#209 – Rose Chan Loui on OpenAI's gambit to ditch its nonprofit
One OpenAI critic describes it as “the theft of at least the millennium and quite possibly all of human history.” Are they right?
Back in 2015 OpenAI was but a humble nonprofit. That nonprofit started a for-profit, OpenAI LLC, but made sure to retain ownership and control. But that for-profit, having become a tech giant with vast staffing and investment, has grown tired of its shackles and wants to change the deal.
Facing off against it stand eight out-gunned and out-numbered part-time volunteers. Can they hope to defend the nonprofit’s interests against the overwhelming profit motives arrayed against them?
That’s the question host Rob Wiblin puts to nonprofit legal expert Rose Chan Loui of UCLA, who concludes that with a “heroic effort” and a little help from some friendly state attorneys general, they might just stand a chance.
As Rose lays out, on paper OpenAI is controlled by a nonprofit board that:
- Can fire the CEO.
- Would receive all the profits after the point OpenAI makes 100x returns on investment.
- Is legally bound to do whatever it can to pursue its charitable purpose: “to build artificial general intelligence that benefits humanity.”
But that control is a problem for OpenAI the for-profit and its CEO Sam Altman — all the more so after the board concluded back in November 2023 that it couldn’t trust Altman and attempted to fire him (although those board members were ultimately ousted themselves after failing to adequately explain their rationale).
Nonprofit control makes it harder to attract investors, who don’t want a board stepping in just because they think what the company is doing is bad for humanity. And OpenAI the business is thirsty for as many investors as possible, because it wants to beat competitors and train the first truly general AI — able to do every job humans currently do — which is expected to cost hundreds of billions of dollars.
So, Rose explains, they plan to buy the nonprofit out. In exchange for giving up its windfall profits and the ability to fire the CEO or direct the company’s actions, the board will become minority shareholders with reduced voting rights, and presumably transform into a normal grantmaking foundation instead.
Is this a massive bait-and-switch? A case of the tail not only wagging the dog, but grabbing a scalpel and neutering it?
OpenAI repeatedly committed to California, Delaware, the US federal government, founding staff, and the general public that its resources would be used for its charitable mission and it could be trusted because of nonprofit control. Meanwhile, the divergence in interests couldn’t be more stark: every dollar the for-profit keeps from its nonprofit parent is another dollar it could invest in AGI and ultimately return to investors and staff.
To top it off, the OpenAI business has an investment bank estimating how much compensation it thinks it should pay the nonprofit — while the nonprofit, to our knowledge, isn’t getting its own independent valuation.
But as Rose lays out, this for-profit-to-nonprofit switch is not without precedent, and creating a new $40 billion grantmaking foundation could be its best available path.
In terms of pursuing its charitable purpose, true control of the for-profit might indeed be “priceless” and not something that it could be compensated for. But after failing to remove Sam Altman last November, the nonprofit has arguably lost practical control of its for-profit child, and negotiating for as many resources as possible — then making a lot of grants to further AI safety — could be its best fall-back option to pursue its mission of benefiting humanity.
And with the California and Delaware attorneys general saying they want to be convinced the transaction is fair and the nonprofit isn’t being ripped off, the board might just get the backup it needs to effectively stand up for itself.
In today’s energetic conversation, Rose and host Rob Wiblin discuss:
- Why it’s essential the nonprofit gets cash and not just equity in any settlement.
- How the nonprofit board can best play its cards.
- How any of this can be regarded as an “arm’s-length transaction” as required by law.
- Whether it’s truly in the nonprofit’s interest to sell control of OpenAI.
- How to value the nonprofit’s control of OpenAI and its share of profits.
- Who could challenge the outcome in court.
- Cases where this has happened before.
- The weird rule that lets the board cut off Microsoft’s access to OpenAI’s IP.
- And plenty more.
Producer: Keiran Harris
Audio engineering by Ben Cordell, Milo McGuire, Simon Monsour, and Dominic Armstrong
Video editing: Simon Monsour
Transcriptions: Katy Moore
