Artificial Intelligence (AI) is a strategic imperative driving digital transformation across industries. While the potential for cost savings and efficiency gains excites CFOs, boards and C-suites must grasp the interplay between AI and human capital to ensure successful AI implementation.
AI is Transforming Work
AI, particularly Generative AI, is rapidly transforming work. McKinsey estimates that by 2030, AI can automate nearly 30% of current work hours in the US. This doesn’t necessarily mean mass layoffs; instead, it points toward significant job reconfiguration and a recalibrated human-AI relationship.
Boards must align AI strategies with core business objectives, not just use AI for cost-cutting. Headcount reduction is tempting in the short term, but up-skilling and retraining employees in AI offers longer-term sustainable growth. Remember, AI still relies heavily on human input and knowledge transfer. AI trained on synthetic data, instead of human knowledge, risks large language model drift.
Risks and Opportunities
Boards must be vigilant about AI risks and opportunities. Risks include dependence on major software vendors, which may inadvertently introduce vulnerability, cyber threats, and protecting mission-critical assets and know-how. The National Association of Corporate Directors’ (NACD) principles for cyber risk oversight, published in conjunction with the American International Group (AIG) and the Internet Security Alliance (ISA) are particularly relevant here, emphasizing enterprise-wide risk management and access to AI expertise.
Boards should reassess their composition, structure, and AI expertise.
AI presents significant innovation opportunities. AI can enhance cybersecurity, identify growth opportunities, and inform strategic decision-making. Boards should engage in technology innovation discussions in their strategic planning process.
Board Structure and Oversight
Boards should reassess their composition, structure, and AI expertise. Audit Committees may be overburdened, and specialized committees for risk or technology could be considered. However, the full board must actively oversee AI strategy and implementation.
Regular board meetings, perhaps more frequent than the traditional quarterly cadence, are essential for providing greater oversight on digital transformation and AI-related investments. CHROs should have direct board access and be empowered to navigate the complex human-AI relationship within the enterprise.
Human Capital at the Center
Workforce transformation is integral to any AI transformation. Boards must prioritize HCM with strategic priorities. Upskilling and reskilling initiatives, data literacy training, and change management are crucial to maximizing AI benefits.
Ethical and Regulatory Considerations
The AI regulatory landscape is evolving rapidly. Boards must ensure compliance while fostering ethical and responsible AI use throughout the organization and in third-party relationships.
Seizing Opportunities
AI offers opportunities for innovation and long-term value creation. Boards should encourage leadership to leverage AI to drive business model and workforce transformation. Success requires “humans-in-the-loop.”
Guiding Principles
In short summary, boards should keep in mind these guiding principles:
- Modernize your data
- Focus on business needs and value
- Leverage AI to enhance strategy and competitive advantage
- Have clear success criteria and monitor progress
- Factor in human capital and third-party impact and risk
- Allocate necessary capital and resources
- Establish a governance framework and consider the regulatory context
- Partner across enterprise functions and integrate into ERM
- Above all, do no harm
The path to AI success is paved with both challenges and opportunities. Boards and C-suites that prioritize human capital considerations and adopt a responsible, ethical approach will be well-positioned to thrive in the AI-driven future.
NOTE: This post’s title is the title of Chantal Veevaete’s August 30, 2024, Bonar Institute webinar. Chantal (see https://www.linkedin.com/in/chantal-veevaete/) is an expert in human capital management (HCM) with many years of experience in the C-Suite across various industries and as an independent public board director and advisory board member. To this day, many seek her advice on HCM. This post summarizes my takeaways from her webinar, which I hosted on behalf of the Bonar Institute. Hear the entire webinar here.
