An interesting turn of events led to a drastic change in the once-stable structure of OpenAI, founded by Elon Musk, Sam Altman, and other prominent investors. This led to the unexpected firing of Sam Altman as its CEO.
A hidden power distribution structure has been discovered under the corporate setup of OpenAI, which was initially designed as a non-profit entity. This power distribution allowed a few people to have a significant influence on the future of the innovative project based on AI.
Attempts made to restore Altman faced challenges, which showed the complexities of appointing and replacing directors in the organization.
In the latest development in OpenAI, CEO Altman has been removed from his leadership role by four directors, besides ousting the president of the company as the chairman of the board.
Prominent investors, including Sequoia Capital, Andreessen Horowitz, and Khosla Ventures, have been left scrambling for clarity due to the sudden shift in the company’s leadership.
Insiders in the industry were taken by surprise as the news broke, and certain investors didn’t hesitate to express their prior concerns about the governance of the company.
Besides, the news sparked speculations about the potential of the other independent directors, who seem to lack experience in corporate governance. One individual remarked, “I never expected them to be activists”.
An Insight into OpenAI’s Bylaws
Established in 2016, the 11-page bylaws of OpenAI reflect a unique framework. This structure grants certain exclusive rights to its board members, who can elect and remove directors.
Besides, the members need not hold formal meetings to make decisions. This peculiar structure was designed for OpenAI to carry out advanced research and attract substantial equity investment.
With the latest developments taking shape, this framework has come under scrutiny. Industry experts suggest that the experiment to defy traditional corporate norms may have reached its limits.
The General Partner of Air Street Capital, Nathan Benaich, commented on the corporate structure of OpenAI, stating, “It was an experiment to defy the laws of corporate physics, and it appears that physics won out”.
The Roots Of Governance Challenges In OpenAI
OpenAI has been going through governance challenges right from its early days when Musk and Altman, the original board members, tried to create a counterbalance to profit-driven AI labs.
As the board subsequently expanded, individuals leading the platform shared concerns about the risks brought about by powerful AI. The size of the board grew smaller over the years as several members quit the board following conflicts. This explains the backdrop of the recent crisis surrounding leadership.
Musk stepped down from the board following a feud over the direction in 2018.
In 2019, OpenAI established a subsidiary for profit to generate funding for its ambitious goals. This subsidiary obtained substantial funding from Microsoft, which eventually helped them take on ChatGPT and similar projects.
Despite the influx of venture capital and employees, the non-profit board retained ultimate control over the for-profit entity. This focussed on the commitment of the company to ensure a safe environment for developing AI to benefit humanity.
The contraction of the board size, along with several conflicts in 2023, led to the removal of Altman. While OpenAI is undergoing a transition in its leadership, this incident raises concerns about the viability of experimental corporate structures for carrying out research on AI.