OpenAI's Boardroom Drama: Essential Basic Board Lessons for Startup Entrepreneurs
Typically, when top executives are fired, the information isn’t made public. However, the recent Sam Altman’s OpenAI has dramatically captivated the tech world, showing how running a company means dealing with multiple disagreements at the top.
This saga leaves us with more questions than answers, including how companies are run, the responsibilities of the basic board, and the power struggles within a company. If you’re a startup CEO or an investor, the boardroom dynamics from the saga are worth digging into! So, let’s explore the lessons we get from OpenAI’s boardroom turmoil!
Overview of the OpenAI Boardroom Saga
Before heading onto the lessons from the OpenAI’s boardroom saga, let’s take a quick recap of the key events in case you missed it.
OpenAI, the innovative creator of ChatGPT and its powerful language models, recently created a buzz in the tech world. Just before Thanksgiving last year, the company shook everyone by announcing the firing of Sam Altman, its well-known co-founder, CEO, and board member. Fun fact? This was just a week before GPT’s first anniversary.
Resultantly, more than 90% of OpenAI’s employees, including Mira Murati, the temporary new CEO, protested. Everyone wanted Altman to return and the basic board to resign. They even threatened to leave OpenAI and join Microsoft to work on a new AI project with Altman and Greg Brockman, another key person who quit in support of Altman.
But here’s the most interesting part — Altman’s firing messed up a deal that would’ve valued OpenAI at $86 billion! While everyone believed the guy was as good as gone, it wasn’t long before Altman was back as the CEO, the deal was back on, and there was a new basic board at OpenAI.
The Good & The Bad of Board-CEO Relationships
Recently, an ex-board revealed that the board didn’t know about ChatGPT launch until they found out about it on Twitter. This shows just how tricky board-CEO relationships within large companies can be. Oftentimes, the relationship between the two parties can sometimes be full of tension, as evidenced by the OpenAI saga.
The Good
Goes without saying that a great board-CEO relationship may be a startup’s greatest asset. A cohesive board offers diverse perspectives and valuable industry networks and fully supports the company during hard times. For instance, when OpenAI faced ethical concerns about AI deployment, a united board could’ve provided the necessary assurance to stakeholders.
The Bad
Where there’s good, the bad follows, and OpenAI’s boardroom saga is no exception. Lack of transparency often leads to mistrust or conflict. For instance, learning about ChatGPT’s launch on Twitter undermined the board’s confidence in the CEO’s leadership. This underscores the need for open communication between the board and the CEO.
Lessons Learned from the OpenAI Saga
The entire OpenAI controversy stands as a great lesson in how modern companies should run, particularly the ones just starting out. It shows that things like ethics, clear communication, and abiding by the rules are paramount. Some of the key lessons from Altman’s firing and joining Microsoft include:
Lesson #1: Effective Communication is the key
Above all, there must be clear and open communication between the board, top-level management, and shareholders. Making decisions may look simple, but an open discussion may become a huge deal depending on the group dynamics. The chairman plays a major role here – building trust while mediating conflicts where needed.
Likewise, effective communication between the chairman and the CEO is essential. This is largely because the chairman also serves as a liaison between the key stakeholders of the company. In the case of OpenAI, the need for more communication with Microsoft about internal issues highlighted the importance of this stakeholder engagement.
Lesson #2: Know Your Mission
The next governance lesson is that when running a business, the mission must be crystal clear well beforehand. For instance, the OpenAI saga shows that combining a non-profit mission with a for-profit structure may create complex challenges.
OpenAI’s unique setup aimed to prioritize societal benefits over profits, but commercial investments were needed to grow. This led to conflicts between maintaining its mission and handling financial pressures. The firing and rehiring of Sam Altman further intensified these tensions. The board was heavily criticized for not clearly prioritizing the mission or financial stability.
The basic board even cited the company’s drifting away from its non-profit goals as the core reason for Altman’s resignation. This makes it clear how a company can’t work well while it’s torn between nonprofit goals and financial interests.
Lesson #3: Board Composition and Experience Matters
Unlike typical Silicon Valley startups, OpenAI’s board initially lacked the usual mix of board personnel — the founders, investor representatives, and independent directors. Instead, it largely included experts aligned with its nonprofit vision.
This imbalance became evident when the board faced challenges related to leadership changes and stakeholder management, especially with major investors like Microsoft. This showed the board's lack of deep corporate and nonprofit governance experience. The result? The company couldn’t effectively manage these challenges till the “new initial board” had to be revamped.
Simply put, the makeup of the board should reflect a balance of skills, perspectives, and experience that align with the organization’s mission and operational needs.
Lesson #4: Engaging Experienced Advisors from Outside Helps Manage Crisis
One crucial lesson from the OpenAI saga is that the basic board must always plan for multiple layers of consequences. Simply focusing on the immediate outcomes of their actions is never enough. For instance, when terminating a key executive like Altman, the board didn’t consider how the stakeholders, investors, or employees would react to the situation.
The lesson? Planning shouldn’t be confined to the boardroom alone. Outside advisors with years of experience, such as legal, financial, or PR experts, really help. In OpenAI’s case, the board’s decision to dismiss Altman without a well-thought-out communication strategy backfired. This calls for consulting outside advisors before making big decisions.
The OpenAI Experience as a Blueprint for Startups
For startup CEOs and investors, the OpenAI boardroom saga is an excellent way to learn to navigate board dynamics. By communicating effectively, understanding the roles of chairman vs CEO, and building a culture of trust, startups can avoid pitfalls along the way!
All in all, the relationship between the board of directors and CEO is a delicate balance that needs constant effort. The OpenAI experience tells exactly why it’s crucial to get this balance right!
