“Technology Giant Plans for CEO’s Departure”
OpenAI’s board members and Altman will need to navigate legal challenges, as they are currently named as defendants in a lawsuit by Musk aimed at preventing OpenAI from transitioning into a for-profit entity. Nonprofit law expert Ellis Carter has emphasized the importance of strategic decision-making to safeguard a non-profit organization from hostile takeovers.
Carter explains that ensuring a nonprofit is truly secure requires careful governance design, especially since nonprofit corporations lack stock and formal ownership. Currently, OpenAI’s board has the authority to resist acquisitions due to its non-profit status, which means it has no shareholders or voting members. However, there is concern about potential takeover attempts following the conversion of its for-profit subsidiary into a public benefit corporation.
Legal expert Rose Chan Loui suggests that OpenAI may grant its board members a special class of voting stock in the restructured for-profit entity, giving them superior rights over other equity owners. This move could potentially thwart takeover bids by private investors, including Microsoft, OpenAI’s largest investor. The specifics of these voting rights remain unclear, prompting further scrutiny.
OpenAI’s transition to a public benefit corporation would allow for the issuance of ordinary shares. This could lead to new investors acquiring equity interests and existing investors converting their limited profit interests into equity. The introduction of special voting rights could serve as a safeguard, empowering the board and existing shareholders to purchase additional shares at a discounted rate.
Despite the board’s authority, OpenAI remains vulnerable to external bids. Legally, the board is responsible for ensuring that artificial general intelligence benefits humanity. The organization has pledged to support projects aligned with its values and safety standards, even if they are ahead in developing AGI.
In summary, OpenAI faces complex legal challenges as it navigates its transition to a for-profit structure while striving to protect its mission of advancing AI for the greater good.
Once a nonprofit organization is registered, its board holds the responsibility to thoroughly evaluate any acquisition offers received and provide clear explanations for why such offers are turned down. Nonprofit entities are not typically targeted for hostile takeovers, especially not in the manner Elon Musk had envisioned – a surprise bid of $97.4 billion for OpenAI’s estimated $157 billion worth of intellectual property and other assets. Instead, nonprofits often encounter internal power struggles, such as the attack launched against the environmental group Sierra Club back in 2003 by opponents of immigration. To shield themselves from potential takeovers by members, nonprofits can grant special voting rights to board members, ensuring that these rights comply with the regulations of the state in which the charity is established, as outlined by nonprofit lawyer Frank DeVito in a blog post.
In 2015, Musk and Sam Altman jointly established OpenAI as a nonprofit organization. However, disagreements arose between Musk and the AI firm on the direction of the venture, leading Musk to depart and establish a rival AI company called xAI. Musk’s legal action to prevent OpenAI from converting into a for-profit entity revolves around his claim that his initial $45 million donation to launch the startup was contingent on OpenAI maintaining its nonprofit status. OpenAI contends that the transition to a for-profit structure is necessary to attract new investments.
Musk’s acquisition offer for OpenAI fell significantly short of the company’s current valuation. Japanese conglomerate SoftBank is planning a fresh investment of $40 billion, potentially valuing OpenAI between $260 billion and $300 billion, as per media reports. Altman publicly rebuffed Musk’s bid in a post on X, the social media platform formerly known as Twitter, which Musk purchased for $44 billion in 2022. Altman’s response read, “no thank you but we will buy Twitter for $9.74 billion if you want.”
OpenAI countered Musk’s bid in a court filing, highlighting the inconsistency between his takeover offer and his claim that OpenAI’s assets should not be exploited for profit. The board of OpenAI officially rejected Musk’s bid on February 14, with Bret Taylor, the chairman of OpenAI, stating, “OpenAI is not for sale, and the board has unanimously turned down Mr. Musk’s recent attempt to disrupt his competition.”
