Investors in OpenAI, the parent company of generative artificial intelligence application ChatGPT, are considering legal action against the company's board, following the removal of CEO Sam Altman, as per a Reuters report quoting sources.
OpenAI's investors are concerned about a mass exodus of employees following Altman's ouster, they told the news agency. Notably, more than 500 of the company's 700 employees had written to the board threatening to leave if Altman was not reinstated.
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The sources told Reuters that investors are consulting with legal advisors to explore their available options. However, it remains uncertain whether any legal action against OpenAI will be pursued.
Most of the investors are worried that their significant investments in OpenAI may go bust if the start-up crumbles post Altman's unceremonious exit. As a leader in its field, OpenAI is the "crown jewel" in many of these investor's portfolios and the looming uncertainty is making them uncomfortable, the report noted.
OpenAI did not respond to queries, as per the report.
In terms of ownership, Microsoft holds a 49 percent take in OpenAI's for-profit arm, followed by employees and stakeholders who own another collective 49 percent, and the remaining 2 percent is with OpenAI's non-profit parent, as per the Reuters report quoting data from Semafor.
OpenAI's board dismissed Altman, citing a breakdown in communication, as detailed in an internal memo obtained by Reuters. Subsequently, the majority of OpenAI's workforce, totaling over 700 employees, threatened to resign unless the board was replaced.
Due to OpenAI's ownership structure, its control lies with the non-profit parent – this is unlike a typical venture capital (VC) backed company. The non-profit holds humanitarian interests above sole investor interest and thus it is employees and not investors who could hold the most sway on the board, legal experts told the agency.
Legal experts also suggest that while nonprofit boards have obligations, they also possess significant flexibility in making leadership decisions. OpenAI's corporate structure, utilising a limited liability company as its operational entity, could further protect the nonprofit's directors from investor actions, narrowing the prospects of legal recourse.
Even if investors pursue legal action, experts caution that their case may be weak. Companies generally enjoy considerable discretion in making business decisions, even if these decisions yield unfavorable outcomes. This flexibility was highlighted by the example of Apple's dismissal of Steve Jobs in the past, only to reappoint him later.
Investors, despite their concerns and potential losses, might thus face an uphill battle in seeking legal redress, given the unique governance structure and legal latitude enjoyed by OpenAI.
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Sam Altman, in a series of tweets, has communicated a message of unity and commitment towards OpenAI's ongoing operations and its partnership with Microsoft. Amid significant leadership transitions, Altman's tweets reflect an undeterred focus on the organisation's mission and its collaboration with the tech giant.
In one of the tweets, Altman underscored the shared priority between himself and Microsoft CEO Satya Nadella to ensure the flourishing future of OpenAI.
“We are committed to fully providing continuity of operations to our partners and customers. The OpenAI/Microsoft partnership makes this very doable," he wrote.
Altman’s tweets painted an optimistic picture of teamwork and shared goals. The message of cohesion comes at a crucial time, as the company navigates through the restructuring of its leadership.
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