AI regulation lag no excuse for director’s failures, Chief Justice says - Lawyers Weekly

In a lecture delivered at Melbourne Law School, Chief Justice Bell said the dominant role of corporations in modern society has placed them at the “epicentre of AI development and implementation” – a unique role that presents just as many challenges as it does opportunities.

In that context, it has fallen to directors and officers to appropriately manage GenAI and its variations, including agentic AI, across their workforce until Australia’s regulatory framework can catch up.

“Company directors, while not regulators in any traditional sense, have corporate governance responsibilities which are, in some respects and vis-à-vis the company of which they are director, akin in some senses to those of regulators,” Chief Justice Bell said.

“An increasingly familiar phrase – the responsible use of AI – will fall to company directors and officers to deliver.

“For them, lag is not really an option.”

It would be “prudent” for boards to put in place policies that require management to disclose how they have used AI in formulating board reports, advice, and recommendations; what that involved and any verification; and whether the information can be considered reliable.

Beyond keeping on top of issues associated with confidentiality, data governance, independence, and propriety concerns, directors should ensure that debate and the “productive conflict of ideas” in the boardroom are not “undermined or supplanted by AI”.

Further, company directors must ensure they have a close understanding of the potential limitations and risks of AI, and have systems in place that are designed to mitigate those risks.

“That education must be both for the purpose of the use by directors of AI and in relation to the operational use of AI by the company of which they are a director. One important way to facilitate that education is for directors to continue to ask probing questions in relation to AI.”

The Chief Justice added that companies must “strike a careful balance” in formulating AI strategies so that “frustrated directors or officers” without access to secure platforms do not turn to shadow AI.

In the law school lecture, Chief Justice Bell referred to Justice Michael Lee’s decision in ASIC v Bekier, in which the Federal Court judge observed the “irreducible requirement of care and diligence expected of all directors [is to] take reasonable steps to place themselves in a position to guide and monitor the management of the company”.

Justice Lee also noted non-executive directors cannot substitute reliance on the advice of management “for their own attention and examination of an important matter that falls specifically within the board’s responsibilities”.

Chief Justice Bell endorsed Justice Lee’s observation that any use of AI “should be controlled and transparent”, and that chairmen and company secretaries have a “critical role in preserving role boundaries with management and promoting proper director engagement”.

“It may be argued that … any given company’s use of AI to assist with its decision-making function meets Lee J’s description of ‘an important matter that falls specially with the board’s responsibilities’ and that a close knowledge of that use (and of AI more generally) is required in order to ‘guide and monitor management’ and now forms part of an ‘irreducible requirement of care and diligence’ by a director,” Chief Justice Bell said.