Making Corporations More Humane Through Artificial Intelligence.

• Author: Siebecker, Michael R.

1. INTRODUCTION 96 II. THE ERA OF ARTIFICIAL INTELLIGENCE 101 A. Defining Artificial Intelligence 102 B. The Booming Business of AI 104 1. Automation and Systems Organization 105 2. Risk Management and Compliance 106 3. Mergers & Acquisitions 107 4. Customer and Investor Communications 110 III. ENCAPSULATED TRUST AND THE CORPORATION 113 A. The Mucky Swamp of Corporate Fiduciary Duties 114 B. Encapsulated Trust Revitalized 116 1. Tenets of Encapsulated Trust 116 2. Encapsulated Trust in Corporate Contexts 122 IV. SHEPHERDING AI THROUGH ENCAPSULATED TRUST 127 A. Enhanced Corporate Discourse 128 B. Corporate Compliance and Malfeasance 137 C. Morality in the Boardroom 139 V. Director Identity and AI 143 A. Curious Shepherds 143 B. Pareto Utopia or Idiocracy 145 C. Restoring Civic Republicanism 148 VI. CONCLUSION 149 I. INTRODUCTION

   Can existing corporate fiduciary principles adequately guide officers and directors regarding the proper development and utilization of artificial intelligence (AI) (1) technologies? What role should AI play in corporate boardrooms? These questions seem especially pressing considering the increasing prevalence of AI throughout a variety of industries in a host of key organizational, management, marketing, production, and investigative functions. (2) To take just one example, Hong Kong based venture capital firm, Deep Market Ventures, went so far as to appoint an AI software entity, Vital, to its board of directors in 2014. (3) Although extant law prohibited Vital from enjoying the formal legal status of a board member, the other human directors afforded Vital "observer" status at each board meeting and allowed Vital to vote on all financial investment decisions. (4) Over the years, Vital was credited with steering the firm from the brink of bankruptcy when the human directors previously invested too heavily in risky biotech ventures. (5) Although no AI entity like Vital currently occupies a formal seat on a corporate board, at least one European company, Tieto, recently appointed a similar autonomous AI entity, Alicia T, as a fully voting member of its management team. (6) In the near future, some even predict that corporations could be wholly owned and operated by AI entities. (7)

   Even if AI entities do not occupy formal management positions or own corporations, AI has become an increasingly attractive, if not essential, tool for many corporate decision makers. Companies as diverse as Goldman Sachs, Amazon, GE, Columbia Sportswear, Merck Pharmaceuticals, and Salesforce rely on AI software to identify market risks, develop new business opportunities, streamline business practices, conduct due diligence for acquisitions, and perform myriad other functions. (8) Although there may not be a pressing threat that AI entities will actually supplant human directors and officers of multinational corporations, (9) "as a compliment to the C-suite, AI holds an infinite amount of possibilities." (10) The very breadth and enormous potential impact of those possibilities makes it necessary to ensure adequate corporate governance principles exist to guide corporate managers in the proper utilization of AI. (11)

   It should come as little surprise, however, that with the advent of a powerful new technology, important concerns arise regarding the limits on its use and the ends to which it should be directed. (12) Business, scientific, and legal ethicists warn about the lack of moral sensitivity, empathy, and appreciation for human rights. (13) Many question whether AI should be employed for security purposes, ferreting out criminal proclivities and behavior, and determining the value of human lives. (14) Most certainly, many ethical questions arise in the context of the proper uses of AI, regardless of the business, governmental, or personal context. (15) But if the AI genie has escaped the bottle for good, the task of identifying the proper parameters within which to use AI remains of utmost importance. (16)

   Despite worries that AI might enhance the likelihood of unethical corporate practices, the increased utilization of AI technologies by corporate managers might promote just the opposite result--AI could make corporate decision-making more humane. But what would that mean? Currently, corporate managers face persistent and increasingly intense criticism for pursuing corporate policies that promote managerial interests seemingly at odds with the basic fiduciary duties of loyalty and care that corporate managers owe to the corporation and its shareholders. (17) Whether casting a blind eye to corporate criminality, (18) using the corporate treasury to pursue personal political goals, (19) ignoring the interests of corporate stakeholders, (20) promoting managerial interests that run counter to shareholder values, (21) or hiding behind the First Amendment to avoid transparency and accountability, (22) corporate managers too often find prevailing decision-making paradigms to fuzzy their fiduciary focus. Recurring waves of corporate scandals seem to be the disappointing result. (23)

   AI-assisted corporate decision making, however, could revitalize the fiduciary bond between managers and the corporations they serve by freeing corporate managers to focus more proactively on the core components of what sustaining a robust duty of trust requires and to wallow less frequently in reactionary crisis-management. (24) In that sense, AI could make corporate decision-making more attentive to the interests of corporate shareholders, stakeholders, and the community the corporation inhabits. Though perhaps counter-intuitive, an enhanced reliance on AI regarding many mundane aspects of compliance and governance (25) would foster a more mindful--and arguably more humane--attentiveness by officers and directors to the core goals and values the corporation hopes to promote. (26)

   This Article explores whether reinvigorating corporate fiduciary duties around enhanced corporate discourse remains essential to guide corporate managers regarding the proper development and utilization of AI. Although this might seem an abstruse philosophical exercise applied to a novel technology, in a series of articles over the past decade--Trust & Transparency: Promoting Efficient Corporate Disclosure Through Fiduciary Based Discourse, (27) A New Discourse Theory of the Firm After Citizens United, (28) and Bridging Troubled Waters: Linking Corporate Efficiency and Political Legitimacy Through a Discourse Theory of the Firm (29)--I have advocated the inescapable dependence of meaningful corporate governance on transparent, ongoing discourse between corporations and the constituencies they serve. Rather than proposing some legislative fix to stem persistent corporate malfeasance or insensitivity to shareholder preferences, my research investigates how a more robust understanding of the philosophical concept of trust could redirect existing corporate governance principles and managerial practices. In particular, applying the philosophically rigorous tenets of "encapsulated trust" to existing corporate fiduciary duties could produce a revitalized governance regime that encourages continual, transparent discourse among corporate managers, shareholders, corporate stakeholders, and members of the communities affected by corporate actions. To that end, such a philosophically coherent approach to interpreting existing fiduciary duties would help balance the essential managerial motivation to generate wealth with the evolving social interests of the communities that corporations inhabit.

   Although a reliance on robust discourse to promote sound corporate governance principles may indeed have been novel a decade ago, some of the most sophisticated market professionals now embrace discourse as the lynchpin of enlightened corporate governance. In early 2019, famed law firm Wachtel, Lipton, Rosen & Katz published a white paper urging the adoption of a "New Paradigm" for corporate governance. (30) According to the white paper, The New Paradigm "conceives of corporate governance as a voluntary collaboration among corporations, shareholders, and other stakeholders to achieve sustainable long-term value and resist short-termism." (31) Successful implementation of The New Paradigm requires parties to embrace the three essential pillars of "governance," "engagement," and "stewardship." (32) At least with respect to the pillar of engagement, the essential ingredient is robust discourse:

   [E]ngagement is the exchange of information and requests between a company and its shareholders. Engagement is dialogue, not dictates from either side. Engagement connotes expectations around a two-way commitment between companies and shareholders to proactively engage with each other on issues and concerns that affect the company's long-term value, and provide each other with the access necessary to cultivate long-term relationships. Companies commit to being responsive to the issues and concerns of shareholders, while shareholders will proactively communicate their preferences and expectations. (33) There might not exist a more powerful professional endorsement of discourse as an essential tool for recalibrating existing corporate governance principles to shepherd and balance evolving needs of business and society. And with that professional acknowledgement of the need to revamp our understanding of what basic fiduciary duties entail, (34) exploring more deeply how a coherent philosophy of trust animates those fiduciary duties seems necessary rather than novel.

   To that end, this Article examines whether reshaping existing corporate fiduciary duties around the philosophically rigorous tenets of "encapsulated trust" would promote sufficiently robust discourse among the corporation and its constituencies to guide corporate managers in the proper development, utilization, and dissemination of AI technologies. To accomplish that goal, Part I of this Article provides a brief...