How Did OpenAI Go So Badly Wrong?

[Music] Major breaking news, uh, related to OpenAI. Yeah, Sam Altman is out as CEO of OpenAI. Why on Earth is OpenAI falling apart? Last week, we saw one of the world's most promising companies fall into complete and utter chaos in the space of five days. CEO Sam Altman was fired, 95% of the company's employees threatened to quit, all but one of the board members were thrown out, and then Sam Altman was hired again.

Is this the kind of drama you expect to find in movies, not inside one of the world's most cutting-edge AI companies? It's so ridiculous that people are now even suggesting that the AI itself took over the board and axed Altman. So how has this all gone so badly for OpenAI, and is it going to be okay moving forward? Sam Altman is out as CEO of OpenAI. It was the unique structure of the company that allowed this board to take the action it did. They put out a release saying that he was “not consistently candid” in his communications. Microsoft has invested $1.13 billion, and they're still saying that they're supporting OpenAI.

As I said, I feel very confident this is a moment where they were vulnerable, and now they've lost their quarterback. Either the company implodes, or they reverse everything. Now everybody's coming for them! What a clown show! Just before we got started with this video, I just want to let everyone know on the new money education front we have decided to keep our introductory pricing going until the end of this week, so it will end on Friday.

We had a few people tell us how they wanted to get in on the deal, but you know being released on Black Friday, they kind of prioritized other things first. I think that's fair. So for those that feel like they have missed out, you definitely haven't. We've extended the introductory period until the end of Friday. Hopefully, that gives everyone a chance to get in, and yes, that does include the bundle as well.

So the introductory price for Introduction to Stock Analysis also gets you Stock Market Investing For Beginners absolutely free! And once again, thank you to everyone for signing up. Thanks for the support; thanks to everybody that's joined that community. But back to OpenAI. On Friday, the 17th of November, we find Sam Altman chilling here at the Las Vegas Grand Prix. Little did Sam know that this would be the last time he got to enjoy himself for about the next week.

Long story short, he gets a call from one of the directors on the board. A little bit strange, but okay, he takes the call. All of them are on there, and then out of nowhere, they completely backstab him and chuck him out of his own company. They later released a blog post saying that, “Mr. Altman’s departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities.”

Yeah, interesting. I'd love to know the extent of that review process. So just like that, Sam loses his job because literally a board of four people got mildly annoyed at him, but what happens next is kind of crazy. Firstly, Satya Nadella at Microsoft sees that Altman, one of the biggest brains in AI, is now unemployed, so he immediately snaps him up. But then on Monday, the board gets the shock of its life when they get handed a petition from nearly all of the OpenAI employees saying that they want the board to quit and they want Altman reinstated as CEO immediately, otherwise they're packing their things and they're working for Microsoft.

And that's the funny thing; apparently, Microsoft offered positions to all the employees of OpenAI. But just imagine that from Microsoft's perspective, right? If this thing actually fell apart, they had already signed up Sam Altman, and they could very well have signed up 95% of OpenAI's staff. They could have basically acquired all of OpenAI's talent without actually needing to buy the company. That's a pretty, pretty crazy situation.

I reckon there's probably a part of Satya Nadella that's a bit sad that he couldn't pull off the coup of the century. But anyway, as I was saying, on Monday, the employees of OpenAI hand in a petition to the board, and the letter reads, “Your actions have made it obvious that you are incapable of overseeing OpenAI. We are unable to work for or with people that lack competence, judgment, and care for our mission and employees. We, the undersigned, may choose to resign from OpenAI to join the newly announced Microsoft subsidiary run by Altman and Greg Brockman. Microsoft has assured us there are positions for all OpenAI employees at this new subsidiary should we choose to join.

We will take this step imminently unless all current board members resign and the board appoints two new lead independent directors such as Brett Taylor and Will Hurd and reinstates Sam Altman and Greg Brockman.” Ouch! So at this point, the board is in pretty big trouble, and they basically understand that their goose is cooked. So they do indeed step down.

So, Ilia Sutskever, Helen Toner, and Tasha McCauley all get the boot. Somehow, co-founder Adam D'Angelo manages to stay on the board. Brett Taylor, former CEO of Salesforce, gets the call-up to be board chair and is joined by Larry Summers. Sam Altman overall gets reinstated as CEO. The workers win, and the board loses! Already this morning, OpenAI posted on X that Sam Altman will now officially return as CEO. He's the guy to go to. He has been at the forefront of this AI boom we've been seeing.

There is no doubt in my mind, though, that the winners of all this have been Sam Altman and of course Microsoft. But something you might be wondering, which is a wise thing to ponder, is how on Earth was it so easy to almost completely upend one of the world's most important AI companies? That's what we're going to talk about next. But before we do, one tool that you can use to ensure your online security doesn't get upended is NordVPN, the VPN provider that I've been using for the past three years. I love NordVPN.

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So, as I said before, you might be wondering how on Earth it was so easy to almost completely and utterly destroy one of the world's most important AI companies. It took four people getting mildly annoyed at the CEO's inconsistent communication for this company to be brought to its knees. Are you kidding me? This is why I keep saying this feels a lot more like a TV show than real life, and it all comes back to the original structure of the company.

So, OpenAI was founded in 2015 by a bunch of researchers and entrepreneurs including Sam Altman, Greg Brockman, Reid Hoffman, Jessica Livingston, Peter Thiel, Elon Musk, Amazon Web Services, Infosys, and Y Combinator. Together, they pledged $1 billion, and the OpenAI journey had begun. Now, the goal of the company was always “to ensure that artificial general intelligence benefits all of humanity,” which is a bit wishy-washy and vague, but that's what they went with.

Furthermore, to ensure there was no corporate funny business going on, the company started as a nonprofit, but then they hit a bit of a problem around 2017-2018. They realized that the development of AI was going to be really flipping expensive—so much so it probably won't go anywhere on donations alone. So they needed to adapt, and they decided the best way forward was to make a subsidiary of OpenAI Inc called OpenAI Global LLC, which is a capped-profit company.

So this subsidiary they decided could turn profit, but the profit could only be 100 times any investment. AKA, if an investor came in and put a dollar into OpenAI Global, the max they could take out is 100 bucks. Their hope was that this structure would allow OpenAI to make enough money to fund its own development and attract top talent, but the core values of the company wouldn't change, and commercial stakeholders couldn't come in and disrupt the mission.

As you can see by this complicated flowchart, any mention of, say, Microsoft or any other investors happens below the LEL level of the original nonprofit, meaning that while investors could get involved and could even benefit from their investment, they could not exert influence over the company's direction or mission. All of that was controlled way up at the top here by OpenAI's board of four people. Now, that in some ways is a noble structure to adopt, but in other ways this structure is completely stupid.

The main problem is that, as we've seen over the past week, it can lead to the board having way too much control. If we go back to OpenAI's flowchart, as you can see, the board controls OpenAI Inc completely with no shareholders to answer to, and then OpenAI Inc controls OpenAI GP LLC and OpenAI Global LLC. So shareholders can benefit, but they don't really get a say. Now, what this has led to is the board of directors in total control, but the crazy thing is there's only four of them.

That's the big problem: you annoy a couple of people, and you've already got one foot out the door. And that's exactly what happened to Sam Altman. For example, Microsoft has 12 members of the board, Meta has 26, Berkshire has 13. There's diversity in the board, and it takes a lot more people coordinating together to make big decisions. That’s the tricky thing: you don't want a board so huge that nothing ever gets done, but you also don't want a board so tiny that just one or two people can really play havoc with the company.

So that was OpenAI's big mistake. All of this could happen because there was literally four people controlling it, and it did—spectacularly! But as I said before, the four-person board was effectively dissolved. Adam D'Angelo did manage to keep his seat, but beyond that, they have now brought in former Salesforce CEO Brett Taylor, former Treasury Secretary Larry Summers, and there are plans to expand that board going forward, potentially including some Microsoft representation, who have invested heavily into the success of OpenAI and ChatGPT.

So overall, guys, that is where we are at in the wild saga of OpenAI. I hope that provided a little bit of insight and helped explain the craziness. As always, thanks very much for watching, and as well thanks for your ongoing support of new money education. Remember, if you haven't signed up yet, it's all good. We've extended it—Friday is now the deadline. I hope you jump on board, but with that said, guys, I'll see you all in the next video.