The rise of AI in the boardroom: Directors’ duties when using AI for business decisions
AI has proven to be a facilitative tool for many businesses, with its seemingly limitless number of functions, whether that be administrative assistance, decision-making or innovation. This article examines how AI may be used at the highest level of a company, the boardroom, whilst ensuring directors remain compliant with their legal duties.
Typically, a company is managed by its directors, who may consist of a single individual or a board of several directors, depending on the size and needs of the company. A director is not limited to someone who has been formally appointed, any person acting in the capacity of a director will qualify as a director in the eyes of the law.
Currently, there is no single designated AI regulator or authority in the UK; we do not have any overarching legislation governing the use of AI. We do, however, have legislation governing directors in the form of the Companies Act 2006. Directors’ duties are the legal obligations owed by directors to the company they serve. These duties are in place to protect the interests of the company and its stakeholders, including shareholders, by ensuring ethical conduct.
Sections 171-177 of the Companies Act 2006 outline several directors’ duties. Of these, sections 172, 173 and 174 are particularly relevant to the use of AI in corporate decision-making.
Section 172 of the Companies Act 2006 requires directors to act in good faith to promote the success of the company. The misuse of AI in important company decision-making could risk a breach of this duty, highlighting the need for directors to ensure that AI usage is in alignment with the goals of the company.
Section 173 is the duty to exercise independent judgement. Directors can delegate decision-making if the company articles of association/constitution (which is essentially the company playbook) allows, relying on colleagues or advisers such as AI, but the final decision must remain theirs. It is therefore essential for directors using AI to ensure that it does not remove their own freedom of thought, ensuring that all decisions are ultimately agreed by themselves.
Section 174 is the duty to exercise reasonable care, skill and diligence. AI is not risk-free; several problems can occur which will influence the accuracy/quality of the information it gives. AI hallucinations, errors resulting from the system anticipating text which should follow an input despite having no concept of ‘reality’, are common in models such as ChatGPT. Problems can appear when AI follows the wrong patterns in data; this could lead to inadvertent discrimination, which is termed algorithmic bias.
Risks such as these enforce a duty on directors to take extreme care in validating both the inputs and outputs of all data to ensure any usage is not considered a breach of reasonable care, skill and diligence.
AI has the potential to provide valuable support at board-level decision-making, but it cannot replace the role of directors. Directors must remain vigilant in adhering to their statutory duties when introducing AI.
Here at Cook Corporate solicitors, we can give tailored advice on the issues contained in this article. Feel free to get in touch with a member of a team to talk through any specific issues.