Emerging technology developments are prompting boards to re-evaluate their oversight obligations for the company’s workforce.

The recent headlines are hard to miss. Numerous publications are reporting a similar story line: AI deployment is having a significant impact on the employer-employee relationship. This, primarily in the form of layoffs (including white collar employees) as major companies increase their investment in AI in search of efficiency gains.

It’s a development that shouldn’t surprise informed corporate directors. To some, it’s simply the confirmation of a long-accepted economic prediction – that AI will ultimately lead to massive layoffs where machines replace humans. That it’s the logical evolution of an innovation-driven economy. Others may counter that AI’s impact on the workforce will be less consequential and much more gradual. In other words, no cause for alarm. What’s certain is that these AI-driven layoffs are prompting discussion on whether the board must in some way consider the workforce impact as the company deploys AI.

Legal Considerations

There’s no express legal obligation to do so, beyond the impact on financials and on strategy. There’s no obvious law or regulation that requires the governing body to actively take steps to mitigate the impact of AI-related workforce displacement. True, disclosure obligations under the federal securities regulations arise from plans for termination of employees under which material charges will be incurred under GAAP. And federal labor law (the “WARN Act”) generally requires employers with 100 or more employees to provide advance notification of planned closings and mass employee layoffs. A new AI-focused expansion of New York State’s own WARN Act signals the interest of the states in requiring companies to disclose whether certain workforce reductions are the byproduct of technological innovation or automation like AI.

The board will also want to consult with counsel on the both the interest of labor unions in technology-related displacement of workers, and emerging AI and data privacy laws intended to limit the use of AI in employment decisions, including layoffs.

Certainly boards, in their compliance oversight mode, must confirm the applicability of such regulations and laws when the company is contemplating a large reduction in force. But that doesn’t extend to requiring that the board consider the workforce impact of AI-driven layoffs.

Fiduciary Considerations

Yet there are important indications of a fiduciary expectation in this regard, arising from evolving governance principles that address board oversight of human capital. Specific to this are several publications of the National Association of Corporate Directors (“NACD”), a prominent member organization for corporate directors.

This particular oversight responsibility is grounded in the value attributed to a positive workforce culture as a corporate asset. NACD views oversight of human capital as the logical board response to factors such as cultural shifts, an increasingly competitive labor market, heightened employee expectations, increased investor interest, growing regulatory requirements and – importantly – the rise of disruptive technology. At a basic level, this oversight is manifested through a variety of governance measures, including positioning human capital strategy as a recurring board agenda item, evaluating director proficiency on human capital topics, assuring that the board’s committee structure accommodates human capital topics, and participating in the evaluation of senior human resources executives.

But NACD and similar thought leadership groups are also encouraging focused board oversight of the company’s technology integration, including the potential adverse effect of AI on jobs. “Boards should ensure that their organizations adopt these technologies in ways that augment human capabilities, rather than replace them”. In a similar vein, NACD recommends that boards exercise AI adoption “with the same level of scrutiny as financial risk, ensuring that automation enhances long-term resilience rather than simply cutting costs.”

The core theme is for the board to confirm that AI-driven layoffs are consistent with a measured corporate strategy and not the byproduct of a narrow focus on expense reduction. As Wachtel Lipton Rosen & Katz Founding Partner Martin Lipton notes, “boards should consider in a balanced manner the effect of technological adoptions on important constituencies, including employees and communities, as opposed to myopically seeking immediate expense-line efficiencies at any cost.”

Moral Considerations

And then comes the moral equation; whether directors have an obligation beyond express legal duties to mitigate AI-related layoffs, whether voluntarily on moral grounds or as a matter of corporate social responsibility grounded in an expansive legal view of the purposes of corporations to society.

Pope Leo XIV, in his short tenure as leader of the Roman Catholic Church, has prominently addressed what he perceives as challenges to the defense of human dignity, justice and labor that arise from “developments in the field of artificial intelligence.” Indeed, the new Pope views AI as the vanguard of a new industrial revolution that presents several critical humanitarian issues including – but not limited to – the potential negative impact on worker rights, job quality and employee health and safety, and harmful workforce disruptions [emphasis added].

Leo G. Strine, Jr., former Chief Justice of the Delaware Supreme Court, has similarly urged directors and executives to govern corporations in a manner that is respectful to the interests of workers and other constituencies. This includes the responsibility to understand how their companies use AI, and how that use affects their workers, as well as consumers, communities of operation, the environment, and impacted societies.

Then there’s the matter of compatibility of AI-related workforce decisions with published statements of corporate values. While there is certainly no one-size-fits-all template for such statements, they often make broad references to regarding commitment to employee well-being and treating all employees with dignity and respect. More expansive statements track principles from the Business Roundtable, which include a reference to investing in employees: “…supporting them through training and education that help develop new skills for a rapidly changing world”. 

While such values statements rarely speak to specific, enforceable rights to employment by and advancement within the company, the board of directors may wish to review AI related workforce decisions through such a lens, at the very least for purposes of the company’s reputation and workforce culture.

An Oversight Pathway

The overarching suggestion is that fiduciary oversight themes for human capital, culture and corporate reputation mandate a governance role on the workforce impact of AI deployment.

This role should be grounded in three main themes: first, an acceptance within the board, and between the board and management, of the board’s basic oversight responsibilities for human capital; second, a framework by which the board exercises oversight of the company’s AI strategy and implementation;  and third, board-level attentiveness to the talent implications of corporate responses to new and disruptive technology (i.e., whether those responses may involve job creation, job retraining or job displacement).

More specific elements could include focus on relevant information flow to the board, monitoring efforts “upskill” the workforce, and holding management accountable for structured and equitable employee transition.

Conclusion

Emerging governance principles and other related factors argue for a clear board oversight role in technology-prompted layoffs and other forms of workforce disruption. Yet any board oversight role should be designed to foster optimal performance by management in deploying this valuable technology consistent with the company’s business opportunities and strategy. Conversations to that end should be grounded in a shared awareness of both the board’s basic human capital oversight responsibilities, and management’s responsibility to fully leverage technology for corporate gain.