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IF Insights: Sam Altman drama exposes OpenAI’s faulty corporate structure

IFM_Sam Altman
OpenAI's board reportedly lost confidence in Sam Altman's ability to lead the organisation

On November 17, news emerged about OpenAI, the poster boy of the tech revolution named ‘Generative AI’ firing its CEO Sam Altman. While the ChatGPT creator’s decision sent shockwaves in the industry, the developments which followed it, added more fuel to the fire, before being doused on November 22, with Altman’s return to the company again.

What Happened Exactly?

Emmett Shear, co-founder of video streaming site Twitch, took over the tech company’s leadership mantle after Sam Altman’s departure.

In the meantime, news broke out about Altman and Greg Brockman, OpenAI’s former president, joining Microsoft and leading the tech giant’s new advanced AI research team.

There were reports about Nadella, whose venture has put investments worth USD 13 billion in OpenAI (and holds a 49% stake in the AI company), not being consulted by the latter on Altman’s removal. Microsoft also uses OpenAI’s solutions like Bing Chat and Windows Co-pilot to improve its products.

OpenAI’s board reportedly lost confidence in Sam Altman’s ability to lead the organisation. Reports suggest Altman wanted to transform OpenAI from a non-profit into a commercially viable business, which brought him in direct confrontation with the board of directors, as the latter accused the former CEO of not being ‘candid in his conversations’. They felt that Altman was moving too quickly on the AI front, “Without sufficient concern to the safety implications of a technology that, left unchecked, could create content capable of harming the public.”

However, OpenAI’s Chief Operating Officer Brad Lightcap dismissed the above notion behind Sam Altman’s removal, while reiterating the ‘communication breakdown’ factor behind their drastic action.

While OpenAI replaced Altman with Mira Murati (the key brain behind the ChatGPT) as the interim CEO, she made an effort to bring back Altman and Greg Brockman. The reconciliation failed then as Altman demanded the removal of the existing board members.

Some 743 out of 770 OpenAI staff, in an open letter, asked the board to resign, while questioning the latter’s competence, apart from accusing it of undermining the AI venture’s ground-breaking works.

On November 22, Sam Altman came back as the OpenAI CEO. The new board of directors will now be led by former Salesforce co-CEO Bret Taylor, former United States Treasury Secretary Larry Summers and Quora CEO Adam D’Angelo.

The whole episode pulled down the company’s brand value rapidly. In the 2023 beginning, OpenAI took everyone by surprise by launching ChatGPT. By the end of the year, the company surprised the analysts again, not in a good way though.

Scrapping Through Mysteries

The board ruled out anything related to OpenAI’s financial, business, safety, or security/privacy practices behind ganging up against Sam Altman. Analysts believe that the decision-makers acted out of fear that OpenAI is developing its products too hastily.

OpenAI’s governance structure gave its board the power to rein in its for-profit arm. The directors’ primary duty was to serve the company’s founding mission of ensuring that AI benefits the entire humanity.

However, one feels that the recent interviews of OpenAI cofounder and chief scientist Ilya Sutskever about the venture anticipating a technology breakthrough that may come with ‘safety concerns’ might have forced the board to press the panic button.

However, Shear, who took over OpenAI’s reign for a brief period, stated on his X account, “The board did not remove Sam over any specific disagreement on safety.”

In fact, Ilya Sutskever himself quashed the possibility of the board acting out of fears regarding Altman not taking proper care with OpenAI’s technology.

Sam Altman used to sit on OpenAI’s board alongside Brockman, Sutskever, Adam D’Angelo (CEO of Quora), Tasha McCauley (heading GeoSim Systems) and Helen Toner (an expert on AI and foreign relations at Georgetown’s Centre for Security and Emerging Technology). McCauley is one of the core heads of the United Kingdom board of Effective Ventures, a group affiliated with effective altruism, and Toner also worked for the US-based effective-altruism group Open Philanthropy.

The appointment of these ‘outsiders’ was made to fulfil Sam Altman’s vision of making OpenAI a “non-profit counterweight to corporate AI development labs”. However, in 2019, Altman transformed it into a for-profit unit to draw commercial investors, before launching ChatGPT in 20222-end. What started as a research lab became a professional tech company that partnered with Google and other similar ventures to disrupt the market.

In November 2023, OpenAI hosted its first developer conference, where Sam Altman announced an app store for chatbots. Did the board see red in these developments? No one knows.

While Shivon Zilis, a long-time associate of Elon Musk, and former American Congressman Will Hurd joined the OpenAI board between 2019-21, things changed in 2023, as the duo left the boat.

The departures restricted OpenAI’s board to just six directors, one less than the maximum allowed in its original bylaws. Despite Brockman, Ilya Sutskever, and Altman still remaining as members of the group, it got evenly split among executives and ‘independent directors’.

As per the reports, Sutskever, on November 17, informed Sam Altman about his removal from the board shortly before a public announcement of the changes. Ilya Sutskever was also concerned about his diminished role inside OpenAI and Altman’s fast-paced commercialisation of its technologies.

As per The Wired, the board functioned as intended (as an entity independent of the for-profit company and empowered to act to accomplish OpenAI’s overall mission). Ilya Sutskever and the three independent directors formed the majority needed to make the leadership changes, while following the organisational bylaw which allows for the removals of any director, including the chair, by his/her fellow colleagues with/without a cause.

Ilya Sutskever, then “deeply regretted” his role in the board’s actions, which was seen as contradictory to his earlier stance of OpenAI’s fast-paced commercialisation of its technologies compromising on the safety front.

Lesson Learnt From The Episode

In 2015, while creating OpenAI, Sam Altman and his cofounders saw it as a non-profit counterweight to corporate AI development labs. Back then, he told Vanity Fair about having very little experience with non-profits.

While he tried to balance out the board’s structure with a good mix of Silicon Valley professionals and people from philanthropic backgrounds, it didn’t work ultimately. The experiment defied the basics of ‘Corporate Governance’ and this doesn’t augur well with a tech start-up, which has ventures like Microsoft and Andreessen Horowitz as key investors.

The same company bylaws, that opened the door to billions of dollars in investment to the company in 2019, also gave the independent directors with no financial stake the power to determine how OpenAI will be run.

While the independent directors felt that OpenAI was rushing with their product developments, Altman himself in September 2023 said, “If we’re at a speed of 10 right now, a pause is reducing to 0. I think we should aim for a 1-2 instead,” thereby sharing similar concerns.

Sam Altman now needs to ensure that the new board gets run by the A-Z of corporate governance, instead of depending on ‘Independent Directors’, who with little background in business administration, can come with the risk of compromising their oversight duties by taking crucial calls based on their superficial way of seeing things.

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