Insights / November 22nd, 2023

AI Replacing its Leaders: Lessons from OpenAI's Turmoil for Business Leaders

The abrupt departure of Sam Altman and Greg Brockman, from Open AI, is a learning opportunity across all industries.


Open AI:

… 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. The board no longer has confidence in his ability to continue leading OpenAI.

Unless you've been living under a rock,  Open AI’s software ChatGPT has since become the hottest technology development this decade.

The departure of Open AI co-founder Altman highlights the importance of safeguarding intellectual property and managing corporate reputation in the era of transformative technologies like artificial intelligence.  

Altman has apparently openly stated he would be setting up a new business (and, one assumes, quite likely to be competing with OpenAI).

The abrupt departure of key personnel presents as a cautionary tale and emphasises the need for strong measures to protect critical assets and maintain the trust of stakeholders.

Open AI has a high profile in the business community after it celebrated the success of its ChatGPT chatbot and Microsoft injecting $10 billion into the business.  The circumstances surrounding Altman’s dismissal, including suggestions of having planned to launch a new venture, and allegations of having misled the board, have ignited a debate about the impact on the company's trajectory and the broader industry.  Now staff are being encouraged to resign, or at least threaten to, with calls for the board to resign.  It would appear a good old fashioned mutiny is afoot!

What can Business Leaders learn from this?

  1. Contractual Commitments:

    • Emphasise the importance of clear and enforceable contracts with restraints, confidentiality, and intellectual property provisions for all stakeholders, including employees, founders, and investors.

    • OpenAI's experience underscores the significance of ensuring that contractual agreements address potential conflicts and clearly define roles and responsibilities.

  2. Technology Measures:

    • Implement robust technology measures to secure and track the movement and transfer of internal information. The use of cutting-edge technology can mitigate the risk of unauthorised access, theft, and data breaches.

    • OpenAI's reliance on AI technology makes it a prime example of the need for best-in-market cybersecurity measures to protect sensitive intellectual property.

  3. Transparency and Communication:

    • Prioritise consistent and transparent communication within the organization. OpenAI's turmoil highlights the consequences of communication breakdowns between leadership and the board.

    • Business leaders should proactively address concerns and foster an environment where open dialogue is encouraged, preventing potential conflicts from escalating.

  4. Board Governance:

    • Ensure effective board governance with a focus on diversity of thought and expertise. OpenAI's unique structure, controlled by a non-profit with substantial influence over the subsidiary's activities, emphasises the need for a well-balanced and capable board.

    • Business leaders should evaluate their governance structures to prevent internal divisions that could impact strategic decisions.

  5. Reputation Management:

    • Recognise the importance of reputation management in the age of rapid information dissemination. OpenAI's situation highlights the immediate and widespread impact of internal issues on the company's public image.

    • Business leaders must prioritize building and maintaining a positive reputation to retain investor and stakeholder confidence.

A wake-up call for all

The OpenAI turmoil serves as an awakening for businesses, boards and investors navigating the world of start-ups and business interests.

Business leaders can protect their organisations against potential pitfalls, by ensuring the best protection is put in place for the longevity and success of their ventures.

As technology continues to reshape all industries, the lessons drawn from this incident demonstrates the critical need for proactive measures in securing intellectual property, sustaining a resilient corporate reputation, and protecting employee relations at the same time.

In a blink of an eye, as we deliberate in this article on the importance of having the right contractual obligations and reputation management processes, Sam Altman has since apparently been reinstated as OpenAI CEO. Our article above remains good general advice on what needs to be done (and perhaps what not to do). Standby for our update on the valuable lessons arising out of this sort of an outcome, one that can be, not only deeply embarrassing for a board/company but ultimately fateful. There’s a right way to accommodate this sort of outcome and an even better way to avoid it occurring in the first place.

Our next insight will explore how to reinstate an employer without Fair Work and its implications on the company and business.

Cowell Clarke’s employment law team is experienced in dealing with a broad range of employment and workplace relations matters. Our team establishes trust and supports our clients in resolving issues and managing future risk. If you need advice or have any questions on the topic above, contact our authors Joe Murphy and Zoe McQuillan, or one of our other Directors of Employment, Sam McGrath and/or Cassie Burfoot.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.