OpenAI ‘unusual’ board structure led to CEO Sam Altman firing
OpenAI dramatic decision to fire its CEO Sam Altman on Friday, and the days struggle for power that followed, was only possible thanks to the unusual power held by its leaders. Developer ChatGPT’s extraordinarily powerful board of directors answers not to shareholders or any group of owners, but rather to none other than all of humanity. “Our primary fiduciary duty is to humanity,” OpenAI says. charter bed.
Microsoft CEO Satya Nadella, who played a central role in negotiations over the future of OpenAI and Sam Altman, is now wants governance changes within the pioneering AI startup. “Surprises are bad,” he told Bloomberg at a news conference. interview Monday evening.
The surprise in this case was OpenAI’s firing of Altman on Friday, without informing Nadella until a minute before it was made public, reports Axios. OpenAI unique business structure doesn’t give seats on its board to deep-pocketed backers like Microsoft, which invested $13 billion in the AI developer.
OpenAI’s board “can essentially make decisions unilaterally” without consulting investors, says Karen Brenner, executive director of law and business initiatives at NYU’s Stern School of Business.
Nadella, who has in the meantime committed to hire Altman at Microsoftsays he plans to stay in business with OpenAI but he will now push for changes to his board structure.
In normal for-profit entities, investors typically have some ability to influence strategy, whether through governance rights or board seats. Not at OpenAI. “It is unusual that when you create an entity to pursue a strategy that requires an unusual amount of capital, the people who provide the capital do not have some degree of voice, control or oversight over the capital they provide ” Brenner said. said.
Why is OpenAI’s map so powerful?
OpenAI’s unique board structure comes from its founding as a nonprofit organization. In 2015, Altman, Greg Brockman and current board member Ilya Sutskever, alongside other partners including You’re here CEO Elon Musk launched OpenAI as an AI research lab. In 2019, OpenAI executives realized they would need to raise money – and likely huge amounts of money – to fund their research. To make this possible, OpenAI created a for-profit capped subsidiary.
A capped for-profit entity is already unusual. Companies are rarely in the habit of limiting profits preemptively. But as a division of a non-profit organization, whose goal is to “ensure [artificial intelligence] is used for the benefit of all,” OpenAI decided that it did not want investors to have unlimited motivation for profit.
“Part of the goal was to limit the financial upside potential and also to keep a tight rein on the social implications of this technology,” says Brenner.
But the massive success of OpenAI could well be the cause of the loss of this strange structure. The technologies developed by the for-profit arm were so advanced that they eventually attracted multibillion-dollar investments from Microsoft and Silicon Valley venture capital firms that poured money into OpenAI . As it has become more successinvestors and executives wanted to capitalize on the commercial opportunity of their work, according to Vasant Dhar, a professor of data science and AI researcher at NYU’s Stern School of Business.
“OpenAI has just become a victim of its own success,” Dhar says. “I don’t know if they really expected to get to this point this quickly, but here they are.”
OpenAI’s board of directors exercises such power within the company because it answers to no one and is not bound by a fiduciary duty to help shareholders achieve a return on their investment. Even other big-name investors, including prominent venture capital firms like Sequoia Capital, a16z and Tiger Global, have no say in the company’s decision-making.
These venture capital firms, like Microsoft, are not accustomed to remaining passive in their investments and may begin to exert more influence through other channels. They could attempt to exert private or public pressure, as a16z founder Marc Andreesen did. tweet cryptic messages. Investors could withdraw future financing commitments, although this would depend on the terms of each of their initial transactions. And Microsoft has an even more important asset: deny access to the computing resources that power OpenAI technology.
“Usually, those who have money have a lot to say,” Brenner says. At OpenAI, “technically, they don’t have much say in terms of governance structure, but they have a lot of say because they provide the capital.”
Can OpenAI investors do anything?
OpenAI’s board removed Altman after alleging he was not “always candid” in his communications, without providing details. OpenAI Chairman and President Greg Brockman did not know the meeting to fire Altman was going to take place, according to a post on. Even that is unusual in itself, because board chairs typically dictate when and where board meetings will take place. In fact, Brockman was removed from the board by his fellow directors shortly after Altman’s firing. He leave quickly upon hearing the news.
Yet the outcry over the firing later led to days of tense negotiations, as OpenAI’s board tried to find a way to reinstate Altman and Brockman to the organization. Newly appointed Interim CEO Mira Murati pushed to rehire the two in different roles, according to Bloomberg. Instead, the board made another surprising decision by hiring yet another interim CEO to replace Murati: Twitch founder Emmett Shear.
The board of directors is now facing a real mutiny from its employees. More than 700 of OpenAI’s approximately 750 employees have signed a letter stating that they will resign if the board does not resign and reinstate Altman and Brockman.
THE New York Times reports that Sutskever was concerned that Altman was moving too quickly to commercialize the technology, without considering the risks. He has since changed his mindlending support to Altman’s return.
Because OpenAI’s investors have no say in its governance, they have limited recourse to remove board members, which they could have done in a more traditional structure. Normally, if a board of directors makes decisions that shareholders believe are ineffective, they can be removed from office. In the case of OpenAI, this is not allowed, which strengthens the position of the board of directors.
The board can even make an unpopular decision, as it did in firing Altman, who risks a mass defection of hundreds of employees. Normally, a board of directors with a fiduciary responsibility to shareholders would not make a decision that could result in such a brain drain. If “the talent pool leaves the company or is laid off, it calls into question the entire company,” Brenner says. “This is going to leave a lot of questions going forward. Where does the technology reside? And what can leaders do who end up leaving the company in another configuration?
OpenAI investors are unlikely to be happy with such an exodus of talent. The board “basically handed its intellectual property to Microsoft on a platter,” Dhar says.
At Bloomberg, Nadella said Microsoft would welcome all former OpenAI employees. “Anyone who works at OpenAI and wants to go somewhere else, we want them to come to Microsoft,” he said.
