A Disclosure-Based Approach to Regulating AI in Corporate Governance

22 Pages Posted: 10 Jan 2022

See all articles by Akshaya Kamalnath

Akshaya Kamalnath

ANU College of Law

Umakanth Varottil

National University of Singapore (NUS) - Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: January 7, 2022

Abstract

The use of technology, including artificial intelligence (AI), in corporate governance has been expanding, as corporations have begun to use AI systems for various governance functions such as effecting board appointments, enabling board monitoring by processing large amounts of data and even helping with whistle blowing, all of which address the agency problems present in modern corporations. On the other hand, the use of AI in corporate governance also presents significant risks. These include privacy and security issues, the 'black box problem' or the lack of transparency with AI decision-making, and undue power conferred on those who control decision-making regarding the deployment of specific AI technologies.

In this paper, we explore the possibility of deploying a disclosure-based approach as a regulatory tool to address the risks emanating from the use of AI in corporate governance. Specifically, we examine whether existing securities laws mandate corporate boards to disclose whether they rely on AI in their decision-making process. Not only could such disclosure obligations ensure adequate transparency for the various corporate constituents, but they may also incentivize boards to pay sufficient regard to the limitations or risks of AI in corporate governance. At the same time, such a requirement will not constrain companies from experimenting with the potential uses of AI in corporate governance. Normatively, and given the likelihood of greater use of AI in corporate governance moving forward, we also explore the merits of devising a specific disclosure regime targeting the intersection between AI and corporate governance.

Keywords: Artificial intelligence, corporate governance, board of directors, disclosure, regulation

Suggested Citation

Kamalnath, Akshaya and Varottil, Umakanth, A Disclosure-Based Approach to Regulating AI in Corporate Governance (January 7, 2022). NUS Law Working Paper No. 2022/001, Available at SSRN: https://ssrn.com/abstract=4002876 or http://dx.doi.org/10.2139/ssrn.4002876

Akshaya Kamalnath

ANU College of Law ( email )

Australia

Umakanth Varottil (Contact Author)

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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