When Sam Altman, Elon Musk, and other investors formed the startup behind ChatGPT as a US not-for-profit organization in 2015, Altman told Vanity Fair he had very little experience with nonprofits. “So I’m just not sure how it’s going to go,” he said.
He couldn’t have imagined the drama of this week, with four directors on OpenAI’s nonprofit board unexpectedly firing him as CEO and removing the company’s president as chairman of the board. But the bylaws Altman and his cofounders initially established and a restructuring in 2019 that opened the door to billions of dollars in investment from Microsoft gave a handful of people with no financial stake in the company the power to upend the project on a whim.
An attempt to restore Altman as CEO and replace the board ran into difficulty Sunday over the role of existing directors in choosing their replacements, Bloomberg reported.
Altman’s firing caught investors off guard, including prominent firms such as Khosla Ventures, which has a significant stake in OpenAI, as well as Andreessen Horowitz and Sequoia Capital, which have smaller slices of shares, according to two people familiar with the matter not authorized to speak to media about the startup. Spokespeople for Khosla, Sequoia, and Andreessen declined to comment.
One of the sources says some investors had previously feared OpenAI’s remaining independent directors—with little background in corporate governance—could end up failing in their oversight duties. Less thought was given to the possibility of aggressive action like that taken against Altman. “I never expected them to be activists,” the person says.
The 11-page bylaws OpenAI Inc. established in January 2016 give board members the exclusive right to elect and remove fellow directors and also to determine the board’s size. The rules also say that a majority of the board can take any action without prior notice or a formal meeting, as long as a majority of board members provide written consent.
Nathan Benaich, general partner of Air Street Capital and coauthor of the “State of AI Report,” says OpenAI’s corporate structure has proven to be at odds with the need to support cutting-edge research through huge amounts of equity investment. “It was an experiment to defy the laws of corporate physics, and it appears that physics won out,” he says.
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