OpenAI CEO Sam Altman has been unexpectedly ousted from the company, raising questions about the unusual structure of the organization. Altman’s removal from his position came as a surprise on Friday, leaving him feeling a little screwed, as he expressed. This situation is uncommon, as founders are usually not forced out of the companies they helped establish, such as Uber’s Travis Kalanick, for instance.
The structure of OpenAI contributed to Altman’s vulnerable position as CEO. Unlike Kalanick, Altman and co-founder Greg Brockman did not possess the same level of power. Altman disclosed during a Senate hearing in May that he had no equity in OpenAI. This lack of ownership left him with limited control and made him susceptible to unexpected developments.
OpenAI has an unconventional company structure, resembling a waterfall. At the top sits the board of directors, the ultimate decision-making body that controls OpenAI’s nonprofit entity, OpenAI Inc. Established with a mission to develop safe artificial general intelligence for the benefit of humanity, this nonprofit takes precedence over generating profits. The board, through a holding company and an LLC called OpenAI GP, exercises ownership or control over OpenAI Global, the for-profit subsidiary that received significant investment from Microsoft.
The inclusion of the for-profit subsidiary in the corporate structure was intended to attract top talent and investors with equity incentives. OpenAI implemented a capped-profit approach, limiting the potential returns for investors. However, the nonprofit’s mission of controlling artificial general intelligence supersedes the interests of the for-profit subsidiary, including investors and employees.
Altman’s lack of equity in OpenAI, despite being a co-founder, raised concerns among some investors and weakened his position. Founders of later-stage companies often employ dual-class share structures to safeguard their control. These structures grant founders or major investors more powerful shares with additional voting rights or governance provisions that protect them from being ousted. Altman did not have such protections, leaving him vulnerable to a boardroom coup.
Altman’s departure from OpenAI was swift and informed through a text message from OpenAI’s chief scientist, Ilya Sutskever. The small board, lacking experienced members, consisted of three external directors and three OpenAI executives until Altman and Brockman left. With no allies on the board, Altman had little chance of retaining his position.
The consequences of Altman’s removal and the future of OpenAI remain uncertain. Litigation may ensue given the abrupt nature of his departure. In any case, Altman’s ousting highlights the unique challenges faced by CEOs without equity in the companies they co-founded.
In conclusion, the unexpected removal of OpenAI CEO Sam Altman raises concerns about the company’s structure and the vulnerability of founders without equity. Altman’s lack of ownership in OpenAI left him open to surprise and diminished his control over the company. The repercussions of this surprising move and any possible legal actions will undoubtedly be closely monitored within the tech industry.
