Recognition of the transformative potential of AI in corporate finance should go hand in hand with the importance of ethical considerations and regulatory frameworks in its implementation, Lord Clement-Jones CBE warned in his speech at ICAEW’s Corporate Finance Faculty Annual Reception yesterday evening.

The Liberal Democrat House of Lords spokesperson for Science, Innovation and Technology said a lack of agility by legislators in the digital world has produced widespread challenges, including for regulators in sectors including financial services. 

“In corporate and professional life, the potential of AI is already clear in so many ways, across multiple sectors. Our government is placing its faith on the potential of AI in increasing productivity across both the private and public sector.” 

The increasing adoption of AI required a new approach to corporate governance, he said. “It must be clear that boards are fully accountable for the introduction of these new powerful new tools and that they are setting the values for how they are utilised by their employees and the extent of meaningful human intervention taking place.

“As time has moved on, I have become a greater advocate of going beyond corporate governance and turning those ethics into regulation and the adoption of international standards to ensure that we have interoperability across markets and consistency and certainty of the context for development and adoption of AI models.”

However, a sticking point remained how to overcome the challenges of differing regulatory regimes so that developers are able to collaborate internationally and commercialise their innovations on a global basis, and business and consumer adopters can have the necessary trust and confidence that these systems comply with ethical and safety standards when they use them.

“Given the compute power, access to datasets and capital, sophisticated semi-conductors and high-quality skills needed to develop these powerful generative AI systems, I am concerned that we will see the same if not even worse concentration in AI systems as we’ve already seen in cloud computing, app stores, office software, browsers, search engines, internet retailing and social media exploiting their gatekeeper power with similar self-referencing leveraging and lock-in behaviour restricting interoperability.”

Clement-Jones said a growing body of international standards, including internationally accepted AI ethics, was becoming readily available. “We need to achieve agreement on convergence of these international standards, through institutions including the Organisation for Economic Co-operation and Development (OECD), the Global Partnership on Artificial Intelligence and G7. 

“I welcome the government’s development of a terminology tool for responsible AI, which is intended to define key terms and concepts in the UK and other countries’ AI governance frameworks. This will help provide the certainty and interoperability that businesses need to develop and invest in the UK more readily, but we need to go further and agree and mandate common standards not just the terminology.”

A founding member of the OECD Parliamentary Group on AI, Clement-Jones co-founded the All-Party Parliamentary Group on Artificial Intelligence and in 2017 was asked to chair the House of Lords Select Committee on Artificial Intelligence. He is also the author of ‘Living with the Algorithm: Servant or Master?: AI Governance and Policy for the Future’.

Clement-Jones referred to the recently-published best-practice guideline on Financial Due Diligence launched by the Corporate Finance Faculty, which underscores that AI tools must be managed carefully to ensure that they complement the human element of due diligence, rather than replace it, avoiding the pitfalls of over-reliance on automated systems. 

“The professions need to ensure that the nature and content of professional qualifications such as the ACA and Solicitors Qualifying Examination remain relevant and up to date and include how to use AI and other technology, but also that they retain an understanding of the professional bigger picture – understanding the importance of professional judgement. Meaningful human involvement is key,” Clement-Jones says.

Pearson scoops ICAEW Corporate Development Award

Meanwhile, yesterday evening’s reception at London’s Fishmongers’ Hall saw lifelong learning company Pearson receive the ICAEW Corporate Development Award for making the most effective use of mergers and acquisitions (M&A) to increase shareholder value.

Alistair Brew, Chair of the ICAEW Corporate Finance Faculty, and Andrew Rutherford, Commercial Director at Arbuthnot, presented the award to Rachel Coulson, Pearson’s Deputy CFO. The award recognised the FTSE 100 company’s successful completion of three value-adding acquisitions, which ICAEW said broadened its addressable market and increased its technical capabilities. 

The annual prize is awarded for the successful use of M&A to increase growth and shareholder value, and to outperform the market, using a methodology devised by the ICAEW Corporate Finance Faculty in partnership with Bayes Business School.

ICAEW noted that Pearson’s strategy of expanding through M&A in core areas was very well received by financial markets, resulting in enhanced shareholder value. Pearson’s performance aligned well with growing demand for online learning and workplace services, keeping pace with post-pandemic trends and the rising adoption of AI technologies.

David Petrie, ICAEW Head of Corporate Finance, said: “This year’s winner of our corporate development award shares many of the same ideals and purpose as ICAEW, with both our organisations being committed to lifelong learning.

“Pearson is at the forefront of delivering learning and development using AI, at a time when deal-making and investment is itself being transformed by the same technologies. We congratulate them on their successful use of M&A and for winning this award.”

Coulson said: “This award from ICAEW is a reflection of the hard work and talent within Pearson, our disciplined approach to capital allocation, and a deep focus on product innovation and execution – all underpinned by a shared belief in our purpose to help people realise the life they imagine through learning.” 

ICAEW’s AI in Corporate Finance hub was officially launched at the Corporate Finance Faculty’s Annual Reception, providing insights and resources on how AI is being used in corporate finance.