AI Governance: An Overlooked Imperative

Enrico Schaefer - August 8, 2023 - Artificial Intelligence


Introduction to AI Governance: Why It Matters

As we stand on the precipice of the AI Revolution, artificial intelligence (AI) is emerging as a powerful transformative force. AI offers the potential to reshape industries and redefine how we work, live, and interact. Yet, with this well-promoted potential comes an equally significant responsibility. AI governance policies set forth the framework of principles, policies, and procedures that guide its use. Governance policies are no longer a theoretical concept discussed in academic circles but a business imperative for c-suite executives, founders, managers, and boards of directors that carries substantial implications for companies across the globe. [IBM sponsored webinars on AI governance and policy development]

AI governance is not merely about compliance or risk management. It is about ensuring that AI is used ethically, responsibly, securely, and in a manner that engenders trust. It is about creating a culture where transparency, accountability, data privacy, and inclusivity are not just buzzwords but integral components of every AI initiative and implementation. [Brookings Institute Articles on AI Governance]

Without a robust AI governance structure, companies risk legal and regulatory repercussions and reputational damage that could create legal liability and undermine customer trust. In this article, we will examine why AI governance matters. We will explore the potential liabilities for companies that neglect good AI policy and discuss how a proactive approach to AI governance can mitigate these risks.


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The Importance of Establishing an AI Governance Structure

In the rapidly evolving landscape of AI, establishing a robust governance structure is not just beneficial—it’s essential. Whether you are developing AI or using AI within your organization, you must perform due diligence, provide guidance and meet your fiduciary duty to the company. A well-defined AI governance structure is the backbone of an organization’s AI strategy, providing a roadmap for AI deployment and usage.

A comprehensive AI governance structure should outline the roles and responsibilities of various stakeholders to senior management and board members, fostering a culture of accountability. Moreover, it establishes mechanisms for monitoring and auditing AI systems, usage, and transparency.

Potential Legal Liabilities for Companies Without AI Governance

The potential for legal liabilities escalates as AI systems become increasingly integrated into business operations. Companies that fail to establish a comprehensive AI governance structure and usage policies may face legal challenges. These challenges are not confined to the development phase of AI systems but extend significantly into their usage.

Using AI can give rise to many legal issues, from data privacy breaches and discrimination claims to intellectual property disputes and regulatory non-compliance. For instance, an AI system that processes personal data without adequate safeguards could violate privacy laws, resulting in fines and reputational damage. Similarly, an AI application that inadvertently produces biased outcomes could lead to allegations of discrimination, exposing the company to legal action. Without a robust AI governance structure, companies may lack the necessary oversight and control mechanisms to prevent such issues, leaving them vulnerable to legal liabilities. Therefore, it is crucial for organizations to proactively address these risks by establishing a comprehensive AI governance framework that guides the responsible use of AI.

Enrico Schaefer

Founding attorney Enrico is a seasoned consultant who guides companies, including law firms, in effectively integrating artificial intelligence (AI). With a wide range of consulting services, Enrico assists clients in harnessing the power of AI while ensuring ethical and responsible implementation.

Years of experience: 35+ years

Understanding the Risks: Liability Arising from AI Use

While offering numerous benefits, AI in business operations also introduces a new landscape of potential liabilities. Understanding these risks is crucial for organizations seeking to leverage AI responsibly and effectively. The liabilities arising from AI use are multifaceted, encompassing not only legal and regulatory risks but also ethical and reputational ones. Here is a partial list of potential lawsuits and liabilities from using AI without proper safeguards.

  • Data Privacy Breaches: Unauthorized access, use, or disclosure of personal data.
  • Discrimination Claims: Biased or unfair outcomes due to flawed algorithms or biased training data.
  • Intellectual Property Disputes: Infringement of patents, copyrights, or trade secrets related to AI technology.
  • Regulatory Non-compliance: Failure to comply with industry-specific regulations or general data protection laws.
  • Contractual Liabilities: Breach of contract terms related to AI services or products.
  • Product Liability: Injuries or damages caused by AI-powered products or services.
  • Employment Issues: Unfair labor practices or workplace discrimination due to AI implementation.
  • Cybersecurity Risks: Vulnerabilities in AI systems leading to cyber attacks or data breaches.
  • Negligence Claims: Harm caused by failure to exercise reasonable care in AI deployment or maintenance.
  • Reputational Damage: Loss of customer trust due to any of the above issues.

The Role of AI Governance in Mitigating Legal Risks

The role of AI governance in mitigating legal risks cannot be overstated. As organizations increasingly rely on AI for critical decision-making and operational processes, the potential for legal liabilities escalates. However, a robust AI governance framework can effectively manage and mitigate these risks.

AI governance provides a structured approach to managing the complexities of AI use. It sets the standards for AI system deployment, operation, and monitoring, ensuring that AI initiatives align with legal norms and ethical guidelines. It establishes mechanisms for data management, privacy protection, and algorithmic transparency, reducing the risk of legal issues such as data breaches or discrimination claims. Moreover, it fosters a culture of accountability, ensuring that any issues are promptly identified and addressed. By providing clear guidelines on the responsible use of AI, governance frameworks play a crucial role in minimizing legal risks and fostering stakeholder trust. Therefore, organizations should prioritize the establishment of a comprehensive AI governance framework as a component of their AI strategy.

AI Acceptable use Policy Drafting

Best Practices for Implementing AI Governance Policies

Implementing these policies requires careful planning, ongoing monitoring, and a commitment to continuous improvement.

  • AI governance policies should be comprehensive, covering all aspects of AI use, from data management and privacy protection to algorithmic transparency and accountability. They should clearly define the roles and responsibilities of all stakeholders involved in AI initiatives, fostering a culture of accountability.
  • These policies should be flexible and adaptable, capable of evolving with the rapidly changing AI landscape. Regular reviews and updates should be conducted to ensure that the policies remain relevant and practical.
  • Training and education are crucial. All employees, not just those directly involved in AI projects, should be educated about the organization’s AI governance policies. This ensures a shared understanding and commitment to responsible AI use.
  • Implementing AI governance policies should be transparent, with regular reports on AI performance, risks, and ethical considerations. By following these best practices, organizations can ensure the responsible use of AI, mitigating legal risks and fostering trust among stakeholders.

AI Governance Drafting Guidelines

Your AI policies and governance structure should cover all AI usage and development aspects, including IP, data privacy, and security issues. Here is a partial list of drafting considerations.

Comprehensiveness: AI governance policies should cover all aspects of AI use within the organization. This includes data management, algorithmic transparency, privacy protection, and accountability mechanisms. The policies should be detailed and precise, leaving no room for ambiguity.

Flexibility: Given the rapidly evolving nature of AI, governance policies should be adaptable. They should be reviewed and updated regularly to ensure they remain relevant and effective in managing the risks associated with AI use.

Education and Training: Educating all employees about the organization’s AI governance policies is crucial. This ensures a shared understanding and commitment to responsible AI use. Training programs should be implemented to keep staff updated on the latest developments and best practices in AI governance.

Transparency: The implementation of AI governance policies should be transparent. Regular reports detailing AI performance, risks, and ethical considerations should be produced. This fosters trust among stakeholders and demonstrates the organization’s commitment to responsible AI use.

Accountability: Clear lines of accountability should be established within the AI governance structure. This includes defining the roles and responsibilities of all stakeholders involved in AI initiatives, from data scientists and AI developers to senior management and board members.

Risk Management: AI governance policies should include robust risk management strategies. This involves identifying potential legal, ethical, and operational risks associated with AI use, and implementing measures to mitigate these risks.

Organizations must consider these considerations and implement effective AI governance policies. As a founder, executive, manager, or board member, your goal is to guide the responsible use of AI, mitigate legal risks, and foster trust among stakeholders.


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The Future of AI Governance: Trends and Predictions

Regulatory frameworks will likely become more comprehensive, necessitating organizations to adapt their governance policies accordingly. The ethical use of AI will gain even more prominence, requiring a collaborative approach among ethicists, legal experts, and technologists. Transparency will be paramount, with stakeholders demanding greater visibility into AI decision-making processes. This will call for advancements in explainable AI and robust auditing mechanisms.

Moreover, risk management will be at the forefront, with organizations needing to develop sophisticated strategies to manage potential legal, ethical, and operational risks. The future will also see a greater emphasis on human-AI collaboration, requiring policies that balance the benefits of AI with the need for human oversight. Lastly, as AI becomes more prevalent, there will be a growing need for AI literacy across all levels of an organization. These policies will encompass the technical aspects, as well as the legal, ethical, and societal implications of AI use. These trends highlight the dynamic nature of AI governance and the need for organizations to stay ahead of the curve.

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This page has been written, edited, and reviewed by a team of legal writers following our comprehensive editorial guidelines. This page was approved by attorney Enrico Schaefer, who has more than 20 years of legal experience as a practicing Business, IP, and Technology Law litigation attorney.