In the quickly changing world of artificial intelligence, the likes of OpenAI is among those few companies that have been the focus of most discussions. The group behind the groundbreaking ChatGPT made big noise in recent news about a major planning on its administration—a shift that shows the push-and-pull for its opening purpose and its need to capture the cash vital now to compete in the top-of-the-line AI race.
The Pivot That Wasn't
OpenAI is reversing its plans for a major reorganization that would hand control from its nonprofit parent. Rather, the organization said that the nonprofit will continue to hold the for-profit subsidiary to account, a move that surely undermines new CEO Sam Altman's control over the way in which the company is headed.
OpenAI was created as a non-profit; now it is a non-profit that manages and loans to the for-profit and will continue to be a non-profit that oversees and controls the for-profit. That won't change, said Altman in a recent blog entry.
This announcement marks a seismic shift from OpenAI's December proposal, which planned to convert its for-profit arm into a public benefit corporation (PBC). Though the nonprofit parent would have been a major shareholder in this new arrangement, it would have relinquished management and governance to the startup.
Why the Change of Heart?
The decision comes in the face of intense external pressure, including a high-profile lawsuit from co-founder Elon Musk, who says that the organization had abandoned its organizer's basic tenet: working to make AI benefit humanity, not private profit.
The decision was sealed after conversations with civic authorities and talks with the attorneys general of California and Delaware, Bret Taylor, chairman of OpenAI's board. The new approach means OpenAI will continue to operate in a structure "essentially the same" as it is today.
Particularly, this change doesn’t imply that OpenAI has given up on its capital-boosting efforts. Although the company is still going ahead with changing the structure of the for-profit wing for the sake of the investment—an essential step to stay competitive in the knowledge-intensive AI development area.
The Balancing Act: Mission vs. Money
OpenAI's struggles represent a deeper flaw in the high-tech industry: how to effectively chase off cutting-edge innovation that demands enormous capital while remaining faithful to a PBI mission.
The original shift by the company to become a for-profit was to shed financial handcuffs it had as a nonprofit. But this move raised concerns about whether OpenAI could fairly distribute assets to the nonprofit and reconcile making a profit with its goal of building AI to serve people.
Altman described the new method as a "compromise that is good enough for investors that they'll continue to fund us to a degree such that he believes they will allow us to operate." He said that OpenAI would work with Microsoft (its largest investor), regulators, and the newly appointed nonprofit commissioners to finalize the revised plan, including deciding how the two will share the equity stakes in the for-profit business.
Questions Remain
Even after the announcement, considerable doubts remain about the practical effects of this reorganization. The announcement is short on details about the level of control the nonprofit will have under the new system. At present, OpenAI’s nonprofit owns the for-profit entity 100 percent. The nonprofit board's mission is that artificial general intelligence benefits all of humanity and not just making profit.
Page Hedley, former policy and ethics advisor at OpenAI, was cautiously optimistic but cautioned there are many unanswered questions. "Will OpenAI's business objectives keep second fiddle legally to its charitable mission? Who will be in control of the technologies that OpenAI creates"?
The Investment Landscape
OpenAI's reorganization is taking place in a costly competition to build towards artificial general intelligence (AGI)—machines that could potentially be more intelligent than humans across numerous tasks. In March, the company said it intends to raise as much as $40 billion in a funding round backed by the group led by SoftBank Group, pegging OpenAI’s value at about $300 billion.
That funding round was conditional on OpenAI converting to a for-profit by year-end—and a switch on the status was barely enough to prevent the 2023 boardroom shakeout that briefly saw Altman jettisoned before getting reinstated following a backlash from employees and investors.
Even with the new restructuring plan, Altman says that OpenAI will still be able to get a backing from SoftBank but has not yet responded to the Japanese investor.
The Musk Factor
Musk is likely to be counting on this being the last hurdle in his ongoing legal dispute with Elon Musk, in which he is suing CTO Musk to stop OpenAI from switching away from its non-profit status. Although the recent statement has been made, Musk's legal team has told an official there could indeed be no moves to throw out the lawsuit.
"The press release renders opaque crucial facts about the supposed 'non-profit control,' and specifically the greatly diminished ownership position the non-profit will retain in Altman's for-profit entity—where the non-profit currently has majority equity," Marc Toberoff, Musk's lawyer, wrote.
The following year, a consortium that includes Musk made a non-bid offer of $97.4 billion to OpenAI's Altman quickly rejected. OpenAI has called Musk's lawsuit a "bad-faith effort to hinder us."
Looking Forward
OpenAI's path to restructuring shows the real difficulties that come from trying to uphold an idealistic mission when participating in a high-stakes technological marathon. The company must juggle multiple conflicting parties:
- Complying with its resolution of developing AI for human good
- Affording sufficient capital to stay competitive
- Providing returns to investors
- Addressing regulatory concerns
- Managing internal governance dynamics
As AI surges ever faster forward, the arrangement and government of premier AI organizations will profoundly impact how these mighty innovations are deployed. OpenAI's choices could determine valuable precedents for the way of life by which other man-made intelligence organizations equate inspirations with general enthusiasm and contemplations.
The next few months will reveal if this compromise framework can, in fact, meet all the benchmarks while allowing OpenAI to realize its intense technical objectives. For now, the nonprofit parent remains in charge, but the specifics of how this, in practice, will be used and affect OpenAI's development course are still uncertain.
What's obvious is that as AI advances and spreads, so too will the governance frameworks that govern them, which will matter ever more for society as a whole.
