You know it’s bad when industry asks for regulation…
As increasing numbers of firms seek ways to incorporate burgeoning technologies such as generative AI into their customer-facing products as well as their internal development processes, the need for legally informed decision makers to foresee and head off potential regulatory pitfalls has never been more critical. Yet, despite the efforts of legal departments and senior management to work more closely together, the speed of technological development and global popularity has far outpaced the development of regulations, leaving many of these firms to develop their own differing approaches to compliance and self-regulation. Indeed, in the United States Senate Oversight hearings earlier this year, politicians “seemed happy to hand over responsibility for drafting rules to the companies themselves.”1
In this climate, where regulators and lawmakers often find themselves lacking an understanding of the technology, let alone how to govern it, there is a dangerous reliance on the senior leadership of the firms to consult on, if not help craft, regulations on the products and platforms that they intend to make available to the general public. Companies are asked to set aside their focus on competition and shareholder value in favor of creating and supporting potential constraints on their innovation for the greater good of their customers, and ultimately, the world.
This surfaces a novel use case for the concept of legal astuteness—the ability of a top management team to communicate effectively with counsel and to work together to solve complex problems.2 The four components of legal astuteness—a set of value-laden attitudes about the importance of law to firm success, a proactive approach to regulation, the ability to exercise informed judgment when managing the legal aspects of business and context-specific knowledge of the law and appropriate legal tools, are not only useful as a framework for internal company compliance with law, but as intelligent and informed contributors and partners for regulators as they grapple with this brave new world.
That is, if they are willing to set aside the aforementioned focus on competition and shareholder value. The danger of regulatory capture in its broad interpretation as special interests affecting state intervention in any of its forms3 is evident here, as are the well-documented failures of industry self-regulation. Reliance on industry’s top management teams to craft legislation benefits incumbents, allowing the implementation of barriers to entry and other threats to competition that unfairly disadvantages smaller participants and potential disruptors. Balanced regulations that meet the social, economic, and equality goals of regulators, but are informed by subject matter experts for feasibility and usability without hindering innovation are needed.
- Vincent, James, “The Senate’s Hearing on AI Regulation Was Dangerously Friendly,” The Verge, The Senate’s hearing on AI regulation was dangerously friendly – The Verge ↩︎
- Bagley, Constance, “Winning Legally: The Value of Legal Astuteness”, Academy of Management Review, 2008 ↩︎
- Dal Bó, Ernesto, “Regulatory Capture: A Review”, Oxford Review of Economic Policy, Vol. 22, No. 2, 2006 ↩︎
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