It starts innocently enough. That free AI writing assistant might be training its models on your confidential strategic plans. That handy AI data analysis tool could be transferring customer data to cloud regions where they could be accessed by foreign adversaries.

An engineer quietly uses an AI code assistant to speed up a tricky debug. A junior account manager leans on a third-party AI transcription tool for meeting notes. A lawyer uses a third-party gen AI tool to run a case search.

Welcome to the world of Shadow AI.

Shadow AI is a wide-open, often unmonitored, backdoor

“Shadow AI”—the unsanctioned, unvetted, and often invisible swarm of artificial intelligence tools that your employees are adopting at lightning speed. They’re chasing productivity boosts. In the meantime, your company’s data, intellectual property, and compliance frameworks are starting to look vulnerable.

The allure of readily available Gen AI tools is potent. Employees, under pressure to deliver more with less, see them as digital Swiss Army knives. On the flip side, when discovered and managed properly, they unearth genuinely transformative efficiencies.

Acceptance. Alignment. Triage.

How can the board and leadership teams turn this threat into an opportunity? And who should lead the charge?

Organisations can’t rely on governments and regulators to set standards for how AI ought to be used; we’re not there yet. The pace of political decision-making and divergence have contributed to a patchwork of overlapping AI governance laws, regulations and guidelines worldwide.

Therefore, the burden is likely to fall on the general counsel.

The real challenge for the modern general counsel is to avoid becoming the “Department of No,” and instead to work with allies in the C-suite to architect a framework for responsible AI adoption – one that balances innovation with robust governance.

This means moving beyond simply updating the employee handbook. It requires a proactive, multi-pronged strategy:

Visibility is Victory (Almost): You can’t govern what you can’t see. General counsel need to partner with Chief Information Officers or Chief Information Security Officers — deploying tools and processes that can detect and inventory the AI tools (sanctioned or not) being used across the enterprise.

This isn’t corporate surveillance—it’s about understanding which types of AI tools your employees are using, and finding ways to offer them a sanctioned, vetted alternative.

It fosters innovation—the company might discover new gen AI tools which offer enterprise-grade information security protocols. Offering alternative platforms minimises disruption for employees who have passed the 11-by-11 tipping point on AI usage, and Gen Z employees, 80% of whom use gen AI to enhance their productivity.

There are times when certain publicly available tools can be useful for organisations - but there’s a fine line between utility and a red-flag.

Frontier models like GPT-4, Llama, DeepSeek and Qwen, and others are used to power a host of other AI platforms. Those frontier models will scale, and with that, so will the power they offer to other gen AI platforms that run on them.

Platforms signed-off as ‘safe’ today, might morph into something far riskier tomorrow. Assess which tools employees are using today, and seek to offer alternatives within your corporate tenant.

Create a “Safe Sandbox” for Innovation: Provide employees with a curated list of approved, vetted AI tools that meet security and compliance standards, and are embedded on your corporate cloud tenant. Offer a clear pathway for employees to request new tools for evaluation. This channels their innovative spirit productively.

Education. Education. Education on responsible AI practices: Many employees simply don’t understand the data security or IP implications of using free AI tools. Continuous training on responsible AI use, data handling, and the company’s AI policies are critical. Aligning this with your corporate cybersecurity training programme reinforces the dangers and consequences of using unvetted or free AI tools.

Final Thoughts

Here’s the inconvenient truth: Shadow AI isn’t a fringe issue—it’s likely already embedded in your workflows. It’s not malicious. It’s human. It’s what people do when the tools they need aren’t provided.

But in a regulatory environment that’s still playing catch-up, that human impulse can become a legal and operational liability overnight.

At SAIL, we don’t believe in shouting “no” from the legal department. We believe in smarter, faster governance that works with employees—not against them.

We help General Counsel, CIOs, and leadership teams build AI governance strategies that keep your business moving—without putting your data, your IP, or your reputation on the line.

If you’re wondering what AI tools your people are already using—or how to turn that risk into a structured opportunity—now’s the time to act.

🧭 Book a free consultation with SAIL. We’ll help you map what’s happening, what’s missing, and where to go next—with pragmatism, clarity, and zero jargon.