OpenAI Board Failure: Not The Exception -- Just Very Public!

The recent OpenAI chaos is a spectacular and public example of what widely exists in private at many U.S. corporations: weak board governance. Prior to OpenAI the most recent example, which quickly faded into the background, was the Silicon Valley Bank board, which was shockingly weak and inept.

The OpenAI story is entertaining to read because of just how poorly the board has handled the entire debacle and how vividly and quickly things blew up. Whereas SVB's board cooked itself on a slow burning stove over the course of a year, OpenAI used a nuclear microwave to fry themselves in nano-seconds.

There are two different issues that business owners need to get right to avoid this kind of outcome: (a) how to structure your board and (b) who you place on the board. Mark Zuckerberg is an example of a founder that structured his company to ensure he had control, which therefore limits the board to a much narrower function. For that reason, it is unlikely that outside of extreme circumstances (fraud, incapacitation etc) Mark will never have to deal with OpenAI type headlines.

However, where the distribution of power is desired, as was the case at OpenAI, then the "who" becomes more important, because the board will wield real power.

Too often, people stack boards with financial pimps "finpimps" (suits that corral and rent capital) or personal allies.

The problem with finpimps is that while they may excel at gathering needed capital, they often lack in the leadership department and tend to take less interest in important things like culture, values, corporate governance and communication.

Likewise, history is replete with examples of people that are allies one day and enemies the next, and for some reason, as the financial numbers get bigger, so do the instances of shifting alliances.

The biggest problem, however, is one of omission: hiring finpimps and allies leaves a gaping hole in the area of corporate governance and leadership, both of which require character, insight and experience, and are an essential ingredient to the long-term success of any organization. Too often, when boards are formed, insufficient thought is given to their construction, taking a second seat to the excitement and energy being poured into the development and launch of the company's service or product.

While corporate governance will never be as exciting as AI (outside of exceptionally fantastic blow ups like OpenAI), if not paid attention to, it can be your undoing. Best to get it right upfront!

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