OpenAI May Turn Into a Public Benefit Company: What Does That Mean?
By : Bloomberg
Update: 2024-09-30 11:25 GMT
OpenAI’s managers are weighing whether to turn the fast-growing artificial intelligence pioneer into a public benefit corporation (PBC) that would no longer be controlled by its nonprofit board.
The deliberations follow a string of executive departures as the company grapples with explosive growth and intense interest from investors.
So what is a PBC, and how would the status change affect OpenAI’s operations?
What is a public benefit corporation?
This corporate structure, created under Delaware law, allows for-profit entities to commit to pursuing goals bettering society. Directors and managers of PBCs must balance the interests of shareholders with the interests of those “materially affected by the corporation’s conduct” and the public benefits identified in the company’s charter. Directors have no obligation to prioritize one set of interests over another.
Why set up a PBC?
Because a PBC structure gives companies the freedom to pursue social and financial goals in parallel. That could allow a company to more easily fund its heavy investments while still taking a stand against investors lobbying for the company to depart from its social mission and prioritize higher financial returns. It could also pave the way for OpenAI to potentially raise more capital via an initial public offering.
How is that different from operating as a nonprofit?
The key difference is its ownership structure. A traditional nonprofit has no owners or shareholders. A PBC is owned by shareholders who expect the company to bring them a return on their investment.
OpenAI currently operates under a hybrid structure in which OpenAI Inc. is a nonprofit and OpenAI LLC, of which Microsoft is a minority owner, serves as its for-profit subsidiary. This structure includes a “capped-profit” model whereby investors agree to limit their maximum financial returns while adhering to the nonprofit’s charitable goals.
A PBC structure could simplify OpenAI’s governance after a messy year that included the brief removal of Chief Executive Officer Sam Altman.
In a statement, a spokesperson said OpenAI remains “focused on building AI that benefits everyone,” adding, “the nonprofit is core to our mission and will continue to exist.”
What are the drawbacks of a PBC?
PBCs aren’t required to use any independent standards to evaluate compliance with their social or environmental goals, so it can lead to accusations of “ethics washing.”
This is a sensitive topic for OpenAI, which is under conflicting pressures to balance its goal of building “safe and beneficial artificial intelligence for the benefit of humanity” while still making a return on its heavy investments in computing capacity.
PBCs are a fairly new type of legal entity, so it’s unclear how courts will interpret and measure the mandates of increasing both profits and social goods when it comes to OpenAI. Only stockholders with at least 2% of the company’s shares can sue the company if it doesn’t uphold its commitment to be of public benefit.
Who else operates as a PBC?
The structure has been popular among emerging AI companies whose managers want to earn a profit, while responding to public concerns that the technology poses a threat to humanity. Anthropic, an AI company formed in 2021 as a PBC, has a public mission to “build reliable, interpretable, and steerable AI systems.” Elon Musk’s xAI is also a PBC.
Other prominent examples of PBCs outside of tech industry are shoe brand Allbirds and eyewear company Warby Parker.