Business strategy

Helen Toner’s resignation from the OpenAI board is a warning to startup directors about the dangers of capital colliding with good intentions

- December 7, 2023 3 MIN READ
knights, joust, horse
Photo: AdobeStock
Australian tech has lost its director on the board of OpenAI after Helen Toner resigned from her position at the Artificial Intelligence juggernaut.

While she cited fulfilling her role requirements as the reason for her departure, specific details or reasons for her resignation were not disclosed, leaving the decision somewhat unclear.

The whole episode has highlighted just how brittle good intentions, particularly at startups, become when valuations start to soar and growth causes corporate governance structures to be tested.

The job of a founder is to make their company a success, which means if the corporate structures the board and management oversee can’t withstand that success they shouldn’t be there at any cost.

Late last week, Ms Toner broke her silence following the utterly bizarre blow-up at OpenAI, the creator of ChatGPT, which saw chief executive Sam Altman dismissed by the board only to be reinstated days later following a shareholder and staff protest.

“To be clear: our decision was about the board’s ability to effectively supervise the company, which was our role and responsibility,” Toner posted on X, formerly Twitter.

“Though there has been speculation, we were not motivated by a desire to slow down OpenAI’s work.”

Whenever you see a director resigning in controversy, while being able to say sincerely that they acted in accordance with their role and responsibilities, it’s usually due to a clash of personalities or significant corporate governance issue.

Both of those elements could still be present here. We know that Altman was fired for not being entirely upfront with the board, but don’t have any details.

From the outside it appears Toner did her job, to the letter. That means she was working within a corporate structure that was overwhelmed, hence why Toner also noted the board was conducting a full review on next steps.

OpenAI started out life in 2015 as the brainchild of Altman and Elon Musk, who determined it should be a not-for-profit (NFP). The pair didn’t think a for-profit vehicle could responsibly oversee the awesome power of AI.

Fast forward to the 2019 deal that saw Microsoft pump US$1 billion into the company, a for-profit vehicle, which would be overseen by the OpenAI board still operating as an NFP, was created to handle all the financial firepower. It’s hard to see that it was ever going to work.

But when the disunity between Altman and the board emerged, the OpenAI board sacked the CEO without consulting any of the investors, something NFP status permits. Microsoft was investing in the vehicle the OpenAI board was overseeing, not OpenAI itself. Unsurprisingly, Microsoft is now “observing” the OpenAI board while a new structure is considered.

Doing things differently?

The question every startup director must ask themselves is “would I have done anything differently in the same circumstances with the same legal structures”.

This case also illustrates how novel structures created with the best of intentions can unravel when commercial opportunities or complexities grow.

There are great initiatives within startups that come under enormous pressure when valuations surge. Maintaining the collaborative spirit of flat organisational structures, scaling lean operations efficiently, and adapting agile methodologies becomes imperative. Balancing the expansion of employee share schemes and sustaining work-life balance initiatives become delicate tasks in the face of heightened workloads. Preserving the company culture amid rapid growth requires proactive efforts, while integrating Environmental, Social, and Corporate Governance (ESG) principles demands strategic alignment. Leaders must navigate these challenges with continuous evaluation and strategic adjustments to uphold core values and ensure sustained success amid significant growth periods.

Let’s be clear – we’re not opposing these initiatives. Indeed, it would be hard to find a major company board in Australia that hasn’t planted its flag on most of these initiatives as essential for a strong, profitable company. However, these legal structures, just like OpenAI’s NFP status, can come under threat when valuations suddenly rise. Leaders must remain vigilant and adaptable, ensuring the resilience of these initiatives even in the midst of rapid market changes.

Some onlookers, including author, podcaster and marketing professor Scott Galloway, have made the point that what happened to OpenAI is absolutely consistent with the recent history of big tech. Think Google’s decision to emblazon the phrase ‘Don’t be Evil’ to its IPO, a phrase that has now been ruthlessly scrubbed from the Googleplex.

It’s worth pointing out OpenAI has endured an unprecedented influx of capital and the pressure that comes with it, which needs to be taken into account before we go chalking them up as another case of a promising, ethical company becoming another big tech disappointment.

It should also be pointed out that not every tech company is Google, or OpenAI, or any of the other major tech companies that consumers have grown increasingly suspicious of. What the company produces, what it does, has a massive influence over the culture of the company and its ability to withstand the pressure that comes with capital.

However, the lessons of OpenAI are clear. If you want your company to be really successful financially, and do things differently, you first need to consider whether those two things can truly co-exist.

  • Anthony Bekker is the founder and MD, APAC, of Australian, US and UK technology legal advisory firm BizTech Lawyers.