Over recent weeks, the global business system has been heavily impacted by the outbreak of Covid-19, obliging companies to activate strategies in line with governments’ directives. Decision makers have been tested by the increasing pressures stemming from the international arena, where uncertainties put them in a risky position along the supply chains, emphasizing that operating in such global environment certainly means getting access to a larger number of opportunities, as well as being victim of a domino effect in front of turbulent circumstances deployed far away.
These changes could also lead to a rethink of some paradigms and dynamics that have typically characterized companies – even at the top level. In this framework, the technological trends that have transformed business realities over recent years could knock on the boardrooms’ doors to strengthen their responsiveness and resilience before, during and after an emergency. Indeed, even if these bodies have been an under-researched “black box” for a long time, the moment to revitalize their role has come.
When crises occur, boards of directors are greatly involved and crucial to monitor the effectiveness of the methods used by the organization to manage risks and the robustness of the management’ modus operandi; to set the right “tone at the top” with the stakeholders; and to support the executive team even with a renewed strategic vision. The potential of artificial intelligence and machine learning could revolutionize the dynamics that shape corporate boards, shifting the attention from how AI and ML will impact the strategy to how these technologies will affect their structure, composition, and decision-making processes.
Director selection
In 2018, professors from Ohio State University, the University of Colorado and the University of Washington co-authored a research paper to present a machine-learning approach to selecting the directors of publicly traded companies. The authors worked on the construction of the XGBoost algorithm to forecast whether an individual would have been successful in a particular board; compared econometric and machine-learning approaches to evaluate the performance of board members thanks according to the votes received; and adopted the results provided by the algorithm as benchmarks for the directors’ recruitment.
Even if the findings represent a first step, a further exploration of these sophisticated models would support the improvement of the recruitment process. In particular, tracking those directors whose competences and networks would benefit the board could leverage the body’s effectiveness – especially if studies are applied to build specific committees that must demonstrate excellent capabilities in promptly responding to situations of crisis.
In addition, it is reasonable to think that algorithms could provide a solution to overcome barriers that are typical in the boardroom. Some of these relate to the debates raised around the chief executive officer’s influence in appointing sympathetic directors; the limited time many directors invest in the development of in-depth knowledge of the industry they are operating in; and the lack of diversity in term of gender, nationality, and competences.
Diversity plays a big role in coping with unpredictable scenarios because, thanks to its contribution to the group’s robustness and its ability to respond to “external disturbances,” it brings to the table a wider spectrum of identities, ideas and experiences crucial to identifying alternative solutions.
Board’s task
When the level of complexity rises, boards must also be able to make consistent decisions based on the analysis and elaboration of huge amounts of information that are shared among authorities, partners, suppliers, retailers and customers. Identifying valuable patterns according to the timing dictated by an emergency is not an easy task.
Even in relation to this dimension, AI-powered assistants could find vast application to foster the boardroom’s agility. In fact, they can study various types of real-time and historical data, making them accessible to read the internal and external environment without suffering from personal judgments.
The advantage is represented by the speed at which key information can be collected in a fast-changing context, improving the quality and accuracy of the decision-making process. In addition, it benefits the creation of “collective knowledge.” Every person has his or her own way to decipher a situation, and collecting a vast amount of data improves the chance of identifying alternative patterns among various set of partitions of the reality typically adopted.
Obviously, innovating corporate boards does not mean underestimating the importance of a behavioral perspective. It is rather about opening the door to the benefits deriving from the full potential of board intelligence.
There is still a large part of the boards’ soft skills that is equally fundamental and cannot be impacted (but only supported) by AI and ML: the acumen and the ability of a director to be perceptive in front of complicated and complex issues in order to find the best way to solve them, and to additionally position the company as a community player able to offer support at the time of dramatic changes.