U.S. markets closed
  • S&P 500

    -17.84 (-0.39%)
  • Dow 30

    -70.13 (-0.19%)
  • Nasdaq

    -83.20 (-0.58%)
  • Russell 2000

    -3.99 (-0.21%)
  • Crude Oil

    -3.12 (-4.31%)
  • Gold

    +7.40 (+0.36%)
  • Silver

    -0.30 (-1.21%)

    -0.0035 (-0.32%)
  • 10-Yr Bond

    -0.0500 (-1.20%)

    -0.0034 (-0.27%)

    +0.2470 (+0.17%)
  • Bitcoin USD

    -111.74 (-0.25%)
  • CMC Crypto 200

    +648.21 (+267.11%)
  • FTSE 100

    +25.54 (+0.34%)
  • Nikkei 225

    +670.08 (+2.04%)

Inside OpenAI’s weird governance structure

“WHICH WOULD you have more confidence in? Getting your technology from a non-profit, or a for-profit company that is entirely controlled by one human being?” asked Brad Smith, president of Microsoft, at a conference in Paris on November 10th. That was Mr Smith’s way of praising OpenAI, the startup behind ChatGPT, and knocking Meta (META), Mark Zuckerberg’s social-media behemoth.

In recent days, OpenAI’s non-profit governance has looked rather less attractive. On November 17th, seemingly out of nowhere, its board fired Sam Altman, the startup’s co-founder and chief executive.

Mr Smith’s own boss, Satya Nadella, who heads Microsoft, was told of Mr Altman’s sacking only a few minutes before Mr Altman himself. Never mind that Microsoft is OpenAI’s biggest shareholder, having backed the startup to the tune of over $10 billion.

SAN FRANCISCO, CALIFORNIA - NOVEMBER 06: Microsoft CEO Satya Nadella (R) speaks as OpenAI CEO Sam Altman (L) looks on during the OpenAI DevDay event on November 06, 2023 in San Francisco, California. Altman delivered the keynote address at the first ever Open AI DevDay conference. (Photo by Justin Sullivan/Getty Images)
Microsoft CEO Satya Nadella (R) speaks as then-OpenAI CEO Sam Altman (L) looks on during the OpenAI DevDay event on November 06, 2023 in San Francisco. (Justin Sullivan/ Getty Images) (Justin Sullivan via Getty Images)

By November 20th, the vast majority of OpenAI’s 700-strong workforce had signed an open letter giving the remaining board members an ultimatum: resign or the signatories will follow Mr Altman to Microsoft, where he has been invited by Mr Nadella to head a new in-house AI lab.

The goings-on have thrown a spotlight on OpenAI’s unusual structure, and its even more unusual board. What exactly is it tasked with doing, and how could it sack the boss of the hottest ai startup without any of its investors having a say in the matter?

The firm was founded as a non-profit in 2015 by Mr Altman and a group of Silicon Valley investors and entrepreneurs including Elon Musk, the mercurial billionaire behind Tesla (TSLA), X (formerly Twitter) and SpaceX. The group collectively pledged $1 billion towards OpenAI’s goal of building artificial general intelligence (AGI), as AI experts refer to a program that outperforms humans on most intellectual tasks.

After a few years, OpenAI realised that in order to attain its goal, it needed cash to pay for expensive computing capacity and top-notch talent—not least because it claims that just $130 million or so of the original $1 billion pledge materialised.

Sam Altman, right, then CEO of ChatGPT maker OpenAI, and Mira Murati, chief technology officer, appear at OpenAI DevDay, OpenAI's first developer conference, on Monday, Nov. 6, 2023 in San Francisco. The board of Open AI says it has pushed out Altman and appointed Murati as interim CEO role effective immediately. (AP Photo/Barbara Ortutay)
Sam Altman, right, then CEO of ChatGPT maker OpenAI, and Mira Murati, CTO, at OpenAI DevDay on Nov. 6. (AP Photo /Barbara Ortutay) (ASSOCIATED PRESS)

So in 2019, it created a for-profit subsidiary. Profits for investors in this venture were capped at 100 times their investment (though thanks to a rule change this cap will rise by 20% a year starting in 2025). Any profits above the cap flow to the parent non-profit. The company also reserves the right to reinvest all profits back into the firm until its goal of creating AGI is achieved.

And once it is attained, the resulting AGI is not meant to generate a financial return; OpenAI’s licensing terms with Microsoft, for example, cover only “pre-AGI” technology.

The determination of if and when AGI has been attained is down to OpenAI’s board of directors. Unlike at most startups, or indeed most companies, investors do not get a seat. Instead of representing OpenAI’s financial backers, the organisation’s charter tasks directors with representing the interests of “humanity”.

Until the events of last week, humanity’s representatives comprised three of OpenAI’s co-founders (Mr Altman, Greg Brockman and Ilya Sutskever) and three independent members (Adam D’Angelo, co-founder of Quora; Tasha McCauley, a tech entrepreneur; and Helen Toner, from the Centre for Security and Emerging Technology, another non-profit).

WASHINGTON, DC - JULY 21: President of OpenAI Greg Brockman listens as U.S. President Joe Biden gives remarks on Artificial Intelligence in the Roosevelt Room at the White House on July 21, 2023 in Washington, DC. President Biden gave remarks to reporters before a meeting with seven leaders of A.I. companies that Biden said would consist of a discussion of new safeguarding tactics for the developing technology. (Photo by Anna Moneymaker/Getty Images)
Now former president of OpenAI Greg Brockman at the White House on July 21, 2023. (Anna Moneymaker/ Getty Images) (Anna Moneymaker via Getty Images)

On November 17th, four of them—Mr Sutskever and the three independents—lost confidence in Mr Altman. Their reasons remain murky but may have to do with what the board seems to have viewed as pursuit of new products paired with insufficient concern for AI safety.

The firm’s bylaws from January 2016 give its board members wide-ranging powers, including the right to add or remove board members, if a majority concur. The earliest tax filings from the same year show three directors: Mr Altman, Mr Musk and Chris Clark, an OpenAI employee. It is unclear how they were chosen, but thanks to the bylaws they could henceforth appoint others.

By 2017, the original trio were joined by Mr Brockman and Holden Karnofsky, chief executive of Open Philanthropy, a charity. Two years later the board had eight members, though by then Mr Musk had stepped down because of a feud with Mr Altman over the direction OpenAI was taking. Last year it was down to six. Throughout, it was answerable only to itself.

This odd structure was designed to ensure that OpenAI can resist outside pressure from investors, who might prefer a quick profit now to AGI for humankind later. Instead, the board’s amateurish ousting of Mr Altman has piled on the pressure from OpenAI’s investors and employees. That tiny part of humanity, at least, clearly feels misrepresented.

© 2023 The Economist Newspaper Limited. All rights reserved.

From The Economist, published under licence. The original content can be found on