companies foresee in relation to the development, also in the regulatory environment, of these systems and their growing use for monitoring purposes.

Secondly, as to the composition of tech committees in 2019, while clichés such as the predominant involvement of independent directors are confirmed, tech committees unexpectedly feature directors who, on average, are even older than non-tech ones. The latter point can be explained insofar as, for the time being, such committees – as it emerged from the qualitative analysis – basically deal with strategic issues rather than with "new technologies", as one might presume from the denomination of the committee itself.

The qualitative analysis of the functions actually undertaken by the tech committees is carried out on a dataset comprising the committee charters (or, at least, the descriptions that can be retrieved from the company website to portray the activities of said committees, as frequently happens in Europe) of the companies that offer this information has been developed. It shows that tech committees are mainly engaged in the typical board duties, such as monitoring and strategy, while they still play a minor role in the exploitation of AI potentialities and, above all, in the management of AI-related risks. Tech committees do not seem to aim at understanding the functioning of AI systems, and not even at exploring their capabilities with respect to specific corporate needs, but instead tend to perform more typically strategic tasks, especially where their core business is closely linked to technological development, or monitoring on behalf of the board of directors.

The results of our two-level empirical analysis lead us to believe that the use of technology in corporate governance, in whatever form, now calls for an AI-oriented governance.

In conclusion, we propose a two-tiered AI governance that corporate boards should embrace to benefit to the fullest extent from the latest technological breakthroughs, wherein the most action-oriented level is informed and shaped through the principles that AI use should entail. We believe that sound AI technology governance cannot disregard the ethical bearings of the use of such systems and that tech committees can serve as the forum in which " virtuous" AI deployment can be effectively and efficiently designed, enacted and, now more than ever, " governed."

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