Microsoft owns approximately 49% of OpenAI's shares, but does not have control over its corporate governance. Last weekend, the decision of the OpenAI board to dismiss its CEO, Ultraman, clearly caught Microsoft off guard. This has also led the world's second largest technology giant by market value to vigorously reform OpenAI's governance structure and expand its voice on the OpenAI board!
According to sources familiar with the matter, Microsoft is discussing a list of governance reforms that it plans to require the OpenAI board of directors to improve its operations and prevent Microsoft from being caught off guard again in major future strategic initiatives of OpenAI.
OpenAI fired its CEO Sam Ultraman last Friday, and investors have been urging the "father of ChatGPT" to return to OpenAI ever since.
Microsoft, which has already offered to hire Ultraman, has expressed its willingness to allow Ultraman to return to OpenAI as long as certain conditions are met. Regardless of the outcome, Microsoft hopes to address the governance issues that led to the dismissal of Ultraman by the existing OpenAI board.
According to people familiar with Microsoft's ideas, the changes that Microsoft is brewing may include requiring OpenAI to expand its board size and increase the experience requirements for board members.
According to insiders, the agreement reached between Microsoft and OpenAI already requires the board of directors of this startup company to obtain Microsoft's approval when making a merger. Last weekend, there was news that the OpenAI board of directors was seeking to merge with rival artificial intelligence startup Anthropic, but it has clearly not yet received approval from Microsoft. Microsoft will seek to strengthen these protective measures and increase the number of scenarios in which it has veto power or at least the right to know.
The above person also stated that Microsoft is currently mainly waiting for the formation of a new OpenAI board of directors to discuss these changes. Ultraman, members of the OpenAI board of directors, and interim CEO Emmett Shear have started negotiations with the aim of restoring Ultraman's position as OpenAI CEO and co founder.
Once Ultraman's return and the fate of the current board of directors are settled, negotiations and implementation of any changes Microsoft wants may gradually proceed.
Irritated by the phrase 'kill before play'
Microsoft CEO Satya Nadella made it clear on Monday that OpenAI needs to undergo significant governance reforms, whether Ultraman ultimately takes over OpenAI or leads a new AI research department at Microsoft as announced by Microsoft and Ultraman on Sunday.
It is reported that Nadella expressed anger at OpenAI's board of directors only sending him a brief notice after firing Ultraman and before officially announcing his dismissal.
Nadella said in an interview with the media, "Accidents are always bad. We just want to ensure that things are handled in a way that allows us to collaborate well. It is not appropriate to make significant changes without Microsoft's involvement, and we will definitely ensure that some necessary changes occur
According to people familiar with Microsoft's ideas, Microsoft is still considering whether it should try to include an executive on the OpenAI board. The above person stated that Microsoft must balance its desire for more control with the risk of direct involvement in this startup, which may lead to doubts from US regulatory authorities.
Some legal experts have stated that there are few external forces that can force OpenAI to change its unique management practices, and even Microsoft, as a major financial supporter, does not have the power to do so.
Alexander Reid, a lawyer who provides legal consulting services for non-profit organizations, said that since OpenAI is a non-profit organization, only judges or state attorneys can force its current board of directors to step down or make changes. The state attorney general usually issues various measures, ranging from changing leadership to completely shutting down organizations, upon discovering fraud or illegal conflicts of interest.
The for-profit department of OpenAI is completely controlled by a non-profit organization, and through such a special governance structure, it not only retains the core mission, management, and supervisory functions of the non-profit organization, but also raises funds to achieve its mission. According to OpenAI's charter, only directors can vote to remove or elect new board members. Reid stated that this arrangement, known as a "self perpetuating board," is very common in non-profit organizations.
Of course, given Microsoft's enormous influence after this OpenAI battle, its attitude is still likely to ultimately determine the fate of OpenAI. More than 700 OpenAI employees have previously signed a joint letter threatening to resign, demanding the resignation of the company's board of directors and the reinstatement of two co founders, Ultraman and Brockman, otherwise they will join Microsoft.