This blog considers the interplay of AI and corporate governance, focusing on recent leadership changes at OpenAI and the broader implications for corporate boards, especially in India. It emphasizes the importance of knowledgeable and proactive governance in the context of AI's ethical and societal impacts. The article discusses the challenges Indian corporations face in terms of board composition and gender diversity, drawing parallels with the more diverse and competent boards of organizations like OpenAI. It concludes by advocating for policy reforms to enhance board independence and diversity in India, leveraging the lessons from past successes in corporate governance interventions.
The rapid evolution of artificial intelligence (AI) has significant implications for corporate governance, especially as seen in recent upheavals in leading AI organizations. A notable example is the unexpected removal of OpenAI's top executives, Sam Altman and Greg Brockman, on November 17, 2023. This incident underscores the importance of having knowledgeable corporate boards, particularly in countries like India, where there is enthusiasm about the promise of AI.
AI's ethical implications and societal impacts necessitate proactive and involved boards. Illustratively, a passive board might allow unchecked advancements and potentially harmful outcomes. In contrast, active boards may provide more effective oversight and governance, ensuring that executive decisions align with ethical standards and long-term strategic goals. Despite the controversy, Sam Altman's ouster from OpenAI, reportedly due to concerns over the rapid pace of product launches and their AI safety implications, highlighted the need for informed and proactive governance. However, this decision faced significant internal backlash, with 500 employees threatening to leave if Altman's dismissal was not rescinded, illustrating the complex challenges boards face in balancing innovation with ethical considerations. Internal conflicts notwithstanding, the situation at OpenAI underscores the importance of a competent board capable of navigating the multifaceted risks of AI technology in a mature and measured manner.
Coming to India, the last major corporate governance crisis was the Satyam scandal in 2009. Satyam exposed severe weaknesses in corporate governance, particularly in the roles and responsibilities of boards and independent directors. Investigations revealed a long history of false information and bad deals being presented to Satyam’s board. Yet, not one board member opposed suspicious deals or recorded any concern around any of this. The aftermath of the Satyam scandal eventually led to the passage of the Companies Act 2013 and the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015. These reforms aimed at enhancing board and auditor independence, as well as diversity, and raising the standard of corporate governance in Indian companies.
Despite these reforms, the composition and diversity of Indian boards remain areas of concern. A 2021 study by the Institutional Investor Advisory on the NIFTY 500 companies showed that Indian firms are predominantly family-owned, with independent directors making up only about 50 percent of boards. This is significantly lower than the S&P 500 companies, where independent directors constitute 85 percent. Such a high prevalence of family members on boards suggests that many boards might still be viewed as ceremonial rather than functional, a perception that needs to change, especially in the context of AI.
In terms of gender diversity, women represent only 17 percent of directors in the NIFTY 500, much lower than the global average of 24 percent. Many women directors are family members, indicating a dearth of active gender diversity. Active involvement of women in decision-making is vital, especially considering that AI systems often mirror existing societal biases. For instance, Amazon's recruiting tool showed bias against women due to its training on a male-dominated dataset. Boards with active female members may be more conscientious about such issues, and may call for greater scrutiny before the deployment of such systems.
In contrast to India Inc, OpenAI’s board comprises highly competent people such as the company’s chief scientist, Ilya Sutskever and CEO of Quora, Adam D’Angelo as the independent director. Altman was also a board member before he was removed. Prior to OpenAI, he led Y Combinator, a leading venture capital firm. It is also relatively gender diverse with members like Tasha Mccauley, a robotics engineer and CEO of the company GEOSims, and Helen Toner, an AI safety researcher from the Georgetown Centre for Security and Emerging Technology.
To conclude, the complexity of decision-making surrounding the deployment and development of AI systems demands a re-evaluation of corporate governance in India. There are indications that things are changing and organisations are prepping themselves for the advent of AI. According to one report, firms are recruiting younger board members to harness the potential dividends of emerging technologies. While such developments are promising, it still falls to policymakers to introduce measures that reduce the control of promoters on boards and make the latter more independent, diverse, and capable.
Mandatory requirements tend to be effective. For instance, companies started appointing female members to their boards once it was made a requirement under the Companies Act, 2013 and the 2015 SEBI regulations. Consequently, the percentage of woman directors in India went from 6 percent in 2014 to 17 percent in 2021. Thus, a more refined set of mandates could be introduce to ensure boards have more active and diverse participation in the running of the company and the right set of competencies.
In light of the technological landscape, it is imperative for India to reflect on its governance structures. In spite of the muddled corporate coup, the contrast between OpenAI's diverse and dynamic board and the traditional composition of Indian boards highlights the need for reform. It has been 14 years since the Satyam scandal, and the urgency for Indian corporations to adopt more independent, diverse, and competent boards is clear. Embracing these changes will not only align India with global standards but also prepare its corporate sector for the future challenges and advancements in technology.