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Boardroom Decisions at OpenAI: Strategic Move or a Major Governance Misstep?

Over the weekend of Nov. 17, 2023, we observed a remarkable sequence of seismic events that have fundamentally altered the AI industry. The OpenAI board made the significant decision to remove its CEO, Sam Altman, citing philosophical differences. The decision caused turmoil within the company’s culture and posed a potential risk to shareholder value, with OpenAI currently estimated at an $80 billion valuation. With all this in mind, OpenAI announced early morning Nov. 22 that it would be bringing Altman back as CEO of OpenAI. He will now report to a new board after the ouster of the board that replaced him on Nov. 17. The new board will include former Salesforce co-CEO Bret Taylor and former White House adviser and Harvard University president Larry Summers. Despite the return of Altman, the decisions made by the former OpenAI board merit exploration.

Apple Revisited?

In 1985, Steve Jobs was dismissed from Apple. Despite his visionary leadership, Jobs allegedly created a toxic environment and was abusive to employees, factors that, along with a deflated stock price and poor Macintosh sales, contributed to his ouster by the board. John Sculley, whom Jobs had brought into Apple and who would later become CEO, eventually recognized Jobs’ effective leadership, calling him “the best CEO ever.” Financially, when Steve Jobs returned to Apple, the company had lost about $1 billion on $7 billion in revenue and was valued at approximately $4 billion. Jobs then revolutionized the home computer market with the iMac and introduced the iPod, iPhone and App Store, changing the way the world communicates and relies on technology. By 2022, Apple had become the world’s largest technology company, earning $394.3 billion in revenue.

The recent events at OpenAI, notably the temporary removal of CEO Sam Altman, bear a striking resemblance to historic corporate shifts. OpenAI’s groundbreaking platforms, including ChatGPT and DALL-E, have significantly transformed the global business landscape. Details about Altman’s dismissal are still emerging, but it appears there were philosophical differences regarding the safety of AI and its potential to exceed or replace human capabilities, juxtaposed against the platforms’ rapid evolution and growth. It seems Altman endeavored to balance these aspects, but not to the board’s satisfaction. As reported in The New York Times, “Mr. Altman’s departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities. The board no longer has confidence in his ability to continue leading OpenAI.”

“This situation highlights the importance of building a board with directors who possess preparation, experience and training to make decisions based on facts and performance, rather than personal opinions.”

Building the Right Board

OpenAI operates as a for-profit entity guided by a nonprofit board — a reflection of its origins. The board, which consisted of six members, held the authority to vote on leadership changes. The New York Times noted, “OpenAI’s four-member board of directors is a mix of respected AI researchers, tech executives and AI policy experts, including Ilya Sutskever, the company’s chief scientist and cofounder, and Adam D’Angelo, chief executive of the question-and-answer site Quora.”

This situation highlights the importance of building a board with directors who possess preparation, experience and training to make decisions based on facts and performance, rather than personal opinions. The Corporate Governance Institute emphasizes that a board must be adequately prepared and undergo appropriate director training. The board’s loyalty should extend not to one individual or solely to the bottom line, but to the long-term success of the business. This requires the board to be well-trained, understand the essentials of corporate governance and navigate through corporate disputes. The question arises whether, both in Apple’s case and now at OpenAI, the board was adequately prepared and trained.

The recent developments at OpenAI have raised questions about the board’s experience and training, particularly in their roles as directors of a private company. The apparent inexperience has seemingly led to significant repercussions for an organization that was rapidly advancing in the AI sector, outpacing giants like Google and Meta. Surprisingly, despite Microsoft holding a 49% stake in OpenAI, along with investments from several private equity firms, there seemed to be a lack of direct representation from these investors on the board. This oversight led to considerable concern among its stakeholders. In fact, it has been reported that several investors were contemplating legal action against the OpenAI board, indicating a deepening rift and potential governance issues.

“The recent developments at OpenAI have raised questions about the board’s experience and training, particularly in their roles as directors of a private company.”

The lessons learned here illustrate the importance of having a board that is not only well-versed in the company’s specific field but also capable of managing complex and multifaceted challenges of AI in a way that aligns with the company’s long-term vision and ethical standards. These skill sets should include:

Maturation and expertise. It’s crucial for board members to mature along with the company, acquiring the necessary expertise to understand and navigate the complexities of the industry (or being replaced by new board members who have such expertise). This is particularly important in dynamic fields like AI, where technological and ethical considerations are constantly evolving.

Balanced decision-making. The ability to objectively assess situations, balancing governance, transparency and shareholder value, is vital. Effective board members must weigh various factors, including ethical implications, market trends and long-term strategic goals, alongside immediate financial concerns.

Governance and transparency. Good governance practices and transparency are integral to maintaining trust among stakeholders, including investors, employees and the public. This is even more critical for companies like OpenAI, which operate at the forefront of technology with significant societal impact. As companies like OpenAI grow and navigate challenges, boards must be adaptable and forward-thinking.

Understanding and anticipating the “growing pains” of such a dynamic company is essential for guiding it through various developmental stages. Boards need to consider the interests of all stakeholders, not just shareholders. In the context of AI, this includes considering the broader societal implications of their decisions.

This piece was originally published here on Directors&Boards.com

Photo by Susan Q Yin on Unsplash