FRESH TAKES ON BIG IDEAS

Boards are increasingly discussing generative AI (gen AI), but they tend to focus more on the risks than on the business opportunities. The risk side of gen AI is important, of course. In addition to the fundamental risks of business model disruption, there are multiple regulatory, compliance, and governance risks relating to intellectual property, privacy, and data security. There are concerns about the “AI black box”—that is, the lack of transparency around how gen AI arrives at results—and about social biases that may be perpetuated in the data used to train AI algorithms. Accountability for accuracy, the potential for gen AI to stoke misinformation, and even the environmental impact of gen AI’s energy use for data processing all pose additional risks. Given these wide-ranging concerns, boards need to be satisfied that management continually reviews, measures, and audits gen AI activities. 

However, it’s even more important for boards to understand the opportunities gen AI presents. This technology has the potential to affect every industry and every part of a company’s operations, including finance, marketing, and strategy. While I do see that some management teams want to move faster on gen AI opportunities than their boards are prepared to, that’s not the case everywhere. Today, boards can catalyze change in the institutions they govern. Often, managers have grown up in one industry or even one company, which gives them a certain view. The board can bring perspectives from other sectors or parts of the world that encourage management to be bolder. By asking the right questions—without crossing the boundary into operational issues—boards can raise management’s aspirations. 

Key questions include the following: How will gen AI affect your industry and your company? What is the value at stake? There are already proven, bankable use cases, such as programming, customer engagement, and content creation, in which we see significant productivity increases. Board directors need to understand how this technology affects the competitive environment, because being a front-runner can deliver sustainable advantages.

Another important question boards should ask management is, how will the organization scale gen AI? Here, we can learn from past experiences with technology adoption. In earlier digitization efforts, including process automation and advanced analytics, for example, only one in ten use cases were implemented at scale. This was largely due to people ultimately finding it easier to perform certain tasks the traditional way. We believe the number of scaled applications of gen AI will be even lower. So how do you identify them? How do you organize the leadership structure to guide these initiatives? 

“In earlier digitization efforts, including process automation and advanced analytics, only one in ten use cases were implemented at scale. We believe the number of scaled applications of gen AI will be even lower.”

The board needs to understand whether an organization has the necessary capabilities, talent, and culture to embrace the changes gen AI requires. This technology will eventually become a commodity. It’s in the organizational capabilities—the change management and cultural adjustments needed to integrate new tools and processes into daily operations—where work has to be done.

Ultimately, directors have to balance the trade-offs between business opportunities and risk management. In numerous discussions with boards, I find only nascent understanding of this technology. To provide oversight and management support, boards will need to build their own capabilities. They can hold deep dive sessions with experts from within or outside the organization. Some boards are testing immersion sessions wherein they work with gen AI tools and explore use cases. 

There are also implications for board composition. In the early days of digitization, every board wanted to have one digital director—ideally young, with experience at a major tech company. Most boards have since realized that they actually need a critical mass of directors with digital expertise. Boards also need to consider how to approach oversight. Some are creating technology advisory boards or board committees. Our view is that gen AI will be so fundamental that you will need the entire board to be at least literate in it—you can’t fully outsource it to an advisory panel or a committee.

The question I personally find fascinating is how boards will incorporate this technology into their own work. I can envision directors using gen AI to prepare for meetings or to answer questions they have between them. I think we will see more proprietary, gen AI–powered assistants that help board directors get instant answers. At least one company in Asia has gone so far as to give AI a seat on the board and a vote. That seems extreme to me—until the board gains a high level of trust in the technology, that vote may be challenged—but maybe I’m too conservative.

ABOUT THIS AUTHOR

Frithjof Lund is a managing partner in McKinsey’s Oslo office.

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