Nothing Boring About OpenAI's Board

Apple's role rescinded, Microsoft's role renounced...
Nothing Boring About OpenAI's Board

Last week when the news broke that Apple would be getting a board observer role at OpenAI, I was surprised. Yes, the two companies had just announced a partnership to bake ChatGPT into Apple Intelligence, but this was still a highly unusual level of access that one of the largest companies in the world would be getting into arguably the most important AI startup. Normally such oversight is granted alongside ownership in an entity, but not only was Apple not investing in OpenAI, there was apparently no money changing hands in their deal. As I wrote:

Having been both a board member and a board observer at a number of companies over the years, you can't overstate how big of a deal this is. While it's true that observers don't get a formal vote on various governance issues, they're still in the room for every board meeting. Listening. Weighing in. It's obviously meant to be helpful (to both the company and the entity observing) and not nefarious, but it puts Apple in a position to know a lot of what's going on within OpenAI.

Yes, they can and will likely have to recuse themselves for certain topics where there might be competitive overlap, but if OpenAI was overly concerned about this, they wouldn't have given Apple this position.

Well, while OpenAI may not have had a problem with this, clearly someone did. As today comes news that Apple will not be getting that board observer role after all. From Tabby Kinder at The Financial Times:

Apple had also been expected to take an observer role on OpenAI’s board as part of a deal to integrate ChatGPT into the iPhone maker’s devices, but would not do so, according to a person with direct knowledge of the matter. Apple declined to comment.

OpenAI would instead host regular meetings with partners such as Microsoft and Apple and investors Thrive Capital and Khosla Ventures — part of “a new approach to informing and engaging key strategic partners” under Sarah Friar, the former Nextdoor boss who was hired as its first chief financial officer last month, an OpenAI spokesperson said.

So no one is refuting the reporting, first by Bloomberg and backed up by the FT, that Apple was in line to get this board role – going so far to note that longtime Apple executive Phil Schiller would be taking the position. Now that offer is being rescinded or declined. And while the attempt here is clearly to frame this all as "nothing to see here". Clearly there's something to see here! Because yes, Microsoft is also giving up their observer role on OpenAI's board.

The Occam's razor guess would be that Microsoft wasn't thrilled with the notion of Apple getting equal footing in that board room. After all, it cost Microsoft roughly $15B to get that right, while it cost Apple $0. But beyond that, again, this is just a lot of access to grant a rival into Microsoft's largest and most important investment. I know that is an obvious guess because it's what I guessed last week:

And my god, what must Microsoft think of this? I joked that it only cost them $15B or so to get what Apple just got for free. There had already been various reports of tensions between OpenAI and Microsoft around the Apple deal (and perhaps on the flip side, Microsoft's Inflection no-deal deal), but Microsoft must in part see this as letting the fox into the henhouse. The very expensive henhouse built with Microsoft's money!

Well, now that gold-plated henhouse is secure again. All it took was mother hen leaving as well. A tall ask, perhaps, but Microsoft is obviously framing this as their decision to step down – per a memo obtained by Ina Fried:

"We appreciate the support shown by OpenAI leadership and the OpenAI board as we made this decision," Microsoft said.

"As you know, we accepted the non-voting board observer role at a time when OpenAI was in the process of rebuilding its board," Microsoft said in the letter. "This position provided insights into the board's activities without compromising its independence, and we appreciated the opportunity to serve as an observer during this period of change."

"Over the past eight months we have witnessed significant progress from the newly formed board and are confident in the company's direction."

"Given all of this we no longer believe our limited role as an observer is necessary," Microsoft added.

I think it's quite likely that it was their decision – again, perhaps in exchange for ensuring that Apple didn't join those board meetings. But also, Microsoft having such a role always seemed problematic, simply from an optics perspective. Again, as I wrote:

And Microsoft didn't even have observer rights until after the company nearly imploded and Satya Nadella stepped in to save and restore Sam Altman's job. To be fair, they probably didn't want to be in the board room beforehand simply because of the optics of that role alongside the massive investment (which alone has drawn the gaze of regulators). But once everything went to hell, they clearly felt the need to have more oversight – and understandably so!

The regulatory pressure is only increasing – especially as the "hackqusition" maneuver that Microsoft pioneered with Inflection (itself stemming from the near-hiring of Sam Altman and the rest of OpenAI back in November of 2023) spreads to other Big Tech companies. And Microsoft's investment in OpenAI itself remains under scrutiny. Sure, not having a formal board seat helps a bit, but again, they were still in that room. They were getting access to and input to all sorts of privileged information. That notion is why Microsoft called it a "limited role" but that's silly semantics. As someone who has been in such rooms many times, I can tell you, if you're in the room, you're in the room. The things you actually vote on as a director are usually stock grant approvals and the minutes from the last board meeting. It's true that Microsoft didn't have say over those elements, phew!

Before this site even existed, I found it odd that Microsoft would want any sort of formal role within OpenAI given the regulatory risk above. Sure, there was some element of putting "an adult in the room" after the near-implosion of the company, but they could have done – and actually did do – that without putting a Microsoft adult in the room.

But having already gotten that role, there's now no real reason for Microsoft to leave after just eight months (maybe two board meetings?) unless it was being used as a bargaining chip or to try to avoid more regulatory scrutiny.1 And in this case, I think both things are true. As Sam Altman wrote at the time of Microsoft's appointment (and his official return as CEO):

Satya, Kevin, Amy, and Brad have been incredible partners throughout this, with exactly the right priorities all the way through. They’ve had our backs and were ready to welcome all of us if we couldn’t achieve our primary goal. We clearly made the right choice to partner with Microsoft and I’m excited that our new board will include them as a non-voting observer. Thank you.

You'll note it doesn't read: "I'm excited that our new board will include them as a non-voting observer for eight months". Funny that.

This also alleviates some inevitable future tension in that board room if and when Apple – and Microsoft – continued to go down their own AI paths, working on projects that conflict with OpenAI. Back to my thoughts last week:

You can't help but get vibes of then-Google CEO Eric Schmidt on Apple's board. That ended in tension with the rise of Android. Apple is obviously already working on their own AI capabilities. And everyone assumes that they'll own more and more of that stack overtime, potentially pushing onto OpenAI's turf. The same is true of Microsoft, of course. But Microsoft owns 49% of OpenAI. Apple owns 0%.

The very real tension of Microsoft owning that 49% – sorry, having the right to 49% of the profits, you hear that, regulators? – remains and will undoubtedly also continue to increase. But that's going to be much, much more complicated to unwind. Perhaps OpenAI thought Apple could eventually be a new capital partner. Or perhaps Apple simply asked for more oversight alongside their partnership given the drama which constantly swirls around OpenAI. But again, that board element was also weird from that perspective because Apple has already stated that they were going to be bringing on other AI partners to be a part of Apple Intelligence eventually. OpenAI was simply the first.

Anyway, henhouse secured. For now. The foxes are back outside. I'm sure this will appease regulators. Right?2 Right?!3

1 The one other wildcard scenario, of course, would be if tensions had already grown to a bad place between Microsoft and OpenAI -- which certainly seems possible! And the Apple deal/appointment probably didn't help matters! I would also just add that for its part, Apple undoubtedly doesn't want to attract any more regulatory scrutiny either!

2 No way.

3 At least Elon Musk will be happier? But still not happy.