OpenAIs unusual board could fire CEO Sam Altman without asking permission from anyonelike its deep-pocketed investor Microsoft

OpenAIs dramatic decision to fire its CEO Sam Altman on Friday, and the days-long power struggle that followed, was only possible thanks to the unusual power held by its directors. The ChatGPT developers extraordinarily powerful board doesnt answer to shareholders or an ownership group, but instead to none other than all of mankind. Our primary fiduciary duty is to humanity, OpenAIs charter reads.

Microsoft CEO Satya Nadella, whos taken a central role in negotiating OpenAI and Sam Altmans future, now wants governance changes at the pioneering AI startup. Surprises are bad, he told Bloomberg during an interview Monday evening.

The surprise, in this case, is OpenAIs firing of Altman on Friday, without informing Nadella until a minute before it went public, reports Axios. OpenAIs unique corporate structure doesnt give deep-pocketed backers like Microsoft, which has invested $13 billion in the AI developer, seats on its board.

OpenAIs board can essentially take decisions unilaterally without conferring with investors, says Karen Brenner, executive director of law and business initiatives at NYUs Stern School of Business.

Nadella, who has in the meantime committed to hiring Altman at Microsoft, says he plans to remain in business with OpenAI but will now push for changes to its board structure.

In normal for-profit entities, investors usually have some ability to influence strategy, whether through governance rights and board seats. Not at OpenAI. Its unusual that when you form an entity to pursue a strategy, which requires an unusual amount of capital, that the people who provide the capital wouldnt have some degree of voice or control or oversight of the capital that they provide, Brenner says.

OpenAIs unique board structure comes from its founding as a nonprofit. In 2015, Altman, Greg Brockman, and current board member Ilya Sutskever, alongside other partners including Tesla CEO Elon Musk, started OpenAI as an AI research lab. By 2019, OpenAIs leadership realized it would need to raise moneyand likely huge sums of itto fund its research. To make that possible, OpenAI created a capped for-profit subsidiary.

A capped for-profit entity is already unusual. Companies are rarely in the habit of preemptively limiting their profits. But as a division of a nonprofit, whose goal is to ensure [artificial intelligence] is used for the benefit of all, OpenAI decided it didnt want investors to have an unfettered profit motive.

Part of the objective was to limit the financial upside potential and also keep close control over the social implications of this technology, Brenner says.

But OpenAIs massive success may be this strange structures undoing. The technologies the for-profit arm developed were so advanced that it eventually attracted the multibillion dollar investments from Microsoft and the Silicon Valley VCs who poured money into OpenAI. As it became more successful, investors and executives alike wanted to capitalize on the commercial opportunity of their work, according to Vasant Dhar, a data science professor and AI researcher at NYUs Stern School of Business.

OpenAI has just been a victim of its own success, Dhar says. I dont know whether they really expected to be this far along so quicklybut they are.

OpenAIs board wields such power within the company because it answers to no one and isnt bound by a fiduciary duty to help shareholders get a return on their investment. Even other big name investors, including top venture capital firms like Sequoia Capital, a16z, and Tiger Global dont have a say in the companys decision making.

These VCs, like Microsoft, arent used to being bystanders in their investments and may start to exert more influence through other channels. They could try to exert private or public pressure, as a16z founder Marc Andreesen did by tweeting cryptic messages.Investors could pull future funding commitments, although that would depend on the terms of each of their original deals. And Microsoft has an even bigger trump card: withholding access to the computing resources that power OpenAIs tech.

Usually the people with the money have a lot to say, Brenner says. At OpenAI they dont technically have a lot to say in terms of the governance structure, but they have a lot to say because they provide the capital.

OpenAIs board removed Altman after alleging that he was not consistently candid with his communications, without providing details. Board chair and OpenAI president Greg Brockman wasnt aware the meeting to fire Altman was going to take place, according to a post on X. Even that is unusual in its own right, as board chairs usually dictate when and where board meetings will happen. In fact, Brockman was removed from the board by his fellow directors shortly after Altman was fired. He promptly quit upon hearing the news.

Yet the outcry around the firing then led to days of tense negotiation, as OpenAIs board tried to figure out how to bring Altman and Brockman back into 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 now faces a full mutiny from its employees. More than 700 of OpenAIs roughly 750 employees have signed a letter stating they will quit 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 bring tech to market, without considering the risks. He has since changed his mind, throwing his support behind Altmans return.

Because OpenAIs investors dont have a say in its governance, they have limited recourse to remove board members, which they would have been able to do in a more traditional structure. Normally, if a board takes decisions that shareholders deemed ineffective they can get voted out of their role. In OpenAIs case this isnt permitted, strengthening the boards hand.

The board can even take an unpopular decision, like it did in firing Altman, that risks a wholesale defection from hundreds of employees. Ordinarily, a board with a fiduciary responsibility to shareholders wouldnt make a decision that could risk such a brain drain. If the talent pool walks out the door or is fired, then it calls the whole enterprise into question, Brenner says. Thats going to leave lots of questions going forward. Where does technology reside? And what can the executives who end up leaving the company do in another configuration?

OpenAIs investors are unlikely to be happy with such a major talent exodus. The board basically handed their IP to Microsoft on a platter, Dhar says.

To Bloomberg, Nadella said Microsoft would welcome any former OpenAI employees. Anyone else who is at OpenAI and wants to go somewhere else, we want them to come to Microsoft, he said.

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