New concerns in corporate governance

The Securities and Exchange Commission (SEC) defines corporate governance as “the system of stewardship and control to guide organizations in fulfilling their long-term economic, moral, legal and social obligations towards their stakeholders…its purpose is to maximize the organization’s long-term success, creating sustainable value for its shareholders, stakeholders and the nation.”

The 2016 SEC Code of Corporate Governance for Publicly Listed Companies lists five major governance concerns: the Board’s Governance Responsibilities; Disclosure and Transparency; Internal Control and Risk Management Framework; Cultivating a Synergic Relationship with Shareholders; and Duties to Shareholders.

The above-listed governance areas are what Boards of Directors and senior management have always looked into. However, we live in a constantly changing world. The corporation and its business do not exist in a vacuum. They are always affected by external events.

It is my belief that as of this date, there are two major concerns that companies, particularly their Board of Directors and senior management, should look at closely and address immediately. The first is the impact of artificial intelligence (AI) on their business. The second, particularly for the Philippines at this point in our history, is national security and the company’s contribution to protecting and enhancing it.

AI is comprehensively defined in Section 238 (g) of the US National Defense Authorization Act of 2019.

It is “any artificial system that performs tasks under varying and unpredictable circumstances without significant human oversight, or that can learn from experience and improve performance when exposed to data sets…. developed in computer software, physical hardware, or other context that solves tasks requiring human-like perception, cognition, planning, learning, communication, or physical action… designed to think or act like a human…,” among others.

With AI a reality, the Board of Directors and senior management will have to factor this in their governance — into strategy, risk management, impact on stakeholders, systems, into every aspect of their business. Thus, understanding AI is no longer a “nice to know” for Directors and management. It is now a duty, a “must know.”

National security, for its part, is operationally defined by the National Defense College of the Philippines as the state or condition wherein the people’s way of life and institutions, their territorial integrity and sovereignty, including their well-being, are protected and enhanced. There are six dimensions of national security — political, economic, socio-cultural, techno-scientific, environmental and military.

With this definition, we see that the security of the nation is not limited to protection against external invasion, insurrection and terrorism. It is not merely protecting our rights and resources in the West Philippine Sea, on one hand, and ensuring that the local insurgency and secessionist movements are quelled, on the other. National security covers the protection of the people’s way of life and institutions, and the enhancement of their well-being.

The thinking that national security is something left to the military is incorrect. I believe that it is the duty of the Board of Directors and senior management of every corporation to see to it that they contribute to protecting and enhancing several or all of the facets of national security.

As examples, corporations must ensure that everyone in the organization will follow all laws and act as good citizens. They can contribute to the economy by innovating, being profitable and paying the correct amount of taxes. They must oppose corruption, help strengthen our educational system, ensure social cohesion, and preserve our cultural heritage. They must master technology and AI. They must protect the environment. Company personnel, as private citizens or members of the AFP Reserve Force, must help counter the acts of hostile foreign elements operating within our shores or in cyberspace.

The SEC states that the purpose of corporate governance is to “maximize the organization’s long-term success, creating sustainable value for its shareholders, stakeholders and the nation.”

Recognizing that AI and national security should be part of a company’s corporate governance concerns will precisely help achieve such.