Company law – A directors guide to the governance and regulation of AI

What is AI?

Put simply, AI is a field of computer science which develops and harnesses the intelligence of machines and software. It was formerly known as machine intelligence, with the phrase “artificial intelligence” emerging in the 1950s. One of the overarching objectives of AI is to simulate human intelligence processes by machines, particularly computers, to permit those machines to perform tasks traditionally performed by humans. Hence, AI refers to a machine’s ability to perform the cognitive functions which we typically associate with human minds – this includes reasoning, problem-solving, perception and even creativity.

Whilst certain forms of AI have been in existence for several years, it is the emergence of generative AI over the past two years which has heightened concerns when it comes to regulation and compliance. Generative AI refers to tools such as ChatGPT, Gemini and Copilot, which are deep-learning algorithms which have the ability to generate high-quality text, images and other content.

The challenges with AI

Although the advent of AI promises significant productivity and economic gains, there are also risks associated with the technology from system failures and cyber threats. Hence, as more organisations adopt new AI technologies, and regulators such as ASIC increasingly focus on regulating AI risks, it is imperative for corporate boards to understand the governance requirements for the ethical and informed use of AI.

The Australian Government has committed to introducing a range of measures to support the uptake of safe and responsible AI. This includes the possibility of mandatory guidelines, the regulation of AI which is deployed in high-risk settings and strengthening existing laws in order to address AI harms. The Parliamentary Select Committee on Adopting AI (Committee) was established on 26 March 2024 and tasked with reporting on the impacts and opportunities for Australia which arise from the uptake of AI technologies. The Committee has received almost 250 submissions – including from such high-power players as Meta, Microsoft, Amazon, the Department of Defence, the Australian Federal Police and CSIRO. The Committee is due to deliver its final report to parliament on 19 September 2024.

In Australia, as globally, the key challenge is to balance innovation and entrepreneurial endeavours on one hand, with regulating high-risk AI usage on the other hand in order to avoid the most significant AI harms.

The guidance for company directors

As custodians of organisational wellbeing and strategy, company directors play a key role in creating appropriate guardrails which permit AI’s benefits to be harnessed in an appropriate manner. This requires a robust governance framework which has the ability to adapt to the unique characteristics of AI.

The resources provided by the collaboration between AICD and HTI-UTS, comprise a:

• Director’s Introduction to AI – Aims to provide company directors with a foundational knowledge of key AI concepts and issues.
• Director’s Guide to AI Governance – Provides practical guidance for boards already using, or planning to deploy AI, within their organisations, and outlines the eight elements of safe and responsible AI governance.
• Checklist – Aimed at SME and NFP governance. The AICD and HTI-UTS collaboration recognises the significance of small and medium-sized enterprises to the Australian economy and the specific needs of this sector. This checklist focuses on the three pillars of Foundations, Building and Continuous Development.
• Snapshot – A concise snapshot of the following eight elements of safe and responsible AI governance:
  1. Roles and responsibilities – Who is accountable within the corporation for AI decision-making?
  2. People, skills and culture – Assess the company’s capabilities and training in AI.
  3. Governance structures – Whether the existing or a new governance structure is required.
  4. Principles, policies and strategy – Incorporate safe and responsible AI principles.
  5. Practices, processes and controls – What controls are in place for AI use?
  6. Stakeholder engagement and impact assessment – Identify and engage with key stakeholders.
  7. Supporting infrastructure – Maintain an AI inventory and a robust data governance framework.
  8. Monitoring, reporting and evaluation – With metrics, outcomes and assurances.

These new resources are designed to better position directors to take advantage of the benefits of AI for their corporations, whilst avoiding the risk of serious harms, including clients impacts, regulatory breaches, commercial losses and reputational damage.

HTI Co-director, Professor Nicholas Davis, commented that “AI is becoming essential to Australian organisations. Yet investment in AI systems has not been matched by investment in AI governance. Directors should be engaging with management to understand where AI is being used in their organisation and how the risks are being managed.”

The AICD and HTI-UTS collaboration hope that, by applying their guidance, company directors can oversee the deployment of AI within their organisations for maximum benefit, productivity and competitive advantage.

Further reading

Read more about the regulation of AI in the following news stories only available in CCH iKnowConnect:

• ASIC gets real when it comes to regulating AI – 6 February 2024
• ASIC steps up on the adoption and regulation of AI – 21 May 2024

Check out our 2024 corporate guide to cyber security and data breaches, which contains new chapters on AI, cyber security and director duties.

Source:
AICD, Director’s Guide to AI Governance, 11 June 2024, accessed 10 September 2024.
AICD, Media Release, Governance of Artificial Intelligence, 12 June 2024, accessed 10 September 2024.
Parliament of Australia, Select Committee on Adopting Artificial Intelligence (AI), 26 March 2024, accessed 10 September 2024.