Corporate Governance

Director’s Cut: How Boards Can Help Ensure the Responsible Use of AI

The question for boards and management is not whether to use artificial intelligence, but how to ensure it is used responsibly
Winter 2022,
By Bob Doris, Diana Wagner, and Herbert Winokur

Artificial intelligence (AI) is being deployed rapidly by companies in almost every sector of the economy. Though powerful, AI presents new and different challenges to corporate management teams and to boards. Consider how you might have responded to the following “nightmare” incidents that illustrate the potential social and physical harms of advanced AI:
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Protecting Reputation by Preparing Better for Crisis

How companies respond to crisis situations can have a significant impact on their reputations. Despite this, too few prepare for the almost inevitable day when something
goes badly wrong.
April 13, 2012, Intangible Asset Management
by Herbert S. Winokur

For almost any company, reputation is a key asset. Few have enough market power that they can afford to ignore the effect of reputation on customers, suppliers and so on (with Microsoft in the early days of Windows or IBM in the early days of mainframes being notable exceptions). Businesses that sell only commodities (eg, financial intermediaries) must compete on service as well as price. Their reputation is the summation of how their service has been perceived in the past.
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Preparing the Board for Crisis

Directors must constantly prepare themselves for the threat of a crisis to mitigate its impact.
December 29, 2011,
by Herbert S. Winokur

A new director of a public company, starting a normal term of service, should expect to be involved in at least one crisis during his or her service. A crisis can come in many forms it may involve health issues of senior executives, product recall, violation of laws such as the Foreign Corrupt Practices Act, financial restatements, whether or not resulting from fraud, violation of codes of conduct such as sexual harassment or discrimination, etc. The list of possible causes goes on and on. But it is “when,” not “whether.”

New directors should concentrate on three questions to prepare for the (almost) inevitable crisis.
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New Approach to Risk Calls for Changes in Board Structure

All boards should use “risk mapping” to manage and
mitigate possible missteps.

June 14, 2011,
by Herbert S. Winokur

Bad things happen to every organization. Some are unexpected, and some are catastrophic. The organization’s survival may depend on how well its board prepares for these “black swans.” But boards aren’t structured well to review and anticipate negative events and to prepare for them. “Risk mapping” is a vital function that every organization should undertake, and boards need to be properly organized to do so.
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Compensation: Common Sense Advice for New Directors

Herbert S. Winokur explains the basic premises of compensation that every new director should consider before making important decisions.
May 20, 2010,
by Herbert S. Winokur

For a new director, participating in compensation decisions may seem daunting. Don’?t worry—unless you are dealing with one of the global financial services firms, in which case this article won’t be any help. While there has been much discussion about the design of compensation systems and the size of bonus and equity awards, the conversation seems to have wandered far away from the basic premises which a new director should consider.
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Some Common-Sense Advice for New Directors

October 15, 2009,
by Herbert S. Winokur

The task of finding outstanding and committed new directors is not an easy one, and it is likely to get even harder. More directors will be needed as creditors increase their influence, whether through government investment in financial institutions or through debt restructuring at over-leveraged companies. Yet the availability of top candidates is shrinking due to factors that more board service less attractive, such as the increasing time commitment required, need for more industry expertise, regulations governing pay and accounting, and litigation risk.
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