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Comment by chaorace | Hacker News Reader

The really depressing thing is that the board anticipated exactly this type of outcome when they were going "capped profit" and deliberately restructured the company with the specific goal of preventing this from happening... yet here we are.

It's difficult to walk away without concluding that "profit secondary" companies are fundamentally incompatible with VC funding. Would that be a pessimistic take? Are there better models left to try? Or is it perhaps the case that OpenAI simply grew too quickly for any number of safeguards to be properly effective?

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I think the fact that a number of top people were willing to actually leave OpenAI and found Anthropic explicitly because OpenAI had abandoned their safety focus essentially proves that this wasn’t a thing that had to happen. If different leaders had been in place things could have gone differently.

Ah, but isn't that the whole thing about corporations? They're supposed to outlast their founders.

If the corporation fails to do what it was created to do, then I view that as a structural failure. A building may collapse due to a broken pillar, but that doesn't mean we should conclude it is the pillar's fault that the building collapsed -- surely buildings should be able to withstand and recover from a single broken pillar, no?

My sweet summer child. Do you really belive this Anthropic story and that Anthropic will go any other way? Under late-stage capitalism, there is no other way. Everyone has ideals until they see a big bag of money in front of them. It doesn't matter if the company is a non-profit, for-profit or whatever else.

How did they structure it to prevent this? Is it in the statutes of the company or smth?

It's actually a very clever structure! Please open the following image to follow along as I elaborate: https://pbs.twimg.com/media/F_PGOPOacAApU8e.jpg

At the top level, there is the non-profit board of directors (i.e.: the ones Sam Altman had that big fight with). They are not beholden to any shareholders and are directly bound by the company charter: https://openai.com/charter

The top-level nonprofit company owns holding companies in partnership with their employees. The purpose of these holding companies is to own a majority of shares in & effectively steer the bottom layer of our diagram.

At the bottom layer, we have the "capped profit" OpenAI Global, LLC (this layer is where Sam Altman lives). This company is beholden to shareholders, but because the majority shareholder is ultimately controlled by a non-profit board, it is effectively beholden to the interests of an entity which is not profit-motivated.

In order to raise capital, the holding company can create new shares, sell existing shares, and conduct private fundraising. As you can see on the diagram, Microsoft owns some of the shares in the bottom company (which they bought in exchange for a gigantic pile of Azure compute credits).

And what was this structure supposed to achieve? At the top we have board of directors not accountable to anyone, except, as we recently discovered, to the possibility of a general rebellion from employees.

That's not clever or innovative. That's just plain old oligarchy. Intrigue and infighting is a known feature of oligarchies ever since antiquity.

> That's not clever or innovative

Whether or not it is “clever”, the idea of a non-profit or charity owning a for-profit company isn’t original. Mozilla has been doing it for years. The Guardian (in the UK) adopted that structure in 1936

That's not entirely true. As a 501(c)(3) organization, they are bound to honor their founding bylaws on pain of having their tax-exempt status revoked w/ retroactive consequences. I won't comment on whether this is the fault of the bylaws or the IRS... but in the end I think we can agree that this was evidently not an effective enforcement mechanism.

As for the whole "cleverness" topic... it wasn't designed as an oligarchy, that's merely what it has devolved into. The saying "too clever by half" exists with good reason

Like the rest of the company, it's very clever but not in any way positive for anyone but them.

Except Altman has the political capital to have the entire board fired if they go against him, which makes the entire structure irrelevant. The power is where the technology is being developed -- at the bottom where they can threaten to walk out with plush jobs from the major shareholders at the bottom. The power is not where the figureheads sit at the top.

Right. That's the thing which I found to be so depressing. Just because I think that it was clever does not mean that I think it was successful.

Out of curiousity, with the benefit of hindsight; what would you have tried doing differently to prevent such a coup?

That's a good question, and I agree it was a clever design. I don't know that there is a way to modify the org structure to prevent what happened. As much as I dislike them, a clear non-compete clause after the structure was in place might have helped, but I'm not sure that's even an option in CA. And having employees re-sign for noncompete would be fraught itself (better from the start). But this does seem like the most relevant application of non-compete. I'm not a lawyer and I'm sure they had top notch lawyers review the structure. If OpenAI played the non-compete card it wouldn't make retention easier if employees were willing to walk (they wouldn't exactly have trouble finding jobs anywhere). Do you know of anything that might have prevented it?

Well, if you squint a little bit, this all looks kind of like a military coup. Through the cultivation of personal loyalty in his ranks, General Altman became able to ignore orders, cross the Rubicon, and subjugate the senate. It's an old but common story.

I point out this similarity because I suspect that the corporate solution to such "coups" will mirror the government solution: checks and balances. You build a system which functions by virtue of power conflicts rather than trying to prevent them. I won't pretend to know how such a thing could be implemented in practice, however.

Ultimately, the people performing the actual work will always have a collective veto power.

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