Investors Ready to Take Legal Action Over Sam Altman’s Sudden Dismissal from OpenAI Board

According to sources familiar with the matter, investors in OpenAI, the creators of ChatGPT, are considering taking legal action against the company’s board. This comes after the board removed CEO Sam Altman, leading to a possible significant departure of employees.

The sources said the investors are working with legal advisers to explore their options. It was not immediately clear whether those investors would sue OpenAI.

Investors fear they could lose hundreds of millions of dollars they have invested in OpenAI, the crown jewel of some of their portfolios, in the possible collapse of the hottest startup in the fast-growing generative artificial intelligence sector.

OpenAI did not respond to a request for comment.

Microsoft owns 49 percent of the for-profit operating company, according to sources familiar with the matter. Other investors and employees control 49 percent, with 2 percent owned by OpenAI’s nonprofit parent company, Semafor.

OpenAI’s board fired Altman on Friday after a “communication breakdown,” according to an internal Reuters memo.

By Monday, most of OpenAI’s more than 700 employees threatened to quit unless the company changed its board.

Venture capitalists typically hold positions or voting power in their portfolio companies, but OpenAI is controlled by its non-profit parent, OpenAI Nonprofit, which, according to OpenAI’s website, was created for “humanity, not OpenAI investors.”

As a result, workers have more leverage to pressure the government than the venture capitalists who helped finance the company, said Minor Myers, a law professor at the University of Connecticut. “There is no one exactly who is in the injured investor’s seat,” he said.

It’s a feature, not a bug in OpenAI’s architecture. OpenAI started out as a non-profit, but added a for-profit subsidiary in 2019 to raise capital. Keeping operational control allows the nonprofit to maintain its “core mission, governance and oversight,” according to the company’s website.

Non-profit organizations have statutory obligations towards the organizations they supervise. But these obligations, such as the duty to exercise care and avoid self-medication, leave a lot of leeway for management decisions, experts said.

Those obligations can be further narrowed in a corporate structure like OpenAI, which used a limited liability company as its operating asset, potentially isolating the nonprofit’s leaders from investors, said Paul Weitzel, a law professor at the University of Nebraska.

Even if the investors could find a way to sue, Weitzel said they would have a “weak case.” Under the law, companies have wide latitude to make business decisions, even those that fail.

“You can separate the visionary founders,” Weitzel said. Apple famously fired Steve Jobs in the 1980s before bringing him back about a decade later.