Investors Fear Losses as OpenAI CEO Ousted
Investors in OpenAI, the technology startup behind ChatGPT, are facing the potential loss of hundreds of millions of dollars after the company’s board removed CEO Sam Altman, causing concerns about a mass exodus of employees. Sources familiar with the matter have revealed that some investors are now exploring legal options against the board.
These investors, who have significant stakes in OpenAI, are worried about the potential collapse of this highly valued startup within the generative AI sector. OpenAI, a crown jewel in many portfolios, has attracted substantial investment from venture capitalists. Microsoft is said to own 49 percent of the for-profit operating company, while other investors and employees control the remaining 49 percent.
OpenAI’s board took the decision to oust Altman, citing a breakdown of communications, which sparked outrage among the company’s more than 700 employees. In response, the majority threatened to resign unless the board was replaced. However, OpenAI’s unique structure, with a nonprofit parent company holding control over operations, raises unique challenges for investors seeking legal recourse.
The nonprofit parent company, OpenAI Nonprofit, was established with a core mission to benefit humanity, not the investors. As a result, employees have more leverage in pressuring the board compared to venture capitalists. While venture capitalists typically hold board seats or voting power in their portfolio companies, OpenAI’s nonprofit structure limits their influence.
Legal experts suggest that investors may struggle to mount a successful case against OpenAI. The company’s structure provides flexibility and autonomy to its directors, who have legal obligations to the organization but can make decisions within a broad range defined by those obligations. OpenAI’s usage of a limited liability company as its operating arm further insulates its directors from investor interference.
In past cases, companies have made decisions, such as firing visionary founders, that were within their legal rights despite potential negative consequences. Notably, Apple fired Steve Jobs in the 1980s before rehiring him a decade later.
The situation at OpenAI highlights the delicate balance between a company’s mission-driven goals and investor interests. While investors seek financial returns, organizations like OpenAI prioritize their core mission and governance. For now, it remains uncertain whether these concerned investors will proceed with legal action against OpenAI, but their exploration of legal options warrants close attention.
