AI and directors’ duties

Artificial intelligence is reshaping the way many businesses operate, compete and create value. For UK boards, this presents both new opportunities and increasing responsibility. Under the Companies Act 2006, directors owe various statutory duties which extend beyond their operational role. This imposes a responsibility to consider the long-term consequences of decisions, the interests of shareholders and the protection of the company’s reputation. With AI becoming embedded in products, services and even board level decision making, it is increasingly important to clarify how directors can uphold these duties and provide effective oversight in a phase of rapid technological development.

Directors’ core duties under the Companies Act 2006 (the “Act”)

The Act sets out seven statutory duties owed to the company by the directors as follows:

s.171 - Duty to act within powers

s.172 - Duty to promote the success of the company

s.173 - Duty to exercise independent judgment

s.174 - Duty to exercise reasonable care, skill and diligence

s.175 - Duty to avoid conflicts of interest

s.176 - Duty not to accept benefits from third parties

s.177 - Duty to declare interest in proposed transactions or arrangements

As AI becomes a core business tool, these duties require boards to understand and oversee risks and opportunities. With a particular focus on s.174 of the Act, any failures to comply with both directors statutory duties and emerging AI regulations could expose the company to regulatory scrutiny and reputational harm. Equally, a lack of investment in AI could see directors facing difficult questions from shareholders around the direction of travel of the business under their stewardship.

Practical steps for boards

• Remember that AI is not a substitute for knowledge, skill and supervision. Therefore, directors must exercise care, skill and diligence when introducing AI solutions by ensuring appropriate oversight and management which should include introducing company-wide AI policies for employees to adhere to.
• Invest in training and awareness to enable directors to ask the right questions and exercise informed, independent judgement as the technology and regulatory environment evolves.
• Integrate AI into the company’s risk management framework and ensure it is regularly reviewed at board level. There are many specific risks which may arise as a result of AI use such as algorithmic bias causing discriminatory outcomes or operational failures which can cause financial losses. Intellectual property risks can also be a concern when using content generated by AI.
• Understand how AI systems are developed, tested and used within the company, including checking bias, data governance and regulatory compliance using reports and audits.
• Consider whether AI related risks and opportunities should be reflected in the company’s Strategic Report or risk disclosures in line with the Act and various FCA requirements.

By integrating AI into risk management, governance and disclosure practices, directors can fulfil their legal obligations while utilising AI responsibly and competitively within their company. Following the appropriate steps and providing effective oversight can transform AI from a potential risk to a strategic tool for long-term success.

For any questions relating to this article or for tailored corporate governance advice to ensure ongoing compliance please contact our Corporate team at [email protected].