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Coalition urges California attorney general to halt OpenAI’s for-profit restructuring

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In San Francisco, a group consisting of various California nonprofits, foundations, and labor organizations have expressed apprehensions regarding OpenAI, the company behind ChatGPT. They are appealing to the state attorney general to stop OpenAI’s plans to transition into a profit-driven corporation.

Over fifty organizations, headed by LatinoProsperity and the San Francisco Foundation, submitted a petition to Attorney General Rob Bonta’s office on Wednesday, asking for an investigation into the company led by Sam Altman.

The petition states that OpenAI initially aimed to create AI for the betterment of all mankind. However, its recent move to restructure the company suggests a shift in focus: instead of widely distributing the benefits of AI – which could lead to immense profits and control over potentially world-changing technologies – this advantage is now being targeted towards a select group of corporate investors and top-tier employees.

As a movie reviewer standing in the heart of San Francisco, I’d like to shed light on the fascinating journey of OpenAI, a company with humble origins as a nonprofit back in 2015. Over time, it spawned a for-profit arm to manage its commercial ventures. Now, this nonprofit’s board maintains oversight over that division, which churns out innovative products and services such as the captivating ChatGPT and the groundbreaking text-to-video tool known as Sora.

Hollywood Inc.

The potential court case between Elon Musk and OpenAI might significantly influence the direction that a key figure in the realm of artificial intelligence may take in the future.

As the cutthroat AI industry battle intensified, I found myself compelled to adapt. OpenAI, in December, announced its intention to investigate the transformation of its commercial subsidiary into a Public Benefit Corporation – a unique business model that blends profit-making with social responsibility. In this new setup, the OpenAI nonprofit retains a stake but cedes control, ensuring continued innovation while maintaining a commitment to the greater good.

Originally, when OpenAI was established as a non-profit research organization, the focus wasn’t on developing a product; instead, the goal was primarily to publish research papers, as shared with Stratechery in March by its co-chair, Sam Altman.

With passage of time, OpenAI has emerged as a dominant force in the artificial intelligence sector, boasting around half a billion weekly users of ChatGPT. In hindsight, Altman stated that he would have structured the company differently if given the chance.

In a chat with Harvard Business School, Altman expressed that while we understood the significance of increasing computer capacity, we significantly underestimated just how much scaling was necessary.

Other AI startups including Anthropic and xAI are public benefit corporations.

Some nonprofit leaders expressed skepticism about the restructuring plan in OpenAI, fearing potential risks to its charitable assets. The petition questioned whether OpenAI was adhering to nonprofit regulations, criticized it for potentially misusing a nonprofit structure, and voiced worries that other companies might exploit this model for personal financial gain, leading to accelerated and amplified opportunities.

In 2023, there was a significant change within OpenAI’s nonprofit board. The decision was made to dismiss Altman due to accusations of inconsistency in his honesty towards fellow board members. However, just five days later, he was reinstated and the board underwent a reorganization, with several dissenting board members choosing to step down.

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The latest $40-billion investment round will bring the ChatGPT’s valuation to $300 billion.

This month, it was announced that OpenAI closed a record-breaking $40-billion funding round, headed by SoftBank. This investment pushes the company’s estimated worth to an impressive $300 billion. In this arrangement, SoftBank reserves the right to lower its investment if OpenAI fails to alter its corporate structure by year’s end.

Unlike for-profit businesses, nonprofits are limited in how funds raised are used.

Neil Elan, a partner at Stubbs, Alderton and Markiles LLP, stated that they are unable to sell shares or provide returns. He emphasized that equity is crucial for the high-valued models these companies use. Moreover, it’s challenging for them to effectively compete with tech giants like Meta, Microsoft, and Google, who have substantial resources at their disposal… without similar financial backing.

According to CB Insights, OpenAI and ByteDance (TikTok’s parent company) share the title of the second most valuable privately-owned companies, with a valuation estimated at the same level. SpaceX, owned by Elon Musk, holds the top spot with a staggering $350 billion valuation.

Orson Aguilar, head of LatinoProsperity – an L.A. nonprofit dedicated to boosting wealth in the Latino community – stated that this conversion is extraordinary in terms of scale, and they simply want to confirm that the Attorney General will indeed use his powers to safeguard these charitable resources.

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On Wednesday, there was an event showcasing films created by various filmmakers using OpenAI’s text-to-video tool, Sora.

Some heads of nonprofit organizations find similarities between OpenAI’s current situation and how non-profit healthcare providers shifted towards profit-oriented entities in the 1990s. Much like how government officials intervened to manage this transformation, they now believe it’s necessary for authorities to step in and regulate the ongoing developments with OpenAI.

In January, LatinoProsperity and several other non-profit organizations initially voiced their worries to the attorney general.

Xavier Bonta has inquired further about OpenAI’s restructuring, with his deputy attorney general making contact with the AI company to request a more detailed explanation. Earlier this year, Bonta’s office informed news outlet CalMatters that they are conducting an ongoing investigation, and that their department is dedicated to preserving charitable assets for their designated purpose, taking this responsibility very seriously.

Aguilar says “there hasn’t been any meaningful action.”

A number of rivals to OpenAI have voiced their disagreement with the company’s proposed strategies. For instance, Meta addressed a letter to the attorney general last year. Moreover, Elon Musk, who is both an original founder of OpenAI and current head of a competing firm called xAI, filed a lawsuit against OpenAI last year, aiming to prevent any changes in its corporate structure.

Nathanael Fast, head of the Neely Center for Ethical Leadership and Decision Making at USC Marshall School of Business, believes that OpenAI can continue with their proposed plans, even in the face of resistance.

Fast pondered, “Once they transform into a corporation amidst competition with other profit-driven entities, the key question arises: Will they retain the values they initially had as a nonprofit, or will they merely resemble any ordinary for-profit organization?

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2025-04-09 19:31

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