OpenAI: A Lawyer's Take

Since Friday, you've probably been up until the early hours of the morning scouring the web for updates on the turmoil surrounding OpenAI.

So have I... and I've noticed that there's quite a bit of noise out there, cluttered with commentary based on assumptions and memes that make light of a situation that is bound to impact the future of humanity.

I took some time off to pen this piece, aiming to stay within the confines of (more or less) verified, publicly available information and relying on linear reasoning, backed by my legal knowledge and experience of corporate governance. That said, this is not intended as a legal memo.

In the hope of introducing some clarity to an otherwise messy situation, here are my thoughts.

Procedural lapse?

1. Prior to Sam Altman’s ouster as CEO and Greg Brockman's resignation from the board on Friday, the OpenAI board consisted of six members, including Sam, Greg, Ilya Sutskever, and three independent directors: Adam D’Angelo, Tasha McCauley, and Helen Toner.
2. Based on the statement put out by Sam and Greg, the board delivered the news to Sam and Greg as a fait accompli – a done deal, a decision already made.
3. Accordingly, Sam and Greg didn’t participate in the board’s deliberations.
4. Normally, for board decisions to be valid (whether for a non-profit or for profit), all board members should be given advance notice along with the meeting's agenda, in accordance with the bylaws. I've reached out to OpenAI's secretary (Chris Clark, as of December 19, 2022 according to public records) for a copy of the bylaws.
5. To my mind, Sam and Greg must either have been given notice of the meeting and its agenda and intentionally decided not to participate – or were blindsided altogether.
6. If they decided not to participate, chances are the roots of this conflict run deeper. For one, OpenAI COO Brad Lightcap refers to a breakdown in communications.
7. If they were blindsided, this may render the board’s decision void ab initio – or void from the very start, as if it never took place, effectively reinstating Sam and Greg to their original positions.
8. In case of the latter scenario, this is particularly egregious because Greg was the chairman of the board and should have presided at the meeting.

Takeaway: In case of procedural shortcomings, the board's decision may be challenged in court by an interested party (potentially, Sam and Greg themselves).

Substantive immunity?

1. Generally, the boards of non-profit organizations are formed in one of two ways – they’re elected by the members of the organization or they’re self-appointed.
2. OpenAI, Inc. is a non-profit organization.? The OpenAI structure on the official website does not speak of OpenAI having any "members", and so I take it that it does not have membership.
3. Accordingly, the OpenAI board likely has a self-appointing structure.
4. Normally, this means that the initial composition of the board is appointed by the incorporator (the person setting up the organization, often an attorney) in accordance with the will of its founders.
5. After the board is set up, it “regenerates” – by a majority vote, it decides who comes on board, who gets to stay on the board, and who leaves.
6. To be clear: a non-profit does not have “owners” (aka “stockholders”).? From a strictly legal perspective, the board of OpenAI is not respond to anyone except its mission – not even the stockholders. The official website itself provides that the "Nonprofit’s principal beneficiary is humanity, not OpenAI investors.
7. Had proper deliberation taken place, a split board (Sam, Greg, and Ilya vs. the three independent directors) would have resulted in a stalemate, which means Sam would not have been ousted. Given Ilya's recent tweet, I take that proper communication could have kept him from siding against his co-founders.
8. Now, with Sam ousted and Greg having resigned, Ilya is left with three independent directors.? It’s too late for him to reverse the decision on his own, unless he gets not one, but two other directors to follow suit.

Takeaway: The OpenAI board is vested with infinite authority, fettered only by law and its governance documents. From a legal perspective, the fate of OpenAI entirely lies in the hands of four people: its current board members.

Governance shortcoming?

1. Among the rules that govern corporations is a critical concept known as "fiduciary duties".
2. The fiduciary duties of the directors of a Delaware corporation (be it for-profit or non-profit) have two key elements: duty of care and duty of loyalty.
3. Broadly speaking, duty of care means acting with diligence and prudence in exercising one's powers. It entails engaging in an informed, deliberative decision-making, taking into account all material and reasonably available information.
4. In turn, duty of loyalty means acting in the best interests of the corporation and putting those interests above and beyond your own. For example, it precludes avoiding with the corporation or stealing from it.
5. There's also an elusive subset of fiduciary duties for non-profits, known as the duty of obedience, which includes the duty to be guardians of and remain faithful to the organization's mission.
6. OpenAI, Inc. is a Delaware non-profit corporation, and so its directors are burdened with these fiduciary duties. Its mission is "to build artificial general intelligence (AGI) that is safe and benefits all of humanity.”
7. We don't have sufficient information to properly analyze whether the board acted in line with its fiduciary duties. In fact, courts themselves usually are reluctant to cross that bridge. That said, here are high-level thoughts of some key points.
8. One may argue that the duty of care was in fact violated: the decision to oust Sam and demote Greg were not the result of robust deliberation and ultimately resulted in significant damage to OpenAI (e.g., ensuing turmoil, leadership vacuum) which could have been foreseen given the circumstances.
9. On the flip-side, the remaining board members may counter by relying on the "business judgment rule", which gives a lot of slack to decisions made by directors in matters pertaining to the duty of care. Additionally, they may contend that they would have breached their duties had they not acted the way they did.

Takeaway: Corporate governance must be taken seriously. A larger board and an in-house corporate counsel could have served as procedural and substantive bulwarks against the breakdown we witnessed.

With great power comes great responsibility.

I greatly admire what OpenAI has built and the people who have built it.

I am also deeply alarmed by the seemingly flippant way this situation has been handled.

The mistakes of the parties can potentially have tectonic repercussions for all mankind, and I wish wisdom and clear-mindedness to them all in order to smoothly and successfully resolve this impasse.

OpenAI has amassed an unprecedented amount of power.

And with great power comes great responsibility.