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OpenAI, which was founded as a nonprofit, has halted its drift toward full for-profit-dom—for now.
The company recently announced that its nonprofit board would remain in control as it restructures its for-profit arm to a public benefit corporation, like Anthropic and xAI, which will allow it to issue stock.
OpenAI had previously announced its aim to convert to a public benefit corporation in a way that would have untethered it from the nonprofit board’s oversight. The about-face came amid pressure from an ex-employee campaign, a lawsuit from Elon Musk, and “constructive dialogue” with the offices of the California and Delaware attorneys general, as OpenAI board chairman Bret Taylor put it.
Rose Chan Loui, a nonprofit law expert at UCLA who has followed this case closely, said the sudden reversal was unexpected despite the growing public concern about the move.
“Honestly, I was surprised,” Chan Loui, founding executive director of the Lowell Milken Center on Philanthropy and Nonprofits, told Tech Brew. “I’m glad they’re listening, and I’m hoping that it also indicates that the current nonprofit board is truly trying to figure out how to fulfill their purpose and at the same time how to get what they need in terms of the marketplace.”
OpenAI was founded in 2015 as a nonprofit AI lab with a mission to develop AI to “benefit humanity as a whole, unconstrained by a need to generate financial return.” It switched to a hybrid structure in early 2019, with a for-profit company overseen by a nonprofit board.
It’s been steadily commercializing since, taking its first $1 billion investment from Microsoft that same year and turning GPT-3 into the lab’s first product the following year. But the drama of late 2023, when the board briefly fired Sam Altman, led Altman and investors to push for restructuring, per The New York Times.
Yet despite its moves toward a more conventional tech company, Chan Loui said the nonprofit board and original lofty mission continue to set OpenAI apart in the AI race.
“What’s unique about OpenAI is that the nonprofit, and that care for safe development, is within the corporate structure,” Chan Loui said. “In other words, they’ve got an inside position, a controlling position, that’s pretty hard to replicate with a typical AI watchdog organization.”
Going forward, Chan Loui will be watching to see whether the company follows up the announcement with more details about governance structure, such as how board successors are chosen and what say they have over hiring and firing. She’d also like to see “a well-defined process” for the board to get information about operations.
“The third thing that I would ideally want is some kind of outside monitoring body to ensure that the board really is fulfilling its fiduciary duty to protect that purpose,” Chan Loui said.
As for what that public benefit designation means for decision-making in practice, Chan Loui said, “not very much.” The designation technically allows for the consideration of altruistic goals beyond shareholder value. But “it’s not a legal commitment,” she said.
“A Delaware public benefit corporation is still very much a for-profit corporation,” Chan Loui said. “It’s purely aspirational. There’s nothing to tie you to the mast the same way that a charitable tax-exempt corporation’s purpose ties you to the mast.”
Chan Loui said the back-and-forth over OpenAI’s governance is far from over, however. Going forward, she’ll be watching what details come from the state attorneys general and the ongoing lawsuit from Musk.