OpenAI’s Sam Altman Firing and Reinstatement: Professors Weigh In

In a whirlwind of events that unfolded over only a week, OpenAI—the San Francisco-based artificial intelligence research firm known around the world for its ChatGPT chatbot platform—suddenly found itself at the center of a leadership crisis. Since then, two of the biggest names in graduate management education have weighed in with their perspectives on what happened. They include Dr. Jefffey Sonnenfeld, the Yale School of Management’s senior associate dean for leadership studies, and Dr. Erik Gordon, a clinical professor in the MBA program at the University of Michigan’s Ross School of Business.

But first, for our BSchools readers who left early for Thanksgiving 2023 and lost track of OpenAI’s story, here’s an abridged summary of what went down just before the holiday break.

OpenAI’s Crisis In Brief

On Friday, November 17, OpenAI’s board of directors abruptly fired co-founder and CEO Sam Altman, a decision that sent shockwaves through the AI community and sparked an uproar among the firm’s employees. However, just four days later on the following Tuesday, OpenAI reinstated Altman as CEO, leaving many wondering what might have transpired behind closed doors and what lessons could be learned from this unprecedented situation.

The saga began that Friday when OpenAI unexpectedly announced that Altman had stepped down as CEO, citing a purported but unsubstantiated “review undertaken by the company’s board of directors.” The board had presented no specific reasons for the firing, and as we go to press, no directors have alleged any misconduct. Not surprisingly, the decision to fire Altman was met with immediate skepticism and alarm from employees, analysts, and observers.

OpenAI’s employees were particularly vocal in their fierce opposition to Altman’s removal. By Monday, a letter signed by nearly all of the company’s 800 employees had been sent to the board, demanding Altman’s reinstatement and expressing a lack of confidence in the board’s leadership. The letter also highlighted Altman’s contributions to OpenAI, including his role in securing billions of dollars in funding and fostering a culture that encouraged innovation.

The employee revolt swiftly escalated into a public relations crisis for OpenAI. The company’s decision to oust Altman without a clear explanation or consensus among employees drew criticism from various quarters, including venture capitalists, technology journalists, and academic experts. For example, the well-respected venture capitalist, Sun Microsystems co-founder and Stanford MBA Vinod Khosla had argued on social media that the board’s actions in firing Altman were legally invalid because the company had failed to provide adequate notice to shareholders.

Adding to the turmoil was the resignation of OpenAI President Greg Brockman over the weekend, who stepped down in solidarity with Altman. Brockman’s departure further destabilized the company and raised questions about the board’s ability to effectively manage OpenAI’s leadership.

Meanwhile, Microsoft CEO Satya Nadella had offered jobs to Altman, Brockman, and any of their OpenAI colleagues who followed them. Given that Microsoft already owns 49 percent of OpenAI with an investment of roughly $13 billion, Wall Street analysts like Wedbush’s Dan Ives had enthusiastically applauded Nadella’s “chess master” move.

By Sunday, word had leaked in tweets on X.com that Microsoft had already started to clear out space in its LinkedIn offices across town to accommodate the new employees from OpenAI. The reports kicked off a bidding war for OpenAI’s software engineering and data science talent pool by other executives like Salesforce’s billionaire founder and CEO Marc Benioff, who happens to be setting up an AI division at his company. NVIDIA executives then went on social media to claim they’d match the compensation packages of any OpenAI data science employees who defected.

However, in a dramatic turn of events just four days after Altman’s firing, OpenAI suddenly announced his reinstatement late on Tuesday night. Company spokespersons attributed the decision to a “productive dialogue” with Altman and Brockman, which resulted in a renewed alignment of vision and strategy for the firm. Party pictures then started appearing on social media of Brockman surrounded by a crowd of more than a hundred other jubilant employees who were celebrating at the firm’s headquarters.

Three members of the board of directors who had voted to replace Altman agreed to leave the board as part of the deal, although Quora CEO Adam D’Angelo agreed to continue in his role as a director. The acting chair is Bret Taylor, Salesforce’s co-CEO and Twitter’s last board chair who had negotiated the social media platform’s sale to Tesla’s Elon Musk. Dr. Lawrence Summers, the former president of Harvard University and secretary of the treasury in the Clinton Administration, had also agreed to join the board.

Nevertheless, Altman’s return was met with mixed reactions. Most employees expressed relief and gratitude, although some analysts and observers outside the company remained skeptical about OpenAI’s governance, the new board’s makeup, and the organization’s long-term stability.

Did Microsoft Contribute to the Crisis?

In an extended interview on Bloomberg’s Wall Street Week, Dr. Gordon suggested that Microsoft may have unintentionally contributed to the crisis. Because Microsoft failed to spot and raise issues concerning OpenAI’s governance before investing billions of dollars, he pointed out that the firm’s lack of due diligence may have unintentionally set the stage for the crisis:

You know, I teach M&A [mergers and acquisitions], and I talk a lot about due diligence with students. [Microsoft] would have gotten probably a D-minus for this episode.

But there’s another possibility that I wonder about: Is it another “Microsoft Is Behind” story?

So, you remember, Microsoft was behind. Bill Gates wasn’t sure the internet was going to be big. So they were behind in browsers. They were behind in search. They were behind in the cloud. Then they were behind in AI.

Maybe it’s just Microsoft throwing its money around—Part Four.

More Affection Than For Apple’s Steve Jobs

In an essay for Yale Insights, Dr. Sonnenfeld points out that OpenAI had been structured as a for-profit subsidiary of a nonprofit firm. That structure is very different from a typical for-profit Silicon Valley startup, but instead like Underwriters Laboratories or National Geographic.

He emphasizes that OpenAI’s is a very unconventional hybrid structure. Moreover, it also compounded problems because of an unusual lack of clear accountability by the board of directors to any constituency, such as customers, employees, or investors.

Dr. Gordon concurs that by structuring the company as a for-profit subsidiary of a nonprofit entity, OpenAI had built in disincentives that discouraged the board from acting in ways that were accountable to key stakeholders, including major investors. He commented on how OpenAI’s board appears to have fired Altman without first consulting with Microsoft and other large-scale investors:

Yeah, it’s kind of interesting because all of the things that we think about in all of the “oust the CEO” battles, all those takeover battles don’t really apply here because of the peculiar nature of the companies.

So the company that Altman got ousted from is a “capped-profit” company that is controlled by a not-for-profit company. It’s not controlled by directors who are venture capitalists, who are business people. We don’t have activist hedge funds, the usual players who know how business is done—that isn’t in play here.

It’s a not-for-profit board that ousted him, and they said, you know, “Look, our mission comes before what you’re trying to do. You’ve known that all along, and we’ve made it perfectly clear, but you keep trying to do what you want to do. And we want you to stay on mission.”

But I’m not sure that the not-for-profit [board members] are entirely free of responsibility because they went out and they accepted 12 billion dollars or so of Microsoft’s money. They got into a venture that they knew would require billions and billions of dollars. That’s orders of magnitude bigger than the kinds of money you raise in a typical nonprofit.

Dr. Sonnenfeld adds that the board had also failed to appreciate Altman’s uncommon loyalty among nearly all constituents and stakeholders. They included the nearly 800 employees who had threatened to quit and join Altman at Microsoft unless the firm reinstated him as CEO and reconstituted its board with new directors.

In an interview on CNBC’s Power Lunch, Dr. Sonnenfeld points out that never before in the tech industry had employees openly expressed so much affection for a leader—not even during the famous 1985 episode when Apple’s board fired Steve Jobs:

“When Steve Jobs left, we didn’t have this mass exodus. . .We didn’t see anything like this, this kind of affection for a tech leader’s leaving is remarkable,” he says. “And, of course, who could be more popular than Steve Jobs? But Sam Altman’s affection is amazing.”

Open AI’s Board: “One of the Most Confused and Incompetent”

Yet through it all, the OpenAI board looked like they were detached from reality. “The trouble with this AI board was not its quality of artificial intelligence, but its lack of genuine intelligence,” he says.

But where Dr. Sonnenfeld really cuts loose with his criticisms—and voices them with emphasis we’ve rarely observed among MBA faculty since BSchools launched in 2018—appears in his rating of this board’s performance:

The shadows here fall on the OpenAI board itself—clearly one of the most confused and incompetent in recent governance history, with no apparent corruption or self-dealing involved.

We never had names or clear accountable voices of this cowardly board throughout the five-day self-imposed leadership crisis, which imperiled the value of this firm, which had soared from $20 billion to almost $100 billion over just a few months. They never transparently revealed the reason for their loss of confidence in founder/CEO Altman with any misconduct or failures of judgment. There was no probation period, evidence of an outside leadership review for the board, or any warning to all key constituencies—who were all caught by surprise by the board ambush.

They also massively miscalculated the sentiment of [the] firm’s employee base—the data scientists who provide the genuine value of the company—and their incredible market demand.