OpenAI has adopted a corporate structure that is still largely untested to protect itself from hostile takeovers, and chief executive Sam Altman against outside interference.
The AI start-up that received $6.6bn of new funding last week plans to restructure into a public benefit company, a rare and new type of business model adopted by AI competitors including Anthropic, and Elon Musk’s xAI.
According to people familiar with company thinking, a key benefit of the PBC structure is that it can thwart unwanted acquisitions or activist demands. Microsoft or other parties could find themselves frustrated by an attempt to acquire OpenAI.
OpenAI’s PBC would have to balance the interests of stakeholders such as employees, society, and public benefit with those of its shareholders.
According to a person, this “multipronged fiduciary approach” would allow OpenAI to “safe harbour” activists who may claim that the company does not make enough money.
They added that it “gives [you] even more flexibility in saying ‘thanks’ for calling and wishing you a good day.”
The proposed changes are coming at a turbulent time for the rapidly-growing group. It is now one Silicon Valley’s largest companies after its latest fundraising, which was completed at , a $150bn valuation.
The new structure of the company will enable it to continue attracting investors, gain the capital needed to compete with well-funded competitors such as Google and pay for the costs associated to building powerful AI models.
The company has experienced growing pains. Altman was briefly removed from his position in a boardroom coup last year. In recent weeks, several senior staff members including the influential chief technology officers Mira Murati announced their departure. Musk, who helped co-found and finance OpenAI in 2015., is now suing the company, claiming that it abandoned its original mission to benefit humanity by agreeing to a multi-billion dollar partnership with Microsoft.
In the proposed restructuring, ChatGPT will retain an independent not-for profit entity that would have a stake and be independent of the PBC. This non-profit entity would have access research and technology, but only focus on OpenAI’s mission to benefit humanity.
A person familiar with the company’s thoughts said that the not-for profit would be led by a different executive than Altman. Altman would then lead the PBC, which would focus on technology development, product building and “everything else needed to make the business successful”.
People close to AI’s thought process said that no decisions had been made, and the board was still discussing them. Any changes would take some time.
One of them said: “OpenAI is committed to maintaining that social licence with a mission as well as a duty while developing cutting-edge technologies.”
OpenAI stated: “We are focused on building AI which benefits everyone and we work with our board to make sure that we’re in the best position to succeed in this mission. The non-profit will continue to exist.”
The PBC is a relatively new model. Delaware, the state where most companies are registered, adopted PBC legislation only in 2013, and changed provisions to make it more attractive in 2020. Fewer than 20 of the thousands publicly traded US companies are PBCs. Warby Parker Black Rifle Coffee, Veeva Systems and others are among them.
It has been popular among AI companies. Anthropic (the maker of the Claude AI Tool) and Musk’s xAI, are both PBCs. According to a person who is close to xAI, this means that the probability of xAI being sued is reduced if they do not act in their shareholders’ best interests.
Other groups have previously highlighted the activism defence provided by the PBC. Lemonade Insurance, an online insurer, said in filings with the Delaware Department of State that the PBC structure could make it easier for boards to reject hostile bids, even when the takeover offers the best short-term financial return to investors.
AI has been subjected to a lot of scrutiny, but the PBC model is still awaiting a serious test in court.
A number of US senators are concerned about the threat AI could pose to public safety and national defense. Experts say that if AI executives are called to Congress to testify on their companies, the PBC could be a good way for them to deflect criticism.
Jens Dammann is a professor of law at the University of Texas School of Law. He said that PBC allowed “more flexibility” in terms of a company’s obligation to maximize shareholder wealth.
He said that it was a deliberate way for the incumbent directors and management to consolidate their position. “If you can convince people that your company is a morally sound enterprise that offers very few restrictions, it will be attractive to entrepreneurs.”
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