The last few days have seen a tornado sweep through the world of Artificial Intelligence (AI). On Friday, November 17, the board of OpenAI (the world’s leading AI company) fired their Chief Executive Sam Altman and co-founder and president Greg Brockman. The New York Times had reported that the board had concerns that Altman was not paying sufficient attention to the risks of OpenAI’s technology. Almost instantly, in response, 747 of 770 employees of OpenAI threatened to leave the company. In a related development, Microsoft’s CEO Satya Nadella promptly hired Altman and Brockman.
Let us establish some foundational knowledge. What is AI? As I’ve written in an earlier column, (‘AI, good, bad and ugly’, IE, June 10) in 1955, John McCarthy explained, “artificial intelligence is allowing a machine to behave in such a way that it would be called intelligent if a human being behaved in such a way.” Why should you, dear reader, care about the firing of the CEO of a tech company?
For starters, OpenAI has released a chatbot, aptly called ChatGPT, in which you can type in questions and receive written answers. ChatGPT is all the rage. It generates text responses to text prompts, can communicate in plain English and users can see the bot typing the answers to their questions in real time. As I’ve written previously (‘The chatty bot next door’, IE, February 4), the Harvard Business Review notes that what sets apart ChatGPT is its ability to communicate in simple English (or whatever other language you choose), that it’s open to the general public and can generate content very quickly.
ChatGPT and other AI programs similar to it enable the human-machine hybrid work mode that is slowly becoming popular. The success of ChatGPT, which was released in November 2022, had inspired Google to push the development of the Gemini AI program. These kinds of generative artificial intelligence have the ability to change how we work, what we create and what it will mean to be intelligent.
Sam Altman, a co-founder of Open AI, is not your usual profit-driven tech CEO. He sees the problems of AI. Altman has warned of the dangers of unregulated AI development and has noted that AI often gets things wrong, will replace jobs and can be used to spread misinformation. This current episode of the Altman saga is a sensational one. First, Altman got summarily and surprisingly fired by the board. Reports indicate that four of six board members wanted him gone, over concerns that he was not entirely candid over the safety of the fast growth of the AI.
Importantly, OpenAI has a rather unique governance form. Its governing board is not a for-profit one. Of course, Altman being forced out is not the first seismic shock in the tech world. Steve Jobs had been famously fired from Apple in 1985, before he made a comeback. This time around.
Altman’s removal put both the development of AI and the fate of Microsoft at stake. The Satya Nadella-run company, Microsoft, has invested over 13 billion dollars in OpenAI, and owns 49 percent of it. OpenAI was valued at roughly $80 to 90 billion a few months ago, and at the time of the board meeting, Altman was in the process of raising more funds through a sale of shares.
The removal of Altman immediately saw Microsoft shares falling by almost two per cent. Reuters reported that OpenAI’s planned sale of employee shares, which would value the company at around 86 billion, was put in jeopardy. By Sunday, November 20, Microsoft had hired both Altman and Brockman and announced that they would lead an advanced research lab at Microsoft, “setting a new pace for innovation”. It was a shrewd move — Microsoft’s stock stabilised.
OpenAI was created in 2015, with a non-profit structure, backed by, amongst others, Elon Musk. Its aim was to create safe AI technology. This column has previously discussed the threats to humanity from the unchecked development of generative AI with high intelligence (‘AI, good, bad and ugly’, IE, June 10) that many within the technology world have pointed to. As per its website, OpenAI has a rather unusual structure for a highly profitable tech company. It is incorporated as a non-profit public charity with a 501 C (3) designation in the United States. The board of this non-profit company also owns and controls a separate holding company for its employees and investors.
Additionally, the same board also controls a separate limited liability company (LLC) which is a capped profit entity. The capped profit meant that OpenAI’s backers’ returns were limited to 100 times the first round of investment. Microsoft and other large investors have infused funds into this LLC. Other corporate investors include Khosla Ventures, Infosys and Sequoia, among others. None of the board members who fired Altman had any equity investment in OpenAI.
In India, under the Companies Act, 2013, a board of directors is obliged to promote the objects of the company for the benefit of its members as a whole and for the best interest of the company, employees and shareholders, the community and protection of the environment. Similarly, in the US, at the OpenAI LLC, a Delaware-incorporated company which was the for-profit that investors pumped funds into, directors have a fiduciary duty of care and loyalty to make decisions in the best interests of the corporation.
Faced with the threat of most employees resigning, and the sale of shares being derailed along with corporate investors being frightened away, a deal was negotiated between the OpenAI board and Altman. As reported by the Wall Street Journal on November 21, Altman was restored as CEO but not permitted to rejoin the board of which he was a part. Some new board members were appointed, including Larry Summers, the former President of Harvard University and the US treasury secretary, and Bret Taylor, former CEO of SalesForce. But, OpenAI’s unusual corporate structure of a non-profit board governing a for-profit company that is used to attract investors will continue.
The Altman reinstatement is as much a story of corporate intrigue, as it is a tale of the recognition of the enormous commercial potential of AI. From within commercial law, it raises questions about the ideal corporate structure that should govern innovative tech companies that have the power to unleash life-altering products. Philosophically, it compels us to ask: If a machine can also be intelligent, then what does it mean to be human? But the Altman reinstatement also raises an existential question — if AI can threaten the human species, then how must board members, as humans and as fiduciaries of a commercial entity, act?
The writer is a Senior Advocate at the Supreme Court
ChatGPT and other AI programs similar to it enable the human-machine hybrid work mode that is slowly becoming popular. (Ilustration by C R Sasikumar) 
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