The unique organization of OpenAI left Sam Altman exposed and caught off guard on Friday when he was suddenly dismissed from his CEO role. This organizational set up was the reason why, as he stated on Saturday, he felt "quite disadvantaged."
OpenAI's unexpected corporate model lessened Sam Altman's status as CEO and left him exposed to shock on Friday when he was quickly removed from the organization. It's infrequent to observe creators removed from a firm they served to co-establish. For example, at Uber, originator Travis Kalanick was just constrained out after a progression of reports on security issues and charges of separation and sexual harassment at the ride-sharing organization. In any case, Altman and co-organizer Greg Brockman, who additionally left OpenAI Friday, didn't have a similar degree of authority as Kalanick. "I have no value in OpenAI," Altman said during a May Senate hearing on A.I. Senator John Kennedy's response gave some insight. "You need a legal counselor or a specialist," Kennedy jested in a prescient joke.The organization's structure assisted with clarifying how he was left in a powerless position that, as he said on Saturday, left him feeling "somewhat cheated." The board of directors wanted to keep OpenAI Global as a for-profit company so it could take on investments.
One way of looking at OpenAI's structure is like a waterfall. At the top is the board of directors, and at the bottom is OpenAI Global, the capped-profit company in which Microsoft invested billions and is the one for which Sam Altman became the global face. In between are several entities. At the very top of the waterfall sits OpenAI's board of directors, which is the ultimate decision body and is responsible for the dismissal of Altman. This body holds control over OpenAI Inc., the 501(c)(3) nonprofit charity that was formed to "ensure that safe artificial general intelligence is developed and benefits all of humanity" as stated on the company's website. It has precedence over any profit-generating obligation. There is also a holding company and another LLC called OpenAI GP, both of which give the board ownership or control over OpenAI Global. This is the company that receives investments and newsworthy developments like the ChatGPT. It is important to note that OpenAI Global had no control and was owned or controlled by all the other entities. The for-profit nature of OpenAI Global is so it can take on investments, which is what the board of directors wanted.
In 2019, OpenAI established its capped-profit subsidiary OpenAI Global, in order to draw in investors and employees with "startup-like equity." To manage how these investments were rewarded, they adopted a capped-profit system - 100x the initial investment was the maximum return. This capped-profit approach allowed OpenAI to attract top talent, while still keeping their mission to control the development of Artificial General Intelligence their primary focus. Sam Altman, who formerly held the CEO position, was removed in 2020, yet the underlying mission of OpenAI remained.
Altman had a seat on OpenAI's board and was the most recognizable figure affiliated with the company. Despite having made a small investment through a YCombinator fund (he was its former president), he didn't have any equity. This lack of ownership meant that he had little control if any counter-measures were taken against him - a fate he jokingly alluded to on Friday evening by saying "If I start going off, the OpenAI board should go after me for the full value of my shares."
This absence of equity upset some investors, who felt that, even though Altman had made public statements about his dedication to OpenAI, it demonstrated a lack of commitment to the organization. Founders of later-stage companies often use a dual-class share structure to protect themselves from losing control of their company; this can include outsize voting rights, guaranteed board seats, and other governance provisions. Sadly, Altman didn't have these protections.
X reported that Altman had been made aware of his removal from the company via a text from OpenAI's chief scientist, Ilya Sutskever, the day before a virtual board meeting took place on Friday noon. This, coupled with him not having equity, may have suggested to investors that he had little "skin in the game."
At Uber, Kalanick, the former CEO, was forced to step down due to negative reports of the company's workplace culture and other controversies. OpenAI, however, hasn't seen such a storyline. Regardless, Altman didn't have any support on the board, which comprised three outside directors and three OpenAI executives, none of them representing its biggest investor, Microsoft. It is unknown what the next steps are for Altman or OpenAI; it has been suggested that litigation is possible, given the unexpectedness of his termination. The trial, should it take place, will be watched closely by some of Silicon Valley's most influential law firms, who will have previously offered advice to OpenAI or its investors.
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