OpenAI Saga: Sam Altman’s Wild Weekend

Sascha: [00:00:01] Welcome to the Dive, the podcast that asks who said business news needs to be all business. I'm your host, Sascha Kelly. ChatGPT has taken the world by storm this year. That is the chat bot made by opening on Sam Altman, The CEO and co-founder of Open AI has become one of the most recognisable faces in business this year. He's travelled the world speaking to world leaders about the opportunities and dangers of AI and the need for strong regulation. There are few people with as much technical knowledge and a philosophical thought when it comes to AI as Sam Altman, which is why it was such a surprise when he was fired by the Open AI board. The company says the board lost confidence in Altman's ability to lead. It's Wednesday, the 22nd of November, and today I want to know what happened and maybe more importantly, what happens next. To talk about this. Today, I'm joined by the man who was glued to his phone over the weekend and has been peppering the group chat with updates about this story. It's Alec Renehan. Welcome to the dive, Sascha. 

Alec: [00:01:04] Good to be here. 

Sascha: [00:01:05] I know you've been dying to talk about this, so give me a quick refresher. Who are the main players? What's been going on? Set the scene. 

Alec: [00:01:12] Yeah, well, I mean, if air is the biggest story of the year and ChatGPT and OpenAI, the biggest company of the year, Sam Altman would be up there with the biggest person of the year. Then this has to be the biggest story of the it, doesn't it? 

Sascha: [00:01:26] I think so. I think I heard a Forbes reporter call this the tech Super Bowl of news over the weekend. He said this is basically like what we've all been watching.

Alec: [00:01:35] Okay? Everything has to be analogised to American TV, the. 

Sascha: [00:01:38] Super Bowl, everything. 

Audio Clip: [00:01:40] I also think at this point, given how much people see the economic benefits and potential, no company could stop it. 

Alec: [00:01:48] So Sam Altman, he is the XY Combinator president, the the Start-Up Incubator, famous in Silicon Valley. He is the CEO or he was the CEO of OpenAI and one of the co-founders of this group, including famously Elon Musk. Yeah. Then there's Greg Brockman. He's another big player. He is one of the co-founders. He was the president and chairman of OpenAI. He's one of Sam Altman's closest confidants. Mm hmm. OpenAI itself. The company is the maker of the chat bot. Also daily the image creation. 

Sascha: [00:02:22] I played around with that as well.

Alec: [00:02:23] Yeah. Less noted, but pretty cool still. Finally, the last major player is Microsoft. They will become important later on. They're a major investor in OpenAI. They've put more than $13 billion into the company and own 49%. 

Audio Clip: [00:02:37] We do have breaking news just moments ago. Microsoft is to boost its investment in chat maker open. This will be the third investment in about three years. 

Alec: [00:02:46] But Sascha, to give you an insight into just how crazy this weekend was. Microsoft were only told of Sam Altman's firing one minute before it was announced publicly. 

Sascha: [00:02:55] That's not great, Alec. And before you start thinking like, how does that happen? It's because Open A.I. has this unique structure that actually made this story possible. 

Alec: [00:03:04] Yeah, that's right. Microsoft, as a 49% owner of the company would normally have more than one board seat and they would be involved in the hiring and firing of a CEO. But OpenAI has a unique governance structure. So OpenAI, the company is what Microsoft has invested in itself. Sam Altman was leading. It's the company that is commercialising ChatGPT. And. Mm hmm. There is a parent company above it, which is a not for profit company, and that board of the not for profit has decision making authority controls OpenAI. So investors in the commercial operating OpenAI company, those investors have an investor in the parent company that has control. So they have no ability to put people on the board and they and to influence decisions. Now, this convoluted corporate structure was designed to protect the board of directors from commercial pressures. It was designed to stop investors putting pressure on the board to make more money because then that board could purely be focussed on safely developing artificial intelligence. 

Audio Clip: [00:04:08] I think if this technology goes wrong, it can go quite wrong. And we want to be vocal about that. We want to work with the government.

Sascha: [00:04:16] So it was kind of structured this way because they recognised what a complex issue artificial intelligence is. 

Alec: [00:04:22] Exactly. And OpenAI itself was originally created as a not for profit. But then because they recognised how much investment would be needed, you know, $13 billion from Microsoft, they created the commercial operating entity. And it has a capped profit model. So it's not just a normal company that's trying to maximise its profit. But even with this cut profit model, the board that ultimately fired Sam Altman sat above the investors and was sort of independent of them. 

Sascha: [00:04:50] Yeah. Or the perfect kind of landscape for this really complicated story to unfold. So step me through the chronology of this story. Let's start last Thursday 16th of November.

Alec: [00:05:01] Yeah. So it all starts with Ilya Sutskever, ever the chief scientist at OpenAI, a co-founder, and importantly, a board member of this not for profit board. So Ilya texts Sam Altman, the CEO of OpenAI, on Thursday evening about scheduling a call on Friday, Mira Mortara, Openai's chief technology officer, was informed on that Thursday night as well that Sam Altman would be fired and she would be made interim CEO. 

Sascha: [00:05:27] So from those reports, we now know that the board had already made up their mind why they decided to oust the CEO. And the most well known person in the world of AI is still unclear. But that now brings us to Friday. 

Alec: [00:05:39] Yeah. So the board had clearly made up their mind. If they'd already told the interim CEO that she would be taking over. But Sam didn't know yet. So that brings us to Friday. Reports are that Altman was told 30 minutes before the meeting he would be fired. The finance meme accounts are also having a lot of fun with the fact that he was apparently told on a Google made video call. Even though Microsoft owns 49% of the company and is invested $13 billion. Not a ringing endorsement for tapes.

Sascha: [00:06:05] No, not at all.

Alec: [00:06:07] So, yeah. Reporter Altman was told 30 minutes before the board meeting he would be fired. The board meet at midday. After that meeting, Greg Brockman, Sam Altman's close confidant and co-founder, was told he would be removed from the board and then opened a post a blog post announcing the departure. No reason given, but certainly a lot of hate from the not for profit board. Let me quote. Mr. Altman's departure follows a deliberative review process by the board, which concluded 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. 

Sascha: [00:06:45] Strong words that so. Suffice to say at this point. Understatement of the century. On Friday afternoon, all hell breaks loose. 

Alec: [00:06:51] That's right. So this is when I was glued to my phone. 

Sascha: [00:06:54] Okay. 

Alec: [00:06:55] So OpenAI then holds an all hands staff meeting on Friday afternoon. At this meeting, Ilya stood together, defended Altman's out start, and claimed that it was necessary to protect Openai's mission of, quote, making A.I. beneficial to humanity. Now, as I said, Microsoft wasn't told until a minute before it was made public. 

Sascha: [00:07:16] That poor PR person.

Alec: [00:07:17] Yeah. They put out, I guess, a lukewarm statement of support on the Friday afternoon. Quote, We have a long term agreement with OpenAI with full access to everything we need to deliver on our innovation agenda and an exciting product roadmap and remain committed to our partnership. A number of open eyes. Other investors perhaps weren't as diplomatic as Microsoft. They were all blindsided by the news. Microsoft at least got a courtesy call a minute before all these other investors, many of whom have put millions of dollars into this company, weren't told at all. 

Sascha: [00:07:48] The same as you just looking at that phone they. 

Alec: [00:07:49] Found out on social media. I probably found out before some of them. 

Sascha: [00:07:52] Yeah, because you'll be awake in Australia.

Alec: [00:07:55] And this includes, you know, really famous people in Silicon Valley like Reid Hoffman, who was an early investor. He was the founder of LinkedIn and he actually previously sat on Openai's board of directors. Even he didn't get a courtesy call. And so what we start to say is a number of OpenAI team members quit. 

Audio Clip: [00:08:12] Co-Founder Greg Brockman will also join Microsoft having quit the Start-Up after hearing the news. 

Alec: [00:08:18] As well as three senior researchers, including Openai's director of Research, Jacob Percoco. By Friday night, so the day Sam Altman was told he was reportedly already pitching investors on a new venture. 

Sascha: [00:08:33] Okay. 

Alec: [00:08:34] No arrest. I guess there would be a lot of people that would be willing to put a lot of money into whatever he does next. 

Sascha: [00:08:39] Absolutely. 

Alec: [00:08:40] Reporting from the New York Times on that Friday evening said, quote, Details on the potential company are scarce because Mr. Altman and Mr. Brockman are still working through what it will be. Plans could change quickly as the pair are keeping a wide range of options open. So basically they were going to investors and saying, just back off. 

Sascha: [00:08:57] I mean, it's not the worst plan in the world out of all of the ones I've heard. So let's take a breath. I imagine at this point everyone, you know, tried to go to sleep will probably more realistically call themselves a large drink. But it brings us to Saturday. 

Alec: [00:09:11] That's right. So in an internal memo sent on the Saturday morning open air, chief operating officer Brad Light up said that yesterday's announcement took the management team by surprise and that the management team were having multiple conversations with the board to better understand the reasons. So it was still, I guess, confusing even internally why Sam Altman had been fired. Investors who were furious at these turn of events were reportedly putting pressure on Openai's board to reinstate Sam Altman. They were trying to recruit Microsoft in this effort. Reports were that CEO of Microsoft, Satya Nadella, was sympathetic to these investors. And then The Verge reports on Saturday night that the board had agreed in principle to resign and allow Sam Altman and Greg Brockman to return. But. Then it waffled at the last minute. And reports were that Sam Altman himself was ambivalent about coming back without significant governance changes. 

Sascha: [00:10:09] Pretty understandable, I would say, in his position. But it brings us to Sunday, where Sam Altman returns to OpenAI HQ as he returns back to his workplace to have a conversation. 

Alec: [00:10:20] Yeah, that's right. And he was at this point, you know, the names were going crazy and he was even getting in on the joke himself. He tweeted an image of himself wearing a visitor badge saying, First and last time I'll be wearing one of these. He meets the board. The board don't agree to his demands. They can't say eye to eye. Sam Altman is not returning on the Friday. The board had appointed an interim CEO, Mira Marathi Openai's chief technology officer, by Sunday afternoon. They remove her and replace her with new CEO Emmett Scheer, the co-founder of video streaming site Twitch. 

Sascha: [00:10:55] Wow. What do we canned? So then what happens on Monday? 

Alec: [00:10:59] Yeah, it's a long weekend here. It is not over. 

Audio Clip: [00:11:03] Talk about the breaking news overnight. The soap opera. That was virtually all weekend for those who were following. We had former open air CEO Sam Altman is now going to be joining Microsoft.

Alec: [00:11:15] Monday morning news breaks that Sam Altman, Greg Brockman and a number of open air colleagues will be joining Microsoft to lead a new AI research team. Altman is given the title Head of Artificial Intelligence Research. The most interesting thing out of this announcement. Microsoft CEO Satya Nadella leaves the door open for other OpenAI staffers to leave OpenAI and join Microsoft, saying that they'll be given the resources they need should they choose to join. Also on Monday, Ilya Sutskever gave up one of the board members that ousted Sam Altman posts on Twitter suggesting he regrets his decision to remove Altman and says he'll do everything in his power to reinstate Altman as CEO. 

Sascha: [00:11:58] Sorry, Ilya a bit late. Yeah, sure thought that one through. 

Alec: [00:12:02] Monday morning, nearly 500 of openai's roughly 770 employees, including remarkably Ilya Sutskever, over publish a letter saying that they might quit OpenAI unless the board resigns and reappoint the ousted Altman. Later on Monday, that number had climbed from almost 500 to over 700 of the 770 employees. That's over 95% of the company. I would love to speak to one of the 70 employees that are still holding out.

Sascha: [00:12:31] Maybe they're on annual leave and they just don't know. Just like what happened when I was away. But this saga isn't over, is it? Is there still a small chance that Altman will return to OpenAI? 

Alec: [00:12:43] Yeah. So although Altman and Brockman have been announced that they're going to Microsoft, Microsoft even are acknowledging that this deal hasn't been completely done, the door is still open for them to return to OpenAI. Obviously, the employees want them to return to OpenAI. The question, I guess is will Altman get the governance changes he wants? And I. Reading between the lines, I think those governance changes might be having a board like a normal company board rather than this not for profit board. But at the very least, having more control over who sits on the not for profit. 

Sascha: [00:13:15] Yeah, you'd have a lot of trust issues after that. That is a very good summary of Sam Altman's wild weekend. Thank you, Alec. Let's take a break and then afterwards, I want to unpack what happens next for Microsoft, for urban AI and artificial intelligence more generally. 

Audio Clip: [00:13:35] Sam Altman is out as CEO of OpenAI. Microsoft CEO Satya Nadella announcing early this morning Altman will join Microsoft as the head of a new AI research division. 

Sascha: [00:13:46] Welcome back to the dive. Today we are talking about Sam Altman's shock firing from open air. And man. Look, I thought I was kind of across this and I was not. But now the question is, Alec, you know what happens next? Let's start with the company that's at the centre of all of it. And, you know, one that is Mercedes and that's OpenAI. 

Alec: [00:14:05] Yeah. So new CEO Emmett Scheer is in full survival mode. I do not envy this judgement he's taken. In a nutshell, he needs to keep his people. Yeah, all of his people. And with Microsoft opening the door for anyone from OpenAI to come and join Sam Altman's new team, that's going to be pretty hot. Emmitt has announced on Twitter that an independent investigator will, quote, dig into the entire process leading up to this point and generate a full report. 

Sascha: [00:14:32] I feel sorry for that person, actually. That's a big job. 

Alec: [00:14:36] But yeah, OpenAI are in are in crisis mode already. 

Sascha: [00:14:40] And so what about Microsoft then? 

Alec: [00:14:42] Yeah, well, I think Microsoft might emerge as the biggest winner from this all rather than having 49% of Sam Altman's company and all the great researchers at OpenAI. They might end up having a 100% of a lot of these great researchers. Yeah, they say they're still committed to their partnership with OpenAI and you would be after sinking $13 billion into it. But Satya Nadella has been quoted as saying that Microsoft can stand on its own two feet if OpenAI were to fully collapse because Microsoft doesn't, quote, lack A.I. software of its own to fall back on. 

Sascha: [00:15:13] Okay. And so what about Sam Altman? Like, what next for him? 

Alec: [00:15:17] Yes. So from reporting, Sam still wants to end up at OpenAI with these governance changes. From what we can get from these sources, that that seems to be where he is going. Reportedly, he, Greg Brockman, and the investors that are supporting him are trying to find a, quote, graceful exit for the not for profit board members that they're trying to move on whether or not they want to exit, because, again, the structure of this board has been set up to avoid these pressures, to avoid pressures from investors and company management. In theory, the structure that that has led to these conditions is also the structure that will, I guess, immunise them from this pressure. 

Sascha: [00:15:58] Yeah.

Alec: [00:15:59] So I guess that is the question. What if the board stays? Sam Altman goes to Microsoft. If the board goes, Sam Altman goes back to OpenAI. [00:16:06][6.8]

Sascha: [00:16:07] Well, there's a few people I'm not jealous of this week. And that's, you know, Microsoft's Microsoft's coms, but also the people on the board. Alec, what happens next to them? 

Alec: [00:16:16] Yeah. Well, the board is standing by the decision. And it's confusing because Ilya Suits gave has signed this letter asking for the return. But then the board has put out a statement also saying, quote, The board firmly stands by its decision as the only path to advance and defend the mission of OpenAI. And that was signed by all the directors. So, anyway, it is a mystery wrapped in a riddle, roughly. 

Sascha: [00:16:43] Absolutely. 

Alec: [00:16:44] That memo went on to say, quote, Put simply, Sam's behaviour and lack of transparency in his interactions with the board undermine the board's ability to effectively supervise the company in the manner it was mandated to do. 

Sascha: [00:16:55] Hmm. I don't believe him. But anyway, it's not up to me. So then to understanding why that decision, but then not providing any more detail on why he was fired. 

Alec: [00:17:04] No more detail. There are some clues, and I have two possible theories. 

Sascha: [00:17:08] Excellent. 

Alec: [00:17:09] Now, for that, these are just my theories. 

Sascha: [00:17:11] So that's the best way to finish an episode. So let's not. 

Alec: [00:17:13] Get it twisted that this is not anything more than one person's opinion who has spent way too much time following this story over the last four days. 

Sascha: [00:17:20] Okay. Max yours.

Alec: [00:17:21] That disclaimer clearly in mind. Two theories. The first one is that the board were worried that Sam Altman was too focussed on building Openai's business and wasn't paying enough attention to the dangers of AI. So they wanted to slow down the development process and consider the risks more. Whereas Sam Altman was you know, he came from the Silicon Valley School of Y Combinator. He was building this big business and he wanted to go fast. The clue that indicates that, I mean, there has been some reporting to that effect, but it's all quite general. But Satya Nadella, the Microsoft CEO, when he announced that Sam Altman would be coming to Microsoft, he said that Altman's new research lab would be, quote, setting a new pace for innovation, which was apparently in contrast to open eyes, broad desire for caution in developing AI. So one theory is around, you know, the pace and the controls of AI development that the board and Sam Altman saw the world differently. So it's theory one. Mm hmm. Theory two is that he was developing business interests outside of OpenAI that may have come into conflict with his role roles and responsibilities of, say, at least in the opinion of the board. Yeah. And, you know, one clue that indicates that. Is that literally the evening that he was fired? He was hitting up investors to raise money for his new venture. Yeah. The Financial Times have also reported that Sam Altman was trying to raise money, tens of billions of dollars to create a new company to produce the chips needed to power open air models. And so if you think about Nvidia and how much success they've had this year powering this A.I. revolution with the, you know, cutting edge H1 chips and the like, there is certainly going to be a need for better processors, better chips, better hardware to process this AI revolution. And Sam Altman is right in the centre of it all. So perhaps that business plan was more developed than has been let on in the last few days. 

Sascha: [00:19:19] But that wouldn't be the first time we've seen a CEO start a new business.

Alec: [00:19:22] No, of course not. You know, Elon Musk, the CEO of Tesla and then SpaceX. So probably the best analogy here is Jack Dorsey, who was leading Twitter and then started Square, which became blocked. 

Sascha: [00:19:34] What about Bryce Leske equity mates and his Dropshipping business? 

Alec: [00:19:41] True. Three powerhouse CEOs that have started multiple businesses. So like, there is nothing wrong with starting another business, but you just need to have, you know, the board across the board need to approve it and conflicts. 

Sascha: [00:19:52] Of interest along the way. 

Alec: [00:19:55] Exactly. And maybe we'll find in time that that was part of the problem. So there my two theories. 

Sascha: [00:20:00] Excellent. Well, here's the question I've been waiting to ask you for the last 20 minutes. And that's most importantly, what about ChatGPT? 

Alec: [00:20:07] Child safety is not going anywhere. So yay. It has 180 million users and 1.5 billion page views each month. Reports are it's on track to do a million. So $1 billion in revenue or at least $1 billion run rate in revenue. Obviously, if 700 of the 770 employees leave, that's going to cause some problems for the business. But yeah, I think your access to ChatGPT is not gonna syphon out.

Sascha: [00:20:37] Well, let's leave it there for today on a happy note. If you're new and joining us for the first time, thank you so much. Let us know what you think of the day by emailing us at contact at equity mates.com. I'll be back in your faith on Friday talking about the housing market and immigration. It's a great episode so join us for that. Alec, thanks for your time today. 

Alec: [00:20:54] Thanks, Sascha.