Elon Musk’s recent attempt to stage an unsolicited takeover of OpenAI, the company behind the revolutionary ChatGPT technology, has sent shockwaves through the tech and business worlds. While the bid was ultimately rejected by OpenAI’s CEO, Sam Altman, and its nonprofit board, the incident has highlighted the organization’s vulnerability to future takeover attempts. In response, OpenAI is reportedly exploring structural changes to its governance model to prevent such bids from succeeding in the future. According to a report by the Financial Times, OpenAI is considering granting its existing nonprofit directors special voting rights, even as the company transitions into a for-profit entity known as a public benefit corporation. This move would ensure that the nonprofit arm retains control over the organization’s direction, aligning with its original charitable mission and preventing external investors, including Musk or other major backers like Microsoft, from gaining undue influence.
The proposed changes are part of a broader strategy to fortify OpenAI’s governance structure as it prepares to reorganize. By concentrating power in the hands of its nonprofit directors, OpenAI aims to counter Musk’s argument that the company has strayed from its initial charitable objectives. This approach would also empower the board to override decisions by for-profit investors, ensuring that the organization remains committed to its mission of developing artificial intelligence for the benefit of humanity. However, achieving this level of protection is no simple task. Nonprofit law expert Ellis Carter has emphasized that making an organization “truly unhijackable” requires careful planning and adherence to legal frameworks. Since nonprofits lack stock and formal ownership, their governance design is crucial to preventing hostile takeovers.
For now, OpenAI’s board remains in a strong position to fend off acquisition attempts, thanks to its current nonprofit status, which leaves it without shareholders or voting members. However, legal experts suggest that the company is likely bracing for potential challenges that could arise after its for-profit subsidiary is converted into a public benefit corporation. UCLA law professor Rose Chan Loui speculates that OpenAI may grant its board members a special class of voting stock in the restructured for-profit entity, giving them superior rights to other equity owners. This could enable the board to block takeover bids, even from major investors like Microsoft, which currently holds limited profit interests in OpenAI’s for-profit subsidiary. While the exact scope of these voting rights is unclear, they could range from specific safeguards against takeovers to broader powers akin to those held by the nonprofit board. Chan Loui notes that without further details, the full implications of these changes remain uncertain.
OpenAI’s current financial structure is another critical factor in this equation. Investors like Microsoft do not hold equity in the nonprofit parent company but instead have limited profit interests in its for-profit subsidiary. Under the current arrangement, Microsoft is entitled to 75% of OpenAI’s profits until it recoups its $13 billion investment, with the remaining 25% going to employees and early investors. Once Microsoft’s principal is repaid, the company will receive 50% of profits until it reaches a profit cap of $92 billion. As OpenAI transitions to a public benefit corporation, it may issue ordinary shares of stock, potentially converting existing investors’ profit interests into equity. This shift could introduce new complexities, including the possibility of new investors gaining a stake in the company. To counter this, OpenAI might implement mechanisms like a “poison pill” strategy, allowing the board and existing shareholders to purchase additional shares at a discount, thereby diluting the influence of hostile bidders.
Despite these precautions, OpenAI is not entirely immune to outside bids. Under Delaware law, where the company is registered, nonprofit boards are legally obligated to consider acquisition offers and provide justification for rejecting them. This duty could create a loophole for determined bidders like Musk, who offered $97.4 billion for OpenAI’s estimated $157 billion in assets—a figure significantly below the company’s current valuation. OpenAI’s charter further complicates the situation, as it includes a provision stating that the organization may support other projects aligned with its mission if they come closer to achieving artificial general intelligence (AGI). This could, in theory, allow OpenAI to redirect its resources toward a competitor, raising questions about its strategic priorities.
The backstory of Musk’s involvement with OpenAI adds another layer to this drama. Musk co-founded the company in 2015 with Sam Altman but later parted ways due to disagreements over its direction. Musk went on to launch a rival AI firm, xAI, and is now suing to prevent OpenAI’s conversion to a for-profit entity, claiming that his initial $45 million donation was contingent on the company remaining nonprofit. OpenAI, however, argues that the shift is necessary to attract new capital and sustain its operations. The company’s board has categorically rejected Musk’s takeover bid, with chairman Bret Taylor stating, “OpenAI is not for sale.” Meanwhile, Japanese conglomerate SoftBank is reportedly planning a $40 billion investment in OpenAI, which could raise its valuation to between $260 billion and $300 billion—far exceeding Musk’s offer.
In conclusion, the battle for control of OpenAI reflects broader tensions in the tech industry, where the pursuit of innovation often clashes with the realities of corporate governance and investor interests. As OpenAI navigates this critical juncture, its ability to balance its charitable mission with the demands of stakeholders will likely determine its future trajectory. For now, the company appears determined to protect its independence and ensure that its transformative technologies are developed in a way that benefits humanity as a whole. Whether it can achieve this goal without compromising its values or succumbing to external pressures remains to be seen.
