Risk Management is a Business Imperative for AI Ethics
In today’s challenging world, there is an imperative to advance Corporate Purpose leadership at all levels of an organization. This blog introduces corporate purpose and AI ethics and introduces the challenges given the decline of human happiness, and the importance of increasing risk management functions needs to ensure that new operating frameworks link corporate purpose to ethical AI, and happiness economics.
What is Corporate Purpose?
Corporate purpose is the higher purpose of a company that goes beyond the sole profit orientation. The purpose is to define and deliver a long-term value-creating promise, either in the company’s local environment or in the global market environment, that is directly related to the company’s value creation.
Leading Management thinkers agree that conceptions about corporate purpose and its meaning is rapidly changing. “There is more to corporate purpose beyond shareholder value, and that this is not something that will cost your business but something that will enhance your business,” said Michael Beer, Cahners-Rabb Professor of Business Administration, Emeritus, at Harvard Business School and a director of the Center for Higher Ambition Leadership.
Harvard Research on corporate purpose, sponsored by Ernst & Yonge, found that companies make more money, have more engaged employees and more loyal customers, and are even better at innovation and transformational change when they have a clearly defined and aligned corporate purpose. It seems to be easier to win the game when you care about the game. This point underlies the importance of bringing more humanity to business and to all operating practices.
“The sense of being part of something greater than yourself can lead to high levels of engagement, high levels of creativity, and the willingness to partner across functional and product boundaries within a company, which are hugely powerful,” said Rebecca Henderson, the John and Natty McArthur University Professor at Harvard Business School. “Once they’re past a certain financial threshold, many people are as motivated by intrinsic meaning and the sense that they are contributing to something worthwhile as much as they are by financial returns or status.”
More than eight in 10 executives, for example, think that a strong sense of shared purpose drives employee satisfaction, facilitates business transformation, and helps boost customer loyalty. Most executives also understand that purpose helps companies navigate a volatile and unpredictable environment and delivers higher and more sustainable performance.
These perspectives are fundamental in aligning all stakeholders. What is also interesting is that McKinsey research has found that about 85 percent of people feel they have a purpose. But only about 65 percent of them believe they can actually articulate that purpose, which is cause for leadership and risk management concern reinforcing people are restless, stressed, and not anchored in where they are and where they are going.
McKinsey has also have found that nearly seven out of ten employees are reflecting on their purpose because of COVID-19. Those employees who say that they live their purpose at work are six and a half times more likely to report higher resilience.
This research should spur all board directors and leaders to ensure they have a clear vision of what corporate purpose means and be using this foundation to guide their decisions. It also means that providing employees with opportunities to understand their desired employee purpose in context of their life’s goals is key to align visions to create a stronger shared purpose to navigate successfully in an increasingly unpredictable world. Striving to accelerate sustainable performance with the energy force of resilience and inspiring everyone to rally around a unifying vision of why the organization exists, and how it contributes to achieve a common good.
In my company’s case, we are striving to End Revenue Uncertainty with more Humanity. We are solving diverse AI use cases ranging from predicting forecasts and profit more accurately to most recently integrating the permission to feel and correlating human (happiness) moods to productivity and health risks. More humanity is how our culture operates and interacts with our positivity leadership orientation, but also in our software design practices where complexity is also hidden by simplicity.
I truly believe that more humanity in business practices is critical and the decline of human happiness is one of the reasons, I am so passionate about more humanity in all business interactions and decisions impacting AI to ensure its AI for good.
When one looks at the research on Happiness Economics, Martin Seligman, a world top expert on the science of happiness has said: “Although economic output has risen steeply over the past decades, there has been no rise in life satisfaction . . . and there has been a substantial increase in depression and distrust.” Year over year happiness is declined globally, elevating the importance of employees having a clear sense of their own personal purpose.
According to the World’s Happiness Report in 2022, stress, is higher now than ten years ago in every global region, part due to Covid-19, but there are many other factors increasing stress levels, rising inflation, bank rates, climate change, etc. – but no one can argue is that in every country overall happiness is declining, as identified in the World’s Gallup Happiness Poll. A few highlights from their research report:
- In 2021, people worldwide felt more worried, stressed and sad than at any time in the past 16 years. They also had fewer positive experiences than they did in 2020.
- 28% of people said they experienced a lot of sadness the previous day, the highest percentage ever recorded.
- 42% of people said they experienced a lot of worry the previous day, up from 40% in 2020.
So lets step back and reflect on these perspectives:
1.) Corporate Purpose is foundational to align shareholders and maximize shareholder value.
2.) Employees and people in general are less happy (See World’s Happiness Reports)
Now let’s appreciate more facts about my specialization area AI:
The UBS report of AI coming of age, predicts 20% year over year growth of AI
AI’s rise is accelerating opportunities for employees to upgrade their digital literacy skills and focus on creative aspects. With the emergence of other disruptive business models like apps or sharing economies highly likely in a post-AI era, there will be many changes.
UBS reports that AI as a standalone industry will possibly be worth USD 100 billion by 2030 and USD 500 billion by 2050, the investments made today will likely bear tremendous fruit in the decades ahead. The UBS long-term investment themes of robotics and automation, digital data and e-commerce would directly benefit from such high rates of consistent growth.
What the next 30 years will look like will be like the 1930’s and 1940’s as every business model will evolve with more intelligence, impacting many routine jobs being phased out to new jobs needing more creative thinking skills.
What this means is that corporate purpose must examine the role that AI will play in its company as AI will be in the majority of investments. Hence, the risks of not ensuring there are AI Ethical foundations is a major risk as the majority of corporate boards do not have an AI Risk Officer in their audit committees. Looking beyond this point is also that very few companies have a clearly defined AI Ethics and governance policy to govern all procurement practices, as well as new software projects using AI ensuring it has a formal risk review to ensure corporate purpose and AI for Good is front and center.
Conclusion:
In summary, the increased focus on human needs rather than on products and services is key to building a strong corporate purpose and to protect humans we need to ensure the data being used for AI is being used to advance society, and protect humans. In Simon Sinek’s words, this is what separates the why from the what and the how.
Brian Chesky, co-founder and CEO of Airbnb, says about this: “This idea that for one stakeholder to win, another has to lose is, to me, bad design. I always think like a designer. Design is not the way something looks; design is how something works, and something works best when it works for the largest number of people.”
Other companies like: PepsiCo and Johnson & Johnson have outlined how they want to benefit each group of stakeholders in the context of their overall purpose. Apple’s purpose is to “empower creative exploration and self-expression.”
Board Director and CEO questions to reflect upon more regarding shaping your company’s corporate purpose:
1.) Relevance: Does your company have a corporate purpose that is clearly defined and makes a difference to all stakeholders lives?
2.) Credible: Can your corporate purpose believable? Can it be translated into actionable behaviours?
3.) Authentic: Does it match what your employees genuinely care about and align with your corporate values?
4.) Inspiring: Does it have reach and impact and is it compelling to motivate and mobilize your people to take action and carry the message foreward.?
My next blog will link corporate purpose with AI Ethics and share ethical policies that can be integrated into your company’s corporate purpose vision, as data is the fabric for modernization and few Board Directors and CEO’s are investing in AI data modernization practices impacting risk for the company’s long term survival.
As a teaser, you can read my company’s AI Ethics policy. You can also find CEO leadership perspectives in my latest book, The AI Dilemma.