Traditional corporate strategies and governance are insufficient to handle AI’s complexities and uncertainties

Source: The post traditional corporate strategies and governance are insufficient to handle AI’s complexities and uncertainties has been created, based on the article “Why there is a need to reimagine corporate governance in the AI age” published in “Indian Express” on 2nd August 2024 

UPSC Syllabus Topic: GS Paper3- Science and Technology- developments and their applications and effects in everyday life. 

Context: The article discusses how traditional corporate strategies and governance are inadequate for addressing the complexities and uncertainties introduced by rapid technological advancements and other global disruptions. It emphasizes the need for evolving corporate mindsets and diversifying board compositions to effectively manage future challenges. 

For detailed information on Corporate Governance in India read this article here 

What Are the Current Challenges in Corporate Governance? 

1. Inadequate Responses to Technological Risks: Boards still rely on outdated frameworks to address AI-related crises, which can be misleading. For example, AI-enabled bypass of internal financial controls and AI-generated content altering marketing campaigns.
2. Mismatch Between Governance and Technology: The current governance processes, like 360-degree evaluations, often become mere formalities, failing to keep up with the demands of exponential technological change.
3. Lack of Diversity: Indian boards are mainly composed of older individuals with similar experiences, leading to homogenized thinking. This limits “out of the box” alternatives needed for navigating modern challenges.

How Are Corporate Responses Inadequate? 

1. The article suggests that corporate governance is still rooted in pre-AI era thinking. 
2. The conventional questions asked at the workshop didn’t align with the unpredictable nature of AI and other disruptive technologies.
3. Shell used scenario planning in the 1970s to predict oil price surges. However, today’s disruptions, like AI, require a new approach because past trends are no longer reliable indicators of the future.

What Should be Done? 

1. Update Governance Processes: Traditional methods like 360-degree evaluations must evolve to address the rapid pace of technological change, as shown by AI’s impact on marketing and financial controls.
2. Diversify Boards: Indian boards should include younger and more diverse members to foster innovative thinking and address emerging risks.
3. Reevaluate Corporate Vocabulary: Concepts like “vision” and “strategy” need reassessment to ensure they are relevant in the face of technological disruptions.
4. Promote Broad-Based Discussions: Solutions should be developed through inclusive internal discussions, not just relying on narrow expert opinions.

Question for practice: 

Discuss how the evolving technological landscape necessitates changes in traditional corporate governance and board composition.