Chaos erupted at OpenAI as the unexpected ousting of the CEO sent shockwaves through the company and raised concerns among investors about its future impact. OpenAI, a startup known for its ChatGPT language model, was initially established as a US not-for-profit organization in 2015 by Sam Altman, Elon Musk, and other investors. However, the unique corporate structure designed to safeguard against rogue AI and protect humanity ended up becoming a source of turmoil.
Altman, who admitted to having limited experience with nonprofits, never could have anticipated the dramatic turn of events this week. Four directors on OpenAI’s nonprofit board suddenly fired him as CEO, while also removing the company’s president as chairman of the board. The bylaws established by Altman and his cofounders, along with a restructuring in 2019 that allowed massive investments from Microsoft, granted a small group of individuals without financial stakes in the company the power to disrupt the project at will.
Efforts to reinstate Altman as CEO and reshape the board encountered obstacles regarding the role of existing directors in selecting their successors. Investors, including prominent firms like Khosla Ventures, expressed surprise at Altman’s firing. Khosla Ventures, which holds a significant stake in OpenAI, as well as Andreessen Horowitz and Sequoia Capital, with smaller shares, were caught off guard. However, these firms declined to comment on the matter.
According to sources familiar with the situation, some investors had previously expressed concerns about the independent directors on OpenAI’s board lacking expertise in corporate governance. However, their worries centered more around potential shortcomings in oversight rather than aggressive actions like the removal of Altman. One source stated, I never expected them to be activists.
The 11-page bylaws established by OpenAI in January 2016 bestowed the board members with exclusive authority to elect and remove fellow directors, as well as determine the board’s size. The rules also allowed a majority of the board to take action without prior notice or a formal meeting, as long as written consent was provided by a majority of board members.
Nathan Benaich, general partner of Air Street Capital and coauthor of the State of AI report, commented on OpenAI’s corporate structure. He noted that while the structure aimed to support cutting-edge research through substantial equity investments, it ultimately clashed with the realities of corporate dynamics. Benaich described it as an experiment defying corporate physics that ultimately succumbed to those very forces.
As OpenAI navigates this tumultuous period, it remains to be seen how the company will reconcile the unexpected leadership changes and the concerns raised by investors. The outcome of the attempts to reinstate Altman and reshape the board will likely shape the future direction of OpenAI.
