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AI IN CORPORATE GOVERNANCE: A South African Perspective
Introduction
Artificial Intelligence (AI) has emerged as a transformative force in various sectors, revolutionizing the way
tasks that once demanded human intelligence are accomplished. The field of AI encompasses the creation
and development of intelligent machines capable of mimicking human cognitive functions, such as
problem-solving, learning, perception, and decision-making. The pursuit of AI has been a subject of
extensive research and exploration by scholars and experts, aiming to replicate human intelligence in
machines using techniques like machine learning and natural language processing. This essay delves into
the intriguing intersection of AI and corporate governance, particularly in the context of South Africa,
where the importance of robust governance structures has become increasingly pronounced in the postapartheid era. We will explore whether South African corporate governance frameworks allow for the
appointment of AI entities, such as robots and humanoids, as directors of companies.
What is AI?
Artificial Intelligence (AI) refers to the field of computer science that focuses on the creation and
development of intelligent machines capable of performing tasks that would typically require human
intelligence. AI entails the design and programming of computer systems that mimic various cognitive
functions such as problem-solving, learning, perception, and decision-making. The concept of AI has been
widely explored and extensively researched by scholars and experts. According to Russell and Norvig
(2016), AI is based on the fundamental idea that human intelligence can be replicated in machines by
utilizing techniques such as machine learning and natural language processing. They argue that AI seeks to
create systems that can understand, reason, and learn from data, enabling them to make informed
decisions and perform complex tasks. Additionally, in an article by Russell and Norvig (2016), mentioned
that AI can be categorized into two types: narrow AI and general AI. Narrow AI refers to systems designed
for specific tasks such as speech recognition or image classification. On the other hand, general AI aims to
replicate human-like intelligence across a wide range of activities. Furthermore, McCarthy et al. (1955)
suggest that the primary purpose of AI is to create intelligent machines that can exhibit behaviours that
were previously considered exclusive to humans. These behaviours include learning from experience,
adapting to new situations, and exhibiting problem-solving skills. The authors argue that the goal of AI
research is to develop machines that can emulate general intelligence, surpassing human capabilities in
various domains.
Corporate Governance in South Africa
Corporate governance “involves creating structures and processes with checks and balances to enable
directors to discharge their legal responsibilities and to oversee compliance with legislation” (Kopel, 2022:
579). It encompasses the mechanisms, processes, and relations through which companies are managed and
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monitored. The aim of corporate governance is to ensure transparency, accountability, and proper decisionmaking within organizations. Following the end of apartheid in the early 1990s, South Africa underwent a
transformation that included the dismantling of discriminatory policies and the introduction of new
governance structures. As a result, the country has seen significant progress in terms of corporate
governance, which has helped foster sustainable economic growth. One notable aspect of corporate
governance in South Africa is the King Code of Governance for South Africa. The King Code of Governance,
introduced in 1994 and revised to King IV in 2017, provides guidelines and principles for corporate
governance, including the responsibilities of boards of directors, ethical conduct, and disclosure
requirements. By adhering to the King Code, companies in South Africa can ensure that their governance
practices are in line with global standards, promoting investor confidence and attracting foreign investment.
Transparency and accountability are also central to corporate governance in South Africa. The country has
implemented robust reporting and disclosure requirements, including the requirement for companies to
publish annual financial statements and undergo external audits. Additionally, the Companies Act of 2008
has introduced stricter regulations regarding director's duties, conflicts of interest, and the disclosure of
information. These measures help ensure that companies are accountable to their shareholders and
stakeholders, promoting trust and stability in the business sector.
South African law on the Topic of AI
As AI continues to make its way within the borders of South Africa, interest seems to be increasing (Modise,
2023). Unfortunately, there Is no legislation or regulatory body the governs the use or development of AI in
SA (Gerber, Mokitimi, 2023).
AI in Corporate Governance
Firstly, to answer the question of whether South African corporate governance framework allow artificial
intelligence beings such as robots and humanoids to be appointed as directors of companies, we’ll look at
who is and how a director of a company is appointed. According to the Companies Act of 2008, a director is
a member of the board or an alternate director of a company and includes any person occupying the position
of a director or alternate director, by whatever name designated. The appointment of a director is stipulated
in the section 68 of the companies act. This section prescribes that each director of a company must be
elected by the persons entitled to exercise voting rights in such an election. Furthermore, each director
should be elected to serve for an indefinite term or for a term as set out in the MOI of the company. With
the above considered, an AI humanoid which is a member of the board of a company, can be appointed as a
director of a company, assuming that this Artificial Intelligence being possess the “necessary knowledge and
experience to fill the gap in the board, be persons of integrity and have the required skills and capacity to
discharge their fiduciary duties.” as according to the CMS Expert Guide for Directors of Companies.
Furthermore, the Companies Act does not prescribe the requirements for a person to qualify as a director,
rather it prescribes instances where a person will be disqualified and/or ineligible to act as a director.
Therefore, based on the aforementioned, it can be said that the South African corporate governance
framework allows artificial intelligence beings such as robots and humanoids to be appointed as directors of
companies. However, this is a complex issue with many legal and ethical considerations. The interpretation
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and application of these laws could vary, and it would ultimately be up to legal experts and lawmakers to
determine the feasibility and legality of such appointments.
Examples of companies that have incorporated AI in their boardrooms include, Deep Knowledge Ventures, a
Hong Kong-based venture capital group that appointed an algorithm named VITAL (Validating Investment
Tool for Advancing Life Sciences) to its board of directors in 2014. According to (Robertson, 2023) VITAL was
given the same right as human directors of the corporation to vote on whether the firm should invest in a
specific company or not.
In my opinion we indeed need to reform the South African corporate governance framework to increase the
role that artificial intelligence beings can play in corporate governance. Integrating AI into corporate
governance could potentially enhance decision-making processes and increase efficiency. This will be
beneficial as the Ai will use logic without emotion when performing duties as a director and could easily
make decisions that are beneficial to the company when faced with ethical dilemmas.
Potential role AI can play in Corporate Governance
Artificial Intelligence (AI) has made remarkable progress in revolutionizing various sectors, including
corporate governance. The introduction of AI technologies has enabled organizations to automate and
streamline numerous governance processes, thereby enhancing efficiency and mitigating human errors. As
per Xie, Li, Liang, and Cai (2020), AI can be employed in corporate governance for functions such as risk
assessment, compliance monitoring, and decision-making. PwC’s 2019 report underscores how AI-powered
systems can identify anomalies and potential risks in financial transactions or supply chains. By continually
monitoring these areas, companies can proactively mitigate risks before they evolve into significant
problems. Ho, Hogan, and Jadad’s 2019 study emphasizes that AI algorithms can analyse extensive data from
diverse sources and offer valuable insights to corporate governance professionals. This aids them in making
informed decisions.
Moreover, a study by McKinsey & Company in 2017 demonstrated that AI algorithms could detect patterns
and trends that might be overlooked by humans. This leads to more precise predictions and forecasts. In the
realm of compliance, AI technologies hold the potential to automate regulatory monitoring and reporting
processes. Deloitte (2020) proposes that AI-powered systems can scrutinize large volumes of legal documents
and pinpoint any non-compliance issues or discrepancies with regulations. Therefore, AI holds the promise
to transform corporate governance by enhancing the decision-making process, increasing transparency, and
reducing operational inefficiencies.
Recent trends in EU and US in regulation of AI
Both the European Union (EU) and the United States (US) have recognized the need for regulatory
frameworks to govern artificial intelligence (AI) entities. The EU has proposed regulations that prioritize
ethical considerations, transparency, accountability, and human oversight to ensure responsible use of AI
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entities. The EU’s General Data Protection Regulation (GDPR) provides a strong foundation for protecting
individuals’ data rights in AI applications (European Commission, 2020).
On the other hand, the US, while lacking comprehensive federal legislation specifically targeting AI
regulation, has taken various initiatives at state levels. For instance, California passed legislation requiring
companies using bots or virtual assistants to disclose their automated nature upfront. The National
Artificial Intelligence Initiative Act (NAIIA) was enacted in January 2021 to establish a coordinated national
strategy for AI research and development. This act underscores the importance of advancing trustworthy AI
systems and addresses key governance issues such as transparency, fairness, and accountability (H.R. 6216,
2020).
Both regions are striving to promote good corporate governance through AI regulation by imposing
transparency requirements for accountability and avoiding discriminatory practices.
Conclusion
In conclusion, the integration of Artificial Intelligence into corporate governance holds immense potential
for enhancing decision-making processes, increasing transparency, and reducing operational inefficiencies.
While the South African corporate governance framework currently lacks specific regulations governing the
appointment of AI entities as directors, the legal framework provides room for interpretation. The
Companies Act of 2008 does not prescribe strict requirements for directorship, leaving open the possibility
for AI beings with the necessary knowledge, integrity, and capacity to fulfil fiduciary duties to serve on
boards.
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