OpenAI to Form Public Benefit Corporation, Balancing Profit and Mission

OpenAI, the company behind the popular AI chatbot ChatGPT, has announced plans to establish a public benefit corporation (PBC). This move comes after months of public scrutiny and pressure following the company's attempt to transition from a non-profit organization to a more traditional for-profit entity. The new structure aims to balance the company's commercial ambitions with its original mission of developing safe and beneficial AI for humanity.

OpenAI's decision to form a PBC allows the company to pursue both social and financial goals. Under this structure, the company's directors and managers must balance the interests of shareholders with those of stakeholders significantly affected by the company's actions, as well as the public benefits outlined in the company's charter. This approach is designed to make it easier for OpenAI to attract high-level investments while maintaining its commitment to its social mission.

Currently, OpenAI operates under a hybrid structure, with a non-profit organization overseeing a for-profit subsidiary, OpenAI LLC. This setup includes a "profit cap" model, where investors agree to limit their financial returns while adhering to the non-profit's charitable goals. The revised plan involves converting the for-profit subsidiary into a PBC and removing the profit cap, which is expected to attract more investors while keeping the non-profit entity in control.

OpenAI's CEO, Sam Altman, emphasized the importance of finding a solution that benefits investors and ensures continued funding. However, the governance structure is still being refined. Initially, both the non-profit and for-profit entities will have separate boards, composed of the non-profit's current directors. Over time, the non-profit will have the authority to select board members for the for-profit company. It remains unclear whether the non-profit will have the power to dismiss the for-profit company's directors or executives, a detail made significant by the non-profit's brief removal of Altman as CEO over a year ago.

One potential drawback of the PBC structure is the lack of independent standards for evaluating compliance with social or environmental goals, which could lead to accusations of "greenwashing." OpenAI faces the challenge of balancing its mission to create safe and beneficial AI with the need to generate returns on substantial investments in computational capabilities. As a relatively new legal entity, it is uncertain how courts will interpret and weigh OpenAI's dual mission of increasing profits and providing social benefits. Only shareholders holding at least 2% of the company's stock can sue if the company fails to fulfill its public benefit commitments.

The PBC structure is popular among emerging AI companies seeking to address public concerns about the potential threats posed by AI technology. Anthropic, another AI company, was established as a PBC in 2021 with a public mission to create reliable, interpretable, and controllable AI systems. Elon Musk's xAI is also structured as a PBC. Outside the tech industry, notable examples of PBCs include the shoe brand Allbirds and the eyewear company Warby Parker. However, OpenAI's approach is unique because its non-profit entity retains significant influence.