Could company directors be replaced by artificial intelligence?

Could artificial intelligence help increasing demands placed on directors. Photo / Getty Images

Company boards may need to meet via virtual reality or in holographic form and use artificial intelligence provided by robo-directors in the future to meet the increasing demands placed on them.

Research by the Institute of Directors and Minter Ellison Rudd Watts has found directors are facing mounting paperwork and time pressure while having to deal with increasing compliance and risks ranging from climate change to cyber attacks.

Yet the way boards operate has changed very little from the 1950s with most using a presheduled format to meet every one to two months in a physical setting, while getting board papers and documents to read in advance.

Felicity Caird, the Institute of Director's general manager of governance leadership centre said despite significant change in the operating environment, boards have been functioning in much the same way for decades.

"Many boards are now facing a time dilemma. They are weighed down by often voluminous board papers, compliance and risk, which can compromise time to discuss and debate critical strategic and performance issues.

"Directors are also having to spend increasing hours staying up to date with the changing operating environment, their industry and understanding the business. Rising stakeholder expectations will drive greater engagement adding to the board's workload.

She said boards' traditional ways of working needed to be challenged for directors to continue to add value and fulfil their governance responsibilities in the future.

"The future boardroom will unquestionably be digital," Caird said.

Exactly what that will look like is uncertain but the paper points to several technological changes which are already being worked on.

In Hong Kong one company is already using an algorithm to help it make investment decisions in a form of robo-director. Under the current law inn New Zealand directors have to be natural persons but that could change.

The paper points to a 2015 survey of 800 business leaders which predicted AI would be on a board of directors by 2025.

"In the short term, we don't see robo directors replacing humans in the boardroom. Rather, AI will assume a greater role in augmenting board decision-making," it states.

Technology could also be used to allow directors access to real time data and to save time on site visits through virtual reality.

Virtual reality or holoportation technology could also be used by directors to attend meetings technology which is already being worked on by a number of companies including Microsoft.

Caird said this would cut down on travel time and allow meetings to be called quickly.

The discussion paper outlines trends, challenges, and opportunities for how boards may evolve and operate in the future.

Silvana Schenone, partner and head of corporate at law firm MinterEllisonRuddWatts, said purpose was becoming paramount and boards were being challenged globally to lead for a purpose that went beyond profitability.

"The legal landscape is also changing, with increasing potential liability for directors, the rise of class actions, active regulators and litigation funders holding directors to account and escalating their responsibilities."

Caird said it did hear that some people were being put off taking on a board position because of the increased pressure.

"There are concerns about increasing personal liability being loaded on to directors."

Research by the IOD found hours worked by non-executive directors increased 10 per cent in the last year to 140 hours per board while fees went up by an average of 3 per cent.

The median fee for a male non-executive director was $47,000 and the median fee for a female was $40,000.

Caird said directors were not being paid enough for the risks they faced.

"It is a job that has a high level of risk where you need to have experience and skills and competencies to take to the board. It is not a retirement gig.

"We need people to step up and contribute to the prosperity of New Zealand."

The discussion paper also raises questions on whether an annual report still serves a purpose and how stakeholders beyond shareholders are being heard in the board room.