I am afraid that my 45 years as a nonprofit governance consultant has not included the concept of an observer seat on a nonprofit board - the very seat that Microsoft is surrendering on the OpenAI Board. Of course as we all have learned, there is much to question about OpenAI governance and general structure. While effectively a social enterprise the organization has designed a system that in reality provides equal if not more benefits to members than the public. Not quite a nonprofit model. This invention of an observer seat, designed essentially to provide an arms-length relationship between corporations and nonprofits has been to me an imperfect construct that really wasn't fulfilling the fiduciary role of a nonprofit board at least not until the firing of the founder exec. And then of course, holy hell broke loose but now, in theory unlike humpty dumpty, the organization has been put back together again sans some board members and now sans the so-called observer role.
While there are certainly many aspects of nonprofit governance that could use improving, adding an observer seat for "special relationships" isn't really one of these. Hopefully, lessons learned.
To understand more, check-out the following 7/10/2024 Wall Street Journal article.
Microsoft Quits OpenAI’s Board Amid Antitrust Scrutiny
Role of observer was part of a tie-up that is facing scrutiny in the U.S. and Europe
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Microsoft MSFT 0.18%increase; green up pointing triangle has relinquished its seat as an observer on the board of ChatGPT maker OpenAI, as regulators on both sides of the Atlantic scrutinize the partnership between the tech giant and the artificial-intelligence startup.
In a letter sent Tuesday to the AI company led by Sam Altman, Microsoft said it resigned with immediate effect because it believed OpenAI’s board had gained stability, meaning Microsoft’s involvement was no longer necessary.
“Over the past eight months we have witnessed significant progress by the newly formed board and are confident in the company’s direction,” Microsoft said.
OpenAI went through a tumultuous period late last year with the abrupt firing and reinstatement of Altman as chief executive, along with the formation of the new board. In that shake-up, Microsoft gained a nonvoting observer position, a role it said provided the tech giant with insights into transitional work from OpenAI’s board without compromising its independence.
A spokeswoman for OpenAI on Wednesday said the startup is “establishing a new approach to informing and engaging key strategic partners—such as Microsoft and Apple—and investors.”
OpenAI will “host regular stakeholder meetings to share progress on our mission and ensure stronger collaboration across safety and security,” the spokeswoman added.
Under the new structure, OpenAI will no longer have board observer seats for any partner, according to a person familiar with the matter.
The AI company didn’t say whether Apple, which recently signed its own broad deal with the startup, held or had been offered a similar observer role. Apple didn’t respond to a request for comment.
OpenAI started gaining traction in late 2022 after the release of ChatGPT. Microsoft entered the picture as a major partner, agreeing to invest $13 billion in OpenAI in exchange for what is essentially a 49% stake in the earnings of its for-profit arm.
The observer role was part of that tie-up, which is now facing antitrust scrutiny in the U.S. and Europe.
Earlier this year, the Federal Trade Commission opened a broad investigation of Microsoft’s investment in OpenAI, while the U.K.’s Competition and Markets Authority said it was looking at whether the partnership should be considered a de facto merger.
The European Union also scrutinized the partnership from a merger control angle to determine whether Microsoft had acquired control on a lasting basis over OpenAI. Margrethe Vestager, the EU’s competition czar, said last month that the bloc concluded this wasn’t the case but pledged the EU would keep monitoring the relationship.
Microsoft realized its observer position had unsettled some antitrust officials and decided to abandon the position rather than defend a role it no longer needed, a person familiar with the decision said.
Microsoft has said its longer-term partnership with OpenAI fostered more AI innovation and competition while preserving independence for both companies.
Since the debut of ChatGPT and a series of other AI offerings, tech and nontech companies have rushed to sign deals with AI firms like OpenAI, creating a patchwork of alliances across the tech world and through other industries.
News Corp, owner of Dow Jones Newswires and The Wall Street Journal, has a content-licensing partnership with OpenAI.
Deepa Seetharaman contributed to this article.
Write to Mauro Orru at [email protected] and Christian Moess Laursen at [email protected]