Founders, what can you learn from the OpenAI debacle?
Note: this article contains some shortcuts, I am trying to focus on the big picture for founders.
The OpenAI debacle has been covered by people way smarter than me. I want to avoid speculation and focus on what founders can learn.
What is a company board?
The board (aka the board of directors) of a company is an entity that controls the operations of a company (hire/fire the CEO, look at the financials, etc.). The board chooses the CEO of the company (which is why when a CEO leaves or is fired, the board is “searching for a new CEO”).
Important point: the board represents the best interest of the company stakeholders, so if the CEO performance is weak, it’s the board duty to dismiss them.
Almost anybody can join a board. You can put auntie Diana on your company board, but it is unlikely she will bring anything to the table except for her famous chocolate chip cookies.
But generally, you want to have board members that:
have a vested interest in the company success (in other words, they own shares)
are an expert in a specific domain that is key to the company
do not have a conflict of interest (e.g., do not work for a competitor or a governmental agency close to your domain)
Each board member has a vote when the company has to take a decision. For example, for firing the CEO or hiring a new one. Some board members’ votes count more than others. But the bottom line is that board members have the power to control the company.
What happened at OpenAI?
The exact timeline of the composition of the board members is given in John Loeber post A Timeline of the OpenAI Board. There are the board members by years.
2015: Elon Musk, Sam Altman
2016: Elon Musk, Sam Altman, Chris Clark, Jonathan Levy
2017: Elon Musk, Sam Altman, Chris Clark, Holden Karnofsky, Greg Brockman, Ilya Sutskever
2018: Sam Altman, Holden Karnofsky, Greg Brockman, Ilya Sutskever, Adam D’Angelo, Sue Yoon, Tasha McCauley
2019: Sam Altman, Holden Karnofsky, Greg Brockman, Ilya Sutskever, Adam D’Angelo, Sue Yoon, Tasha McCauley, Reid Hoffman, Shivon Zilis
2020: Sam Altman, Holden Karnofsky, Greg Brockman, Ilya Sutskever, Adam D’Angelo, Tasha McCauley, Reid Hoffman, Shivon Zilis
2021: Sam Altman, Greg Brockman, Ilya Sutskever, Adam D’Angelo, Tasha McCauley, Reid Hoffman, Shivon Zilis, Will Hurd, Helen Toner
In 2023, the following people resigned without replacement:
Reid Hoffman
Shivon Zilis
Will Hurd
As of November, 2023, the board stayed with the following members:
Sam Altman
Greg Brockman
Ilya Sutskever
Adam D’Angelo
Tasha McCauley
Helen Toner
All what the board needed to dismiss Sam Altman was four votes from Ilya Sutskever, Adam D’Angelo, Tasha McCauley and Helen Toner.
What does it mean for startups?
The key learning here is to avoid letting your company board rot and always have board members that have the best interest of the company at hand.
First, make sure the board members represent the interests of the company and its stakeholders. Board members must be vested in the company and either work at the company (e.g., key executives) or have a significant ownership (e.g., investors).
Moreover, when many people leave a board, they should be replaced to avoid having a board too small that would lead to an easy takeover like the one we testified. One member leaving without a replacement may be fine, but three departures in a few months without any new face are an issue.
When you are a small startup, there is no formal board — the founders are the members of the board. As the company grows, the board expands (typically with investors joining the board because they want to “protect” their investment). The rule of thumb is that you create a formal board when you are around series B. When it is time to compose a formal board, think carefully about who will be on your board:
you do not want any “yes men” because they will never push back on you, and they will let you take the most stupid decision
you do not want naysayers and people that do not take risks because they will block any ambitious plan
you do not want only investors who may consider profits over innovation
This is a very hard decision because these people can fire you and/or drive the company to the ground (e.g. Twitter).
Do you think board issues are not common? They happen all the time.
When a startup struggles to raise, investors may offer an investment at a very low valuation, taking more than 50% of the company. Once the company is profitable, the investor fires the CEO.
Think again of Twitter: none of the board members had a vested interest in the company (very few were even Twitter users)! The board never held the CEO accountable, the company was stalling, which led to an acquisition by Musk.
What happened to OpenAI is not unique. In fact, it is so common that Jerry Neumann wrote an (excellent) post on the topic: “Your Board of Directors is Probably Going to Fire You”. This is actually very common, but not shared. What is uncommon is to see a high-profile CEO like Sam Altman being fired by his board.
Even the best entrepreneurs make the mistake of having a shaky board, we had the demonstration over the last few days. As a founder, what we can do is learn from it and do everything possible to prevent history from repeating.