- OpenAI is changing its corporate structure.
- The changes will likely give it more leeway over decisions and a defense against activist investors.
- But strategy advisors say it’ll need to get more serious about defining its public benefit.
OpenAI is in the midst of a massive corporate restructuring.
The ChatGPT maker announced last month that it would transition to a public benefit corporation, in line with competitors like Anthropic and xAI.
Since its launch in 2015, OpenAI has operated under the supervision of a nonprofit board, with a mission to develop artificial general intelligence that is safe and benefits humanity. It added a for-profit arm in 2019 to help it raise money to fund that mission.
Now, as the company grows more valuable, its backers want to see returns on their investment. As part of the latest round of funding — the $6.6 billion deal it closed this month, one of the largest in Silicon Valley history — OpenAI will be transitioning to a regular for-profit structure. If it doesn’t complete this transition within the next two years, its investors can ask for their money back, Axios reported.
Public benefit corporations are for-profit businesses “created to generate social and public good, and to operate in a responsible and sustainable manner,” according to the Legal Information Institute at Cornell Law School.
Unlike traditional for-profit businesses, which are primarily focused on maximizing shareholder value, public benefit corporations must balance stakeholder interests with those of their employees and customers.
Travis Borden, the founder and president of advisory firm Keene Advisors helps purpose-driven companies like public benefit corporations raise capital, pursue mergers and acquisitions, and conducts a broad range of strategic consulting work. He told Business Insider that one of the benefits of OpenAI’s proposed new structure is that it can serve as a bulwark against the demands of activist investors.
In a regular company, “if their stock price is lagging and they’re not growing as quickly as they could, activist investors can come in, take a position on the board, they can sort of threaten shareholder lawsuits and things like that and force the company to do really profit maximizing things,” he said.
In a public benefit corporation, however, the board has more discretion.
“They can say, well, in addition to making profit and maximizing value, we also have this public benefit that’s in our charter that we are going to pursue. So it gives them some kind of cover to say, we don’t have to maximize short-term profits at all costs,” Borden said.
Investors can also question why a company isn’t progressing on its stated public benefit.
Borden said that once OpenAI gets the approval of its shareholders to transition, it will need to change its structure under Delaware law — where many corporations are based — and its articles of incorporation, the legal documents filed with the state to create a corporation. It will also need to define its “public benefit” as part of its new corporate charter, he added.
That public benefit, for now, is laid out in OpenAI’s mission: to develop the technology in a way that is safe and benefits humanity.
But OpenAI’s restructuring comes when those inside and outside the company are questioning its commitment to that mission.
Last November, the company’s board unsuccessfully ousted Altman as CEO, saying he was not “consistently candid in his communications.” The ousting publicized a growing rift in the company between those looking to maximize profits and those worried about the dangers of too aggressively developing the technology. In the months since, several high-profile researchers and executives, many of them part of a team focused on safety, have left the company, including chief scientist and cofounder Ilya Sutskever, head of alignment Jan Leike, and most recently, chief technology officer Mira Murati.
So as OpenAI restructures, the pressure is now on the company to clearly articulate its public mission and show that it’s serious about it.
“I think that they talk about ensuring that it benefits all of humanity, and that may be part of what they would try to incorporate into their public benefit, that their tool will, in addition to obviously generating returns for shareholders, will benefit all of humanity,” Borden said. But “that’s a pretty broad statement.”
He said the good news is that once they’ve specified their mission, the board and management teams will have more “latitude” in decision-making.
Jens Dammann, a professor at the University of Texas School of Law, told The Information that OpenAI would likely find that proposition attractive.
“If you can convey the idea to people that you are a good enterprise, a morally safe enterprise and that comes with very little constraints, that has to be tempting to entrepreneurs,” she told the outlet.
OpenAI did not immediately respond to a request for comment from Business Insider.
