How tech can help improve corporate governance, strengthen leadership

Companies and boards face a complex regulatory environment. AI can assist them by monitoring regulations and ensuring accurate financial reporting

Companies, old and new, continue to see startling failures of corporate governance. Storied brands and star startups have crashed recently owing to poor governance and financial fraud. 

 

As questions are raised about the role of regulators, investors and board oversight, it appears that systems and processes fail to generate alerts about potential breach of governance norms. It may be time for business leaders to assess if technology can help improve governance. At a time when managing investments and finance is becoming increasingly complex, artificial intelligence (AI) has the ability to predict fraud and suspicious transactions. From investor relationship to transparent board management and tracking conflict of interest, AI tools are sophisticated enough to support attentive board members.

 

Ambitious companies have to manage multiple compliance regimes. CXOs have to balance somewhat contradictory demands of various regulators within the same economy. International companies have the additional pressure of managing compliance in different countries. New regulations on matters such as climate change, data privacy, and beneficial ownership are introduced regularly across countries.  

 

As a result, boards and business leaders are leaning on technology to keep themselves informed. “Key market drivers for board management software include the increasing need for transparency and accountability in corporate governance, growing regulatory compliance requirements, and the need for efficient and secure collaboration among board members,” says a report by Market Research Future. The software market for board management is projected to grow from $2.55 billion in 2025 to $5.56 billion by 2034, says the report. With growing awareness about environmental, social, and governance, there is an increasing need for software that enables boards of directors to track and manage their ESG performance efficiently.

 

Software assists boards in meeting compliance obligations by providing tools to monitor regulations, manage risks, ensure the accuracy of financial reporting, and conduct assessments. For a company’s board and management, AI software tools can automate tracking and monitoring of compliance norms. Audit trails of complex transitions can be managed with sharper efficiency and speed. 

 

AI for corporate governance may bring related challenges though. Researchers at Stanford University recently published a paper called ‘The Artificially Intelligent Boardroom’. 

 

“Many boards have been woefully uninformed about the financial, operating, and strategic risk of management decisions — as borne out through repeated examples of corporate meltdowns over the years. Boards have erred in situations of CEO [chief executive officer] selection, financial reporting, product liability, compensation setting, and reputation management,” the paper says. “Artificial intelligence has the potential to change this dynamic.”

 

AI can provide improved quality and quantity of data in shorter time cycles to management and board simultaneously. This will reduce the information asymmetry between board and management. 

 

“These tools will allow boards to be more proactive and less reactive. AI monitoring will also likely generate a high number of red flags related to internal and external practices or threats,” says the paper. 

 

However, AI has risks and it can undermine benefits if not managed with care. Companies must carefully consider the data they put into models. Companies must carefully consider the data they put into models as otherwise it may lead inaccuracies or biases. 

 

Indian companies and regulators will have to evaluate how best to integrate technology in governance. Malintent can’t be prevented but it can be tracked and exposed with the help of emerging technologies. With the appropriate safeguards, compliance-related technologies can help business leadership maintain high levels of governance.