The Consequences of the OpenAI SAGA Continue to Evolve
There has been a lot of news about OpenAI in the past few months.
The three objectives of this blog are: to 1) share the extraordinary risks of AI; 2) give a little history on the company OpenAI, as well as the stunning ouster and reinstatement of their CEO; and 3) most importantly, explore best practices for board members in case they encounter a situation similar to the ones faced by OpenAI’s board. We'll focus on two key aspects of board governance: first, when the board feels that communication from the CEO is not consistent and hampers their ability to fulfill their responsibilities; and second, the considerations involved in evaluating the removal of a CEO from office.
Risk to Society
There are significant benefits to AI, and there are also significant risks. Several luminaries have commented on the risks of AI.
“Elon Musk and Steve Wozniak are among hundreds of high-profile technologists, entrepreneurs and researchers calling on AI labs to immediately stop work on powerful AI systems, urging developers to step back from the “out-of-control race” to deploy ever more advanced products while we better assess the risks advanced artificial intelligence poses to humanity.”
At the May 2023 Senate subcommittee hearing on AI, “Elon Musk, who helped found OpenAI before breaking from the group, and dozens of tech leaders, professors and researchers urged artificial intelligence labs like OpenAI to stop the training of the most powerful AI systems for at least six months, again citing “profound risks to society and humanity.”"
In addition to Elon Musk, two other founders of OpenAI expressed concerns about the power of AI harming humanity.
In May 2023, “OpenAI’s CEO Sam Altman filed into a Senate subcommittee hearing room in Washington, DC, with an urgent plea to lawmakers: Create thoughtful regulations that embrace the powerful promise of artificial intelligence – while mitigating the risk that it overpowers humanity.”
“OpenAI cofounder Ilya Sutskever has long called for caution due to concerns AI could harm humanity.”
I believe we should all be concerned that the very founders of OpenAI see profound risks to society and humanity. The key is how to mitigate those risks.
OpenAI History
In case you are not familiar with OpenAI, they are an American artificial intelligence (AI) research organization consisting of the non-profit OpenAI, Inc. and its for-profit subsidiary OpenAI Global, LLC. One of their products, ChatGPT, was developed by OpenAI and was released on November 30, 2022.
Below is a high-level timeline of their journey:
- OpenAI was started as a non-profit organization on Dec 10, 2015
- At Elon Musk’s urging, Ilya Sutskever left Google in 2015 to become a cofounder and Chief Scientist at OpenAI
- OpenAI was founded in 2015 by Elon Musk and other tech investors, such as Sam Altman, Greg Brockman, and Ilya Sutskever
- Elon Musk stepped down from his role as CEO in 2018 due to conflicts of interest with Tesla Motors
- In 2019, OpenAI decided to transform from a non-profit to a for-profit company
- OpenAI as of January 2024, is a private company, and does not have a stock symbol as they are not (yet) publicly traded
- ChatGPT is anticipated to drive $200 million in sales in 2023, and $1 billion in 2024
- OpenAI is considering selling shares, there has been talk of a valuation of $90 Billion
That’s how fast AI is garnering attention - A $90 Billion valuation for a startup that was founded in 2015!
- Investors cannot directly invest in OpenAI in the stock market, but they can consider investing in companies that are partnering with or supporting OpenAI, such as Microsoft
- Microsoft invested $13B in OpenAI to enhance their products with the goal to give them a competitive advantage over competitors such as Google’s Bard
- Elon Musk was on the OpenAI board, and left in in January 2022
- Until November 17, 2023, Sam Altman was the CEO, Greg Brockman, the President and Ilya Sutskever, the Chief Scientist. All three were on the OpenAI’s board
- On November 17, 2023, the OpenAI board ousted Sam Altman, and demoted Greg Brockman
- Later that day Greg quit, along with several others
- The board “concluded that he (Sam Altman) was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.”
- http://tinyurl.com/mwrj57t
- The negative impact to Microsoft was immediate when their shares dropped on the same day
- The top two investors in OpenAI, Microsoft and venture firm Thrive Capital, started orchestrating efforts to reinstate Altman.
TIP: Don’t overlook the impact on your $13 Billion dollar public partner.
Best Practices
“Just as for any corporation, the board of directors of a nonprofit has three primary legal duties known as the “duty of care,” “duty of loyalty,” and “duty of obedience.””
Duty of Care includes investigating, asking questions, ensuring they, the board, is well-informed, remaining alert to potential concerns and problems, and fully understanding issues. In a non-profit, the board also needs to take care of the non-profit by ensuring prudent use of all assets. The board needs to apply the same duty of care that an ordinary prudent person would take in a similar situation.
Based on the statement from the OpenAI board, regarding inconsistent communications, and hindering their ability to exercise their responsibilities, I thought it would be interesting to ask OpenAI’s product, ChatGPT, “what are the repercussions if a board removes the CEO for not allowing them to perform their responsibilities?” Keep in mind, the free version of ChatGPT (which I use) can call on current events information as recent as January 2022, long before the CEO Ouster at OpenAI.
ChatGPT
ChatGPT
The removal of a CEO by the board can have significant repercussions, both for the company and the individuals involved. The specific consequences will depend on various factors, including the reasons for the removal, the terms of the CEO's employment contract, and the overall corporate governance framework. Here are some potential repercussions:
- Impact on Company Performance:
- A sudden change in leadership can disrupt the company's operations and potentially impact its financial performance.
- Investors and stakeholders may react negatively to leadership changes, leading to changes in stock value.
- Reputation and Investor Confidence:
- The removal of a CEO can affect the company's reputation, especially if the reasons for removal are not communicated clearly or are perceived as unjust.
- Investors may lose confidence in the company's stability and governance, leading to changes in the stock price and potential divestment.
- Legal Consequences:
- If the CEO has a contract specifying the terms of employment, the company may be required to fulfill contractual obligations, including severance pay and other benefits.
- The CEO may explore legal avenues if they believe the removal was wrongful or if their contractual rights were violated.
- Employee Morale and Stability:
- Leadership changes can create uncertainty among employees, affecting morale and productivity.
- The board must manage the transition carefully to minimize disruptions and maintain stability within the organization.
- Board Dynamics and Governance Challenges:
- The removal of a CEO can lead to challenges in board dynamics, particularly if the decision was not unanimous
- The board may need to work proactively to address any internal conflicts and ensure effective collaboration.
- Succession Planning:
- The board must have a well-thought-out succession plan in place to ensure a smooth transition and continuity in leadership.
- Failure to have a clear plan can contribute to uncertainty and instability.
- Regulatory Scrutiny:
- Regulatory bodies may scrutinize the circumstances surrounding the CEO's removal, particularly if there are concerns about corporate governance practices.
- The board must ensure that the removal complies with relevant laws and regulations.
- Shareholder Activism:
- Shareholders may express their dissatisfaction with the board's decision through activism, potentially calling for changes in the composition of the board.
- Market and Competitor Reaction:
- Competitors and the broader market may react to the leadership change, impacting the company's standing in the industry.
Boards must carefully consider the potential consequences and seek legal and governance advice before deciding to remove a CEO. Transparent communication about the reasons for the removal and a well-managed transition plan can help mitigate some of the negative repercussions.
ChatGPT doesn’t always get it right, but this is a very good summary of the actions that board members should consider if they are put in a similar situation.
When Sam Altman himself speaks of the “the dangers of "potentially scary" AI and the "critical" need to regulate it, the board has a right to be concerned.
To curb many of these risks, thankfully, Biden moved quickly on October 30, 2023, with the Executive Order on Safe, Secure and Trustworthy Artificial Intelligence.
On November 6, 2023, “During its first developer conference held in San Francisco on Monday, OpenAI unveiled a series of artificial intelligence tool updates, including the ability for developers to create custom versions of ChatGPT.”
“OpenAI emphasized the latest announcements are only part of what’s still ahead.”
Were statements made at that conference that concerned the board? Were the board and Chief Scientist trying to slow things down, and maybe were not aware in advance of this announcement or some of the things that Sam said at the developer conference? Maybe they were concerned about the risks associated with “custom versions” making it hard to provide proper oversight and control risks. We may never know the full story about why the board fired the CEO of OpenAI.
Maybe Sam Altman’s inconsistent communications hindered their ability to meet their primary legal duties including - Duty of Care. Maybe they were concerned about their ability to manage potential risks, or maybe the company was still investigating how to comply with the Executive Order on Safe, Secure and Trustworthy Artificial Intelligence.
It appears the board did not feel well informed. Were other options considered. Before making their decision to oust Sam Altman, did they investigate, ask questions, or consider the impact to the company, employees, partners, and investors?
Let’s go back to the ChatGPT response. Did the Board consider:
- Impact on Company Performance
- Reputation and Investor Confidence
- Legal Consequences
- Employee Morale and Stability
- Board Dynamics and Governance Challenges
- Succession Planning
- Regulatory Scrutiny
- Shareholder Activism
- Market and Competitor Reaction
There’s a lot of speculation, but it sounds like the board came to this decision to oust Sam Altman quickly without talking to their two largest shareholders- Microsoft or Thrive Capital. Those investors weren’t happy.
The OpenAI SAGA Continues
Sam Altman was ousted as CEO on Friday November 17, 2023. Many discussions ensued over the weekend.
- On Monday, Microsoft hired Altman to lead AI research
- On Monday, the interim CEO, CTO Mira Murati, was replaced with Twitch co-founder Emmett Shear as its new interim CEO
- More than 700 of the 770 OpenAI employees signed an open letter threatening to leave OpenAI for Microsoft, if Altman wasn’t brought back, and they asked the board to resign, a condition of Altman’s return
- After the revolt from employees, 3 of the 4 independent board directors agreed to resign with one remaining holdout, Adam D’Angelo and reinstate CEO Sam Altman
- Emmet Shear, Interim CEO, ran OpenAI for 72 hours before Sam Altman's return was confirmed
- On Tuesday, new board members were named
- The new board is chaired by former Salesforce co-CEO Bret Taylor. Some believe he will be in favor of profit and scaling rapidly
- Microsoft became a non-voting observer of the board
- Sam, Greg, and Ilya are no longer on the board
From Friday to Tuesday, there were a lot of dramatic twists and turns, and many more lessons were learned. I suspect there will be more news coming out on what was behind the board’s decision, and I suspect there will also be lots of unanswered questions.
More Best Practices
I asked ChatGPT for its thoughts on other options the board could have taken - “What are the options to an independent board director when their CEO does not allow them to perform their responsibilities?”
ChatGPT
ChatGPT
When an independent board director encounters a situation where the CEO is not allowing them to fulfill their responsibilities, it can be a challenging and delicate situation. Here are some options that an independent director may consider:
- Open Communication:
- Schedule a private meeting with the CEO to discuss concerns and seek clarification on the reasons behind the limitations.
- Express the importance of fulfilling their duties as an independent director in ensuring good corporate governance.
- Consult the Chairman or Lead Independent Director:
- If the board has a chairman or lead independent director, consult with them about the issue.
- Seek guidance on how to address the situation and whether there are mechanisms in place to resolve such conflicts.
- Legal Advice:
- Consult legal counsel to understand the rights and responsibilities of an independent director.
- Explore legal options if there are violations of corporate governance principles or if the CEO's actions are in breach of regulations.
- Use Board Committees:
- If applicable, utilize board committees (e.g., audit, governance, compensation) to address specific issues.
- Committees may have the authority to investigate certain matters independently of the CEO.
- Engage the Entire Board:
- Present concerns to the entire board during a board meeting, highlighting the impact on effective corporate governance.
- Encourage a collective discussion on how to address the issues and ensure that all directors can fulfill their responsibilities.
- Executive Sessions:
- Advocate for executive sessions without management present, where independent directors can freely discuss concerns and potential solutions.
- Shareholders and Stakeholders:
- If all else fails, and there are serious concerns about governance and the interests of shareholders, the independent director may consider engaging with major shareholders or stakeholders.
- Keep in mind that involving external parties can have significant consequences, and it should be approached cautiously.
- Resignation:
- In extreme cases where the director is unable to fulfill their responsibilities and believes that the situation is irreparable, resignation may be considered.
- A resignation can draw attention to governance issues, but it should be a last resort.
It's crucial for independent directors to navigate such situations with care, balancing their fiduciary duties with the need for effective communication and collaboration within the board. Seeking guidance from legal and governance experts can provide valuable insights into the specific circumstances and potential courses of action.
Once again, ChatGPT often provides great advice, as it is trained on a massive amount of publicly available text from the internet. This includes books, articles, websites, forums, and other sources, a vast amount of content.
As a board member what other actions might you consider if you are in a similar situation??
Make sure all members of the board look at the list of recommendations listed above from ChatGPT- they are good guidelines. In addition, do extensive research, and in every case, it is essential to seek guidance from legal and governance experts.
Here’s to lessons learned and best practices, with assistance from AI.
ABOUT PATRICIA WATKINS
Patricia Watkins is an experienced board member, Go-To-Market (GTM) Strategist and Sales Growth Expert. She has held senior leadership roles in Sales, Marketing, Alliances, and Channels, with Fortune companies including HP, Teradata, AT&T, NCR, and a number of start-ups in Silicon Valley. Patricia has led new teams starting at $0 million to existing teams delivering in excess of $800 million in sales.
She is currently an Independent Board Director on 1 public board, 1 private board, and she is on 4 Advisory Boards.
She is the #1 Amazon best-selling author of two books, Driving More Sales, 12 Essential Elements, and Land and EXPAND, 6 Simple Strategies to Grow Your Top and Bottom Line.
She graduated with a BBA from The University of Texas, and an MBA from Santa Clara University, both with honors.
Disclaimer: The views and opinions expressed in this blog are solely those of the authors providing them and do not necessarily reflect the views or positions of the Private Directors Association, its members, affiliates, or employees.