Sam Altman’s abrupt resignation as CEO of OpenAI has sparked a legal action by the company’s investors against the board.
A brief about following Sam Altman’s unexpected resignation, investors in OpenAI may sue the board
Following Altman’s abrupt dismissal from the firm, investors in OpenAI, the makers of the well-known AI chatbot ChatGPT, are thinking of suing the board, according to news agency Reuters, which cited people with knowledge of the matter.
This is due to the fact that investors’ concerns over Altman’s dismissal have led them to look into legal possibilities in order to protect their sizeable investments in OpenAI, a significant player in the rapidly developing generative AI market.
The report also stated that investors worry about possible financial losses if the well-regarded startup experiences instability, even if it is unclear whether legal action will be taken. The investors had already taken action to get him back in the CEO role.
In response to inquiries for more information on the subject, OpenAI has not released any remarks. According to Semafor, Microsoft reportedly owns 49% of the for-profit operating company, with additional investors and staff controlling the remaining 49%. The nonprofit parent of OpenAI is said to hold the remaining 2%.
It should be mentioned that Sam Altman, the co-founder of OpenAI, and a few other former workers of the well-known AI technology company joined Microsoft.
Following Altman’s firing on Friday, which was justified by a “breakdown of communications,” most of OpenAI’s seven hundred or so workers reacted quickly, threatening to depart if the board did not undergo changes.
OpenAI is governed differently from traditional venture-backed enterprises in that its nonprofit parent, OpenAI Nonprofit, typically appoints venture investors to board members.
Unlike traditional venture capitalists, this structure gives employees more power over board decisions because it prioritizes the interests of mankind over those of investors.
Paul Weitzel, a law professor at the University of Nebraska, told the news agency that although nonprofit boards are legally obligated to exercise caution and avoid conflicts of interest, OpenAI’s unique corporate structure—which includes a limited liability company as its operational arm—may provide extra protection to the nonprofit’s directors against investor actions.
He pointed out that given the wide leeway businesses have in making business decisions, especially ones that have unfavorable effects, investors’ case might not be strong even if they were to take legal action.