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OpenAI operates as a hybrid model, combining nonprofit and corporate elements. In this context, a management expert delves into the workings of this model and its role in the upheaval surrounding the brief removal of CEO Sam Altman.

The board of OpenAI, the entity behind the widely-used artificial intelligence tools ChatGPT and DALL-E, dismissed its CEO, Sam Altman, in late November 2023. The aftermath saw a tumultuous reaction from investors and employees. Within five days, the chaos subsided, with Altman returning to OpenAI amidst staff celebration, and three board members who had pushed for his removal resigning.

The structure of the board, characterized by a nonprofit board of directors overseeing a for-profit subsidiary, appears to have contributed to the unfolding drama. As a scholar specializing in organizational accountability, governance, and performance, I aim to elucidate how this hybrid model is intended to function.

Hybrid Governance Explained Sam Altman co-founded OpenAI in 2015 as a tax-exempt nonprofit with a mission to build artificial general intelligence (AGI) that is safe and benefits humanity. To secure more capital beyond charitable donations, OpenAI established a holding company, allowing it to attract investments for a for-profit subsidiary.

The “hybrid governance” structure was chosen to uphold the social mission while leveraging market dynamics for growth and revenue. This approach blends profit with purpose, enabling OpenAI to raise billions from investors seeking financial returns while balancing commerciality with safety and sustainability.

Major investors, such as Microsoft with a 49% stake after a $13 billion investment, lack traditional board seats. Profits returned to investors are capped at around 100 times the initial investment, with the structure designed to revert to a nonprofit once this threshold is reached. This design aims to prevent veering from the mission and reckless pursuit of profits.

Other Hybrid Governance Models Various hybrid governance models exist. For instance, the Philadelphia Inquirer, a for-profit newspaper, is owned by the Lenfest Institute, a nonprofit, maintaining journalistic integrity while attracting investments. Patagonia, known for outdoor gear, permanently transferred ownership to a nonprofit trust, channeling all profits into environmental causes.

Anthropic, an OpenAI competitor, also employs a hybrid governance structure with distinct governing bodies—a corporate board and a long-term benefit trust. As a public benefit corporation, Anthropic’s corporate board considers interests beyond owners, including the general public. BRAC, a large NGO founded in Bangladesh, follows a model similar to OpenAI’s, where a nonprofit owns for-profit businesses.

Board Clash with Altman In hybrid governance, the nonprofit board’s primary duty is to ensure the organization’s mission is upheld, guarding against mission drift due to market pressures. Nonprofit boards have duties of obedience, care, and loyalty.

OpenAI’s board sought to exercise the duty of obedience when dismissing Altman, citing inconsistent communication. Additional rationales from anonymous sources remain unverified. Board member Helen Toner, who left amid the upheaval, had co-authored a research paper praising Anthropic’s precautions and criticizing OpenAI’s release of ChatGPT.

Mission vs. Money Attempts to oust Altman over mission concerns were not unprecedented. In 2021, AI safety head Dario Amodei unsuccessfully sought Altman’s removal over safety concerns following Microsoft’s $1 billion investment. The seesaw between mission and money is exemplified by Ilya Sutskever, an OpenAI co-founder, chief scientist, and a departing board member who initially supported Altman’s ouster but later expressed regret, signing an employee letter for Altman’s reinstatement.

AI Risks and Board Accountability An equally critical inquiry pertains to whether the board fulfilled its duty of care.

It seems reasonable for OpenAI’s board to scrutinize whether ChatGPT, released in November 2022, had adequate safeguards. Since then, large language models have caused disruptions across various industries.

As a professor, I have witnessed firsthand the challenges posed by AI, making it nearly impossible to detect student cheating on assignments. While this risk is noteworthy, AI’s potential for more severe consequences, such as aiding in designing pandemic-related pathogens or generating disinformation and deepfakes threatening social trust and democracy, is even more alarming.

On a positive note, AI has the potential to yield substantial benefits, like expediting the development of life-saving vaccines. However, the associated risks are catastrophic, and once this powerful technology is unleashed, there exists no known “off switch.”

Conflicts of Interest The third duty, loyalty, hinges on whether board members faced any conflicts of interest.

A crucial consideration is whether they stood to gain financially from OpenAI’s products, possibly compromising the mission for financial motives. Typically, nonprofit board members are unpaid, and those not employed by the organization lack a financial stake. However, until the recent upheaval, three of OpenAI’s six board members were paid executives—the CEO, the chief scientist, and the president of its profit-making arm.

Notably, while independent board members voted to oust Altman, the paid executives, who earned their livelihood from the entity they oversaw, supported him. Such financial ties are deemed conflicts of interest in the nonprofit sector.

Even if OpenAI’s reconfigured board strives to fulfill the mission of serving societal needs over maximizing profits, it might not be sufficient. The tech industry, dominated by for-profit giants like Microsoft, Meta, and Alphabet, necessitates robust regulation. Relying on AI creators for governance, given the high stakes involved, may not effectively address the problem.



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