Inside a Thousand Boardrooms: How Boards Are Actually Handling AI

Last time we met, we had a really good discussion on how AI is, um, kind of bleeding into to every day. Uh, that was a recording that we did in Swedish, and this time I thought I'd leverage your extensive knowledge when it comes to AI and the boardroom. I thought it might be a good starting point for you to kind of like, how come you can speak to this topic specifically.

Yeah, absolutely. Yeah. So I'm principal with KPMD, and as, uh, part of my role, I was elected to the board of KPMD in our US firm and our regional Americas firm, um, for, for five years as a standard term, if you'll, and I rolled that off a little bit more than a year ago. So, uh, I happened to be on that board at the time when the generative ai, sort of revolution really happened.

And you've been on doing transformation work for, for 30 years, how can you remember a time where the board has been as pushy to get a transformation started as this time?

No, I can't. And it was quite unexpected. I think most professional services providers found that, that, you know, that there was a quite different, uh, demand, if you will, and not all of it, but a lot of it came from the initial reaction from, from, from board members. Um, and, you know, uh, a lot, a lot of that reaction had to do with are we piloting?

Yeah. Compliance issues. Yeah. Yeah,

So I, I think there was more than a year of sort of like full, full throttle and full breaks every back and forth.

And how many boards have you trained, uh, in general when it comes to board work, because I know that you do a lot of board work and specifically now on ai.

I mean, training is a big word, but I've interacted with more than a thousand, uh, board members on the topic of ai. Uh, in, in, yeah, in the last. Year, at least two years. And that goes from one-on-one coaching sessions, uh, with clients or, or other stakeholders. It goes to one of many, uh, board sessions where we get called in to talk about the trends and how to think about that.

Fantastic. And I, I completely agree with the, with the fallacy of trying to be an AI expert, it doesn't seem to matter how much you, you try to keep up, you're, you're always gonna be be behind with the, with the speed of change. Right. Um, I'm wondering, could you give us some type of, you know, state of the union for how mature is the average board when it comes to understanding the fundamental changes that AI introduces into our business?

I mean, first of all, there, there, there's obviously wide spectrum, um, wide spectrum, uh, that depends on a lot of things like the, uh, you know, the, uh, the original composition of the board. So remember, I mean, t is only, or generative ai and now Agentic AI et cetera, has been around for less than three years, right?

It must be a very difficult like recruiting task for boards as well to even find relevant new team members to hire because it's so new to all of us, right?

I see two types of approaches there. The, the first one, the more sort of reactive one is that get somebody on the board that has technical competence, that has built something with AI that understands what AI can do when, and the limitations around, et cetera.

Yeah. Higher than specific AI technology skills. Yeah. when you meet a new board, what are the way that you'd introduce how their function as a board changes needs to adapt as a consequence of ai?

I think there, there are five topics that, that every board to some con, you know, to, with, with some, uh, changes are, are dealing with, um, uh, at any given time.

I would imagine that most boards have or board members have heard about all of these terminologies. Agentic, I think is a brilliant question. Uh, or example, but there's this sense of, yes, I've heard the hype, but I haven't really seen it yet in, in its full implementation or in my industry, and, and how to kind of separate hype from reality and what we should push for or move towards.

yeah, the first indication of maturity is whether the boards ask for use cases. There's a little bit of a personal, but the more they ask for use cases to make it real, to make it credible, the the less mature they are. Um.

That's a little bit counterintuitive, I would imagine, like it's a signal of interest asking for use cases.

It it is, but early interest. Right? So, 'cause the next level question becomes, well if this is a practical thing that some person can save some time with, is that relevant for the board or not? Does it, does it really move that needle, uh, on revenue or cost or risk or ability to maneuver in the market or the market around us?

It interesting because, I would imagine it's quite a difficult conversation to have in a board, so one part of it is.

Right. And, and this, you know, puts the, the spotlight on one of the biggest challenges of being on the board versus being in the management. The, the board is not the management, the board's role is not to take the decisions reprimand, you know, uh, direct in that sense. The board provides governance and oversight. it oversees the management's decisions and at the end of the day, has the ultimate responsibility of hiring and firing the chief executive officer, et cetera, in, um, it also, you know, approves major decision and you, you literally had to vote on some of the bigger decisions. But a lot of the discussion is board on the board is about asking the right question.

How, how do you find the right balance in, in practice on those?

With difficulty, I would to say, and you know, it, it is both, uh, in your board training and in your experience as a board member, you, you get pretty clear signals when others' opinion is that you are wearing too far away from, from being hands-on or being too hands on. If you'll, um, it's also the role of the chairman or the lead director to direct the dialogue and manage the dialogue in such a way that we stay within those lanes.

Yeah, absolutely. It feels like such a, a important moment. I, I reflect already 'cause I, I'm too young to really feel that I was part of the digital revolution, even though of course I've, I've been on, on, in, in the kind of digital space in, in my whole career. But this is the first time where I feel that I'm in a management position through a big technological leap.

understanding those trends and what it means from a board is, um, is really critical. I think the second topic that both most boards deal with is how big is the opportunity? And I always like to talk about that. Second, because most boards naturally go to how big is the risk.

Yeah. 'cause it's, uh, hypothetically endless, but it's also very hypothetically endless.

Yes. And there, there, there is certainly enough, um, confusion and difference of voice in the market and in different reports around how, you know, everything from how world changing it is to how it's not happened and how it's overblown, et cetera. And any board member with, you know, takes input from the market would rightly be confused.

Do you have some frameworks to introduce? Uh, like how, how would you go about to, to the average board to start quantifying this?

so there are at least four or five different components to the value equation.

Hmm.

And for that there are tools. We have some others, have others, you know, to quantify that if you'll, and, and and that's just a portion of the opportunity.

you need to have a conscious thought around the reinvesting of the time into something, even, even higher value. I think that's a piece, at least to me, more looking at it from the, the management team perspective that we, many management teams doesn't really have an idea of what do we reinvest towards?

Yeah. And this, this goes into the sort of like, uh, well, how you reinvest that time depends on your corporate strategy. What are you trying to do? Where are you trying to grow? And how could that evolve? Right? So if you don't have a corporate strategy, you don't know where to reinvest it, and if you don't have a deliberate transformation effort that encourages people to invest in, in the direction of the company, they will invest that in things that they think are the most helpful to them and or the company not always the same.

No. Exactly.

um, both the approach to which companies unlock this usage, the, the adoption, uh, which is the biggest barrier in my view right now, uh, and using proven behavioral science approaches, not top-down force and shame and blame, uh, which doesn't seem to be working, um, is a prerequisite. But then the, so from a board perspective, you ask simple questions like, okay, where are we?

So, so for me, again, looking at it more from, from the operator's lens, when I meet a company that says, yeah, we have copilot license. I, my, my like, gut reaction is great. You've gotten absolutely almost nowhere, uh, because you're at model levels that, that aren't really the, the, the, the latest versions and you probably haven't done that many advanced new cool things with it.

I get that question a lot and I, I think, you know, the every three months, the answer may change what your preferred, you know, highest performing, uh, model is. Yeah. And that will continue to change. So from a board level perspective, I, I, I think it's, it's, it's less that than sort of what is the, what, what is the age of the model, right.

Yeah, exactly.

And that creates not only that creates risk and lack of transparency. So, you know, the maturity, the age of the models, you know, how many have access to a later model, et cetera, I think, I think is a, is a great indicator of providing the right tools.

yeah.

gets it, right, yes, I'd like to be, and that's what AI can do.

I love that analogy because that's exactly it. I've been, I've been struggling for a good analogy to, to kind of exemplify the compounding, uh, like advantage that the AI gets you if you get into it early enough. I see on, on clients that I advised that we started the work with a, a year ago, like what they do versus the, the clients that I begin with now and the, and the amount of, of operators within these companies that, that truly make completely new things because it takes the time in the company culture to, to really understand the, the potential of where our market is going, how this fits into it, how we practically build things.

Exactly. And then if you play the, the, you know, the, the, the likeness forward, right? That player, the extra player on the ice, uh, doubles in performance every three to six months.

Yeah, exactly.

You still have to pass the puck, right? Between the current team and them. Uh, but you want a few of them and you want more them on your side than on their side, right?

How diligent should you be with, um, you know, business cases, return on investment, uh, scenarios because it's also a transformation that you can have to invest into a little bit speculatively, because a lot of the innovations that you'll end up finding won't be the ones that you're expected to find, I would assume.

I mean the, the, the ROI is really, really difficult right now. I mean, let alone the r the, the, the urg, right, that we just talked about. And, and the, i the investment depends a lot on how you do it. And as you said, what is your starting position? Do you need to completely revamp your IT infrastructure, get access to models, data, et cetera, or have you done a lot of that?

Yeah.

The effort it will take to drive that adoption is usually underestimated because board members and management and everyone immediately adopted Chat GPT on their phone and we expected that the worker would do the same.

Yeah. I think one thing that I'm missing a lot is like, it's so easy to default down to the kind of productivity number or, or the increase in EBITDA number, or reduction in headcount number. Whereas I find in the lot that, uh, a lot of the work that I do at Grail is finding new opportunities because the way that I look at it is like the, the productivity thing.

well, well, just to reflect on that one, you know, you justifying the most common way to differentiate and create value in the history of Uh, so I, I wouldn't undermine that, the value of that, that that could be enough, but obviously the potential could be even bigger where you're going.

so I have this triangle that I work with, uh, with my clients on, which is, let's look at any business process from, from speed, quality, and cost. And everybody seems to look at speed and quality, which is how can we do our existing jobs faster? Um, and for me it's all about the, the, the quality.

Right.

anymore.

Yeah. That's super interesting. So I would say, uh, you know, the most mature boards and management teams, they spend at least a significant, some degree, significant point of discussion on that topic, right? And, uh, we are seeing examples where when you re-engineer the process almost from scratch, but with the, the, the people that do the process today, part of the journey, not as a, a victim of, or, or a defender of if you'll, um, that you can get some pretty dramatic results.

Hmm.

Uh, but that required a fundamental rethink of the work. And, and there's one sort of intellectually very stimulating point that if you think about the, the notion of productivity and the history of, of humankind, uh, other than CapEx, it has to do with reducing the number of hours of labor that goes into a process.

Hmm. Yeah,

requires that process redesign.

Yeah,

Uh, and, and to some degree you can do it with the same resources and develop investments and tools, and in some cases you need to dedicate the different ways of doing it. But yeah, no, the, the topic of value where RI for board is one of the most difficult ones right now. And, uh, having said that, um, when you do see all these surveys, right, everyone says that, you know, um, concern about ROI or, or ability to, uh, measure that is a top concern for every company and every board.

you do a lot of service at K towards the boards, what are more of the kind of top concerns of the board?

Yeah. So as, as the list we started on, right, the tech trends, the value, uh, second one, the third one are the risks. Um, uh, the, the fourth one is how do you translate opportunities risk into strategy and transformation?

Yeah, we're, we're for sure coming there. I'd like to double click on, on the risk section before we do, because risk, uh, to me has been, um. I understand why it's there and it, and it is good that it's there and, and risk when it comes to ai, at least to my experience, is very misunderstood and, and built on, on kind of legacy ideas of, of what is, how does these models work.

Yeah, no, you have, you have to tailor careful to the industry and the nature, if you will. But right now I said the three hot topics in that risk bucket, or trusted AI bucket as we call it, um, are, um, sort of governance and compliance, cybersecurity and shadow ai. So on governance, compliance, most companies by now have some degree of framework, uh, procedures.

So that would translate into more attacks rather than the sophistication of, of the attacks.

for, for now. Uh, at least that is a perception of one, one expert that I've found, you know, credible. I don't have data on that, but, uh, it may not true be true tomorrow, right? So you need to kind of think about both if you'll, and that's if you do nothing, right? If you do do something, which you'll forced to do, if you wanna be on this journey, you'll also, uh, open up more attack vectors.

We can get a lot of help from AI though, uh, like, uh, anthropic for example, has a brilliant, uh, suite of, of uh, kind of security skills and so forth, and we saw yeah.

If you if you deploy them..

them. Yeah, sure.

So the opportunity for the attackers goes up, your opportunity to defend goes up.

Uh, often under the kind of shadow argument of risk, which is a fantastic, uh, funny coincidence. Yeah,

irrational. Yeah. So I would say one of the biggest risks right now is not having your employees on your control platforms. Uh, if you'll, um, and, and there's, there's a lot of mostly survey based, uh, uh, input on that. We have asked 40,000 people around what they actually do behind closed, uh, doors, uh, when, uh, when, and, and it's quite scary, right?

Yeah. There's something broken in that equation that, that we seem to struggle with adoption at the same time that we have a lot of shadow usage.

Exactly.

Yeah, are many o I would bring in also the, uh, kind of talent risk into this equation as well. I have a lot of conversations with people my age, high achievers that are working at companies that are AI laggards that are saying, I take too big of a career risk staying here, uh, because this is obviously gonna shape the, the next coming X years.

Absolutely. And on the other end of that same spectrum, you have people saying, I'm, I'm actually nervous to use these tools because if I rely on them, I may be held accountable for some error that my boss will fire me for. So I'd better off being less productive, but knowing that I'm equally, even if I were more productive and, and better with the model at least.

Hmm.

The pace of trust that their employees have in the company, their job and the tools, uh, customers have in their use of their data regulators have, and, you know, following regulation investors in deploying this, you know, in a prudent way. So, um, the, the, the best way I feel is to look at trust as an accelerator, not a decel, in that, uh, it takes a little bit of minding.

Can, can we discuss, uh, the, the kind of investors to the board, um, touchpoint as well? Because from, from the investor perspective, obviously, and a a company valuation perspective, we see a lot of companies kind of scrambling for really the answer to the simple questions. Are we winners or losers as a consequence of ai?

Yeah, I mean that, that varies enormously depending on the maturity in the company industry. So there's almost not, not, not, not a single answer. That's, that's right. But I talk about some of the extremes. I, I think at the most basic early stage company in the industry, that's not going through the most dramatic, right.

yeah, and as you said, we've seen this in the tech industry very clearly with, with like source multiples. So, during February, specifically in March, do you think it's feasible to think that this will hit most knowledge worker industries similarly? Just that the tech industry is a little bit further ahead?

Yeah. I, I, I think the prevailing sort of mood of thought is that exactly that, right? Tech industry is leading, it's both building and using and enabling all other companies to use and therefore what happens in tech will happen to other companies, right? It's tightly coupled with where we see the most productivity.

Yeah, exactly. And that is probably true both for, for the investments racing into anything that smells AI and, and the investors fleeing out of anything that smells punished by ai. Uh, that's interesting. I'm gonna open up the, the kinda last chapter, but perhaps the most practical chapter as well, uh, which is the inner working of, of the board.

that's really a good question and sort of maybe even before we go there. How, you know, the, the implication on that is how does the work on strategy and transformation, um, uh, change because that impacts how the boards work with change. Uh, and this has been a hot topic for boards for, you know, the board's role in strategy, governance and oversight is, um, longstanding discussion, right?

Yep.

and in many boardrooms, and we were one of them, we, we had a lot of debate initially around, do we need an AI strategy or do we just need a corporate strategy influenced by many things, including ai.

Mm.

Uh, I'm personally in the camp of, you need both. And I, I I, I, I joke a little like, does your company have an HR strategy or a vacation strategy or location strategy? If you have that, then you need an AI strategy, which answers the question, how will you leverage AI to improve your company?

would you add the fourth around changing customer expectations and behaviors?

Yeah, it, it's, you could, to me that those are outcomes are embedded in the three,

Yes.

particularly the purchasing departments of those kind, you know, are are very good at enforcing a certain way. Now there's, there, there is a clear direction to move away from that not only professional services, but in more other aspects towards more of an outcome-based fixed price, you know, ways to, to pay for the value, not the input that gets you the value. And that's a pretty clear trend that leads in perception and in communication in all aspects of that.

Yeah, absolutely. It's not a cosmetic itself. the top. Uh,

Exactly. So I often ask, you know, okay, we're moving to fixed pricing. Okay, okay. Uh, at what level? Yeah, we'll figure it out. But how would you figure it out? Right. Well, you know, we wanna win in the market. Okay, but will, will that enable you to sustain margin or will those margins die if you win in the market? Uh, it, so I think there is a little bit of a mental crutch to jump to to that if you'll Right on the

I think, uh, because I, those are some a lot with, uh, with kinda service firms and, and most of them have, you know, 60, 70% of their revenue comes from some type of bread and butter type of deals where we could invest quite heavily in the efficiency of the delivery vehicle to get to that outcome. And then proactively price a fixed price that is lower than the market and then get into a really sweet position where we offer something that's faster, better, and cheaper, uh, versus market.

exactly.

and then keeping the

so you know.

more hourly or, or whatever.

Yeah, exactly. So, so as a board member, you know, you wanna understand, are we doing everything we can to create the flexibility for us to have different pricing strategies and tactics that would win in the market? And, uh, and are we using those into the way that we front customer One of the two is not enough, uh, because it actually hurt you in that sense.

Yeah.

So we try, we like to try things on ourselves before we, we tell clients what to do. Uh, and we've learned a lot. We've done a lot of cool things, but also things that, you know, that didn't work out. But I, I think the most exciting things right now that are happening is, is thinking about the professional services, uh, portfolio of offerings and the, um, pro productization or potential productization.

And what, what, get a little bit more practical. What, what is an agent factory?

An agent factor is a, is a repeatable, um, structured, um, process coupled with the latest technology that, that enables you to say, here's how we delivered a.

E every, every service then has a different current point of that. Some cases it's zero. In some cases it's a lot, and it will change over time as the models get better. But the more we can do that, the more we can focus the human labor, almost uniquely human value added and interesting to do.

So, uh, the, the work gets better, right? So that's kind of like our bulk production facility for knowledge work, if you'll,

And it's interesting because you're, you're, you're what? You're 150,000 something employees. You're a huge, huge company. Uh, there you go. I I, is this a kind of moving circus of, of like transformation people that, that are trained on, on like this process and the tools and, and how, how to make this a repeatable thing that moves around from, from Stockholm to New York to Sydney?

Yeah, it, it, it's somewhere in the middle. It's more, more of the second. It's a federated approach where we concentrate infrastructure investments in a, a, a finite number of places. Assume you know, US, Germany, uk, Australia, a handful of companies that are central in the region and that have the scale and, and, and capacity, um, uh, to run these factories if you'll, and then what comes out of the factory can be used by everyone.

That begs another question, uh, that I've found a lot, um, from CEOs and especially, uh, companies where you have like regional CEOs or country managers, which is relating to how do we properly structure AI investments? Uh, because as we mentioned, uh, some time ago, there isn't typically a dedicated AI budget.

first of all, we, we, early on adopted the principle of innovate once, you know, use everywhere. Um, which, sounds really good and it is good, but it, it is hard to do. Um, and we also have the added complexity that, you know, we are not one global firm. We are a network of global, independent legal entities, uh, that, that operate under, you know, as independent companies under, you know, global set of collaborative rules and, and investments.

Okay, so, so perhaps a, a a little bit of a, a tangent here, but again, speaking about the, the board and what should you and shouldn't you have opinions on from the board perspective? The last piece, the maestro piece would for me, beg the question of organization design for the future. Uh, how do you have that conversation or should you have that conversation at the board level?

yeah. That, that's one of the, you know, yes. But not in too much detail. I think, um, the experienced board members would find ways to ask a question around, uh, how our planned organizational changes align with our AI strategy and the changes to our corporate strategy to be able to enable that.

Yeah.

What changes have been made and are compli complement sort of contemplated to be made around talent profiles, structure incentives, training, all those aspects.

absolutely.

Eric showed that, you know, canaries in the coal mine paper, right?

Yeah.

Don't need any. help Right. They're cheap and they, with the help of AI, will perform as an average member very, very, very quickly. Right. Or more quickly, at least. A So rational organization would be to have more of them eventually than less. And, and there's this big, big discussion around, you know, a lot of job loss announcements that we are cutting our staff because of ai, et cetera.

And talking about risk on, on the same topic, one thing that I, I do. In a year's time, two years time, talk more about this, the consequence on, on kind of succession planning. If, if you have nothing coming in from the bottom, you won't have your, your future middle managers that to promote. Right. Um, and that is a classic tension.

Exactly and it's anticipation. And I mean, just this week that, I mean there were two senior CEO transitions announced

Yeah. And I, I, I led a couple of teams where we were very aggressive in, in terms of pivoting towards AI nativity. And what you end up finding is that you, you run a much leaner team. Yes. But you're also way more dependent on those specific people staying, like each pay, uh, player becomes a key player in a sense.

If you bring all that back to kind of what, how, how does that affect the work of the board, right? The, the, the, you know, the, the weekly, quarterly, et cetera. And a again, of course all, all boards are different in that sense. But first of all, if, if you are on a board and you want to, if you want to kind of make sure that, that you're talking about the top five topics that other boards are, are talking about, I offer those five, right?

Mm mm.

So there's been less than three years of any type of guidance to board members on how to be a good board and board member with this, right?

Yeah.

and none, nobody's gonna be happy with the answer to that one.

I think one of the evolutions that I've found a lot in, in, again, then in, in the context of management teams is how effectively can we prepare clear decisions as a consequence of, of using AI better in creating much better, uh, preparation for decisions, uh, in, in how we handle pre-reads and transcripts in, in, uh, the board meetings perhaps.

it, it could certainly be. And, and, you know, that's, that's the third area. Um, so there, there's also a lot of, uh, risk and a lot of, um, resistance to bringing AI too quickly into the boardroom for very natural reasons of, um, uh, being compliant and being, uh, minimizing risk of confidentiality leakages and so forth, right?

Hmm.

and there's a debate between the board and management and the, you know, around which of these features that are there could be used.

Hmm.

Uh, I'm not saying that I know the answer to that, but at least it's not the lack of access to cloud. In some cases, it's, it's the willingness to use it and that should be prudently handled, but there is not productivity there against yet to be, yet to be had on, on the very futuristic and, um, you know, topics that most board members don't like to talk about.

mom.

small companies, not, not in the biggest countries.

at this point, but it's an interesting

it's gimmicky et cetera. Right? But, um, the most interesting one I have now, which was an experiment, right? And it was, it was, uh, I believe it was insead, uh, and it was published in the Harvard Business Review. They, they, they ran a, a, a simulated board meeting, um, and they created a full agentic board with multiple board members, each represented by an agent.

Yeah.

And then they had, uh, human boards, um, I think there were two human boards, and they were, they were, they were prepped to do the same board meeting with

no, what I, I, I

I think it's the fundamental kind decomposition that really any employee in any company is facing right now. Thinking about what value that I bring is fundamentally something that's uniquely me and my human kind of contribution that I should perhaps double down onto, like my human judgment, my ability to build relationship, build trust versus what value that I bring do I just bring out of old habit, but should in reality be, be quite significantly augmented by ai.

And I think it's very relevant for the board members to reflect on their own contribution in a similar fashion. Right.

No fully agree. And I mean if you, if you bring it all back to kind of where, where, where we, we started the journey. When you look at the roles the board have played so far in the three years and the bo the role that the boards will need to play in the next three years, which is within the board mandate of most board members today.

Hey, this has been absolutely fascinating, pat. Hopefully not the last time that we'll meet each other over the podcast format. Uh, thank you so much for, for coming on today and speaking about the, the board's evolution in the age of ai.