Four Predictions About OpenAI's Plans To Retain Nonprofit Control

An apparent victory for opponents of the company's for-profit ambitions may be more complicated

After months of controversy and litigation, OpenAI just announced that it will keep its nonprofit in control of the company — while hinting that caps on investor profits might disappear.

At a glance, this appears to be a significant reversal from the company's previous plan to shed nonprofit control over the for-profit entity, an effort that faced major opposition from parties including Elon Musk, civil society leaders, former employees, and legal scholars.

"OpenAI was founded as a nonprofit, and is today overseen and controlled by that nonprofit. Going forward, it will continue to be overseen and controlled by that nonprofit," Bret Taylor, chair of the nonprofit's board, wrote in a blog post today. The announcement followed discussions with the attorneys general (AGs) of California and Delaware, who oversee charitable organizations in their states and have been scrutinizing the proposed restructuring — which either of them could have blocked.

Photo: Clara Mokri for NY Magazine

But what does "control" actually mean in this context? And will the profit caps — which would have sent OpenAI's profits to the nonprofit once investors received returns of up to 100-times their investment — remain in place?

And does OpenAI now owe investors $26.6 billion, plus interest? The company reportedly gave investors in its last two fundraising rounds the ability to claw back tens of billions of dollars, if it didn't shed its nonprofit controls by certain deadlines. The status of these provisions didn't appear to be explicitly addressed by OpenAI.

Reading between the lines

While the announcement keeps the nonprofit in control, CEO Sam Altman's accompanying letter suggests a significant change to the capped-profit model:

Instead of our current complex capped-profit structure—which made sense when it looked like there might be one dominant AGI effort but doesn’t in a world of many great AGI companies—we are moving to a normal capital structure where everyone has stock. This is not a sale, but a change of structure to something simpler.

This language implies that the profit caps, a crucial feature of OpenAI's original model, will be modified. These caps were intended to ensure that if OpenAI became wildly profitable through building artificial general intelligence (AGI), the vast majority of profits would flow to the nonprofit. OpenAI's charter defines AGI as "a highly autonomous system that outperforms humans at most economically valuable work." And it's worth noting that normal corporations don't have caps on investor returns.

Altman seems to be arguing that because many companies will build AGI, no single company is going to pull in the trillion-dollar-plus profits they once anticipated. As a result, the nonprofit will actually be giving up less in expected profit and will need to receive less compensation for the removal of the caps.

But if investors have been balking at the profit caps, as they reportedly have been, then that may mean they think OpenAI has some appreciable chance of hitting them.

In other words, what Altman wrote doesn't make much sense. If OpenAI is no longer on track for trillion-dollar profits, the caps should be irrelevant. The fact that investors purportedly pushed to eliminate them suggests they believe OpenAI’s upside remains enormous — and that the caps were more than just a technical nuisance. I find it hard to imagine that investors are put off by the complexity of OpenAI's structure more than the caps themselves.

Without these limits, OpenAI’s investors could reap uncapped returns — fundamentally changing the company's incentives and undermining its original intention to avoid the corrupting influence of profit-maximization.

The control question

A key question that remains unanswered is how much OpenAI's nonprofit control really matters if the board doesn't exercise independent judgment. After the November 2023 firing and rapid rehiring of Altman, it's reasonable to wonder if the nonprofit board will ever again meaningfully stand up to the CEO or the for-profit entity.

Taylor shared a "technical detail" with reporters: the PBC will have its own board, but the nonprofit will appoint its directors — and for now, the same people will sit on both boards.

As the technology OpenAI builds grows more capable and widely used, the way it's governed matters more.

This also matters because if OpenAI actually builds AGI, it's not out of the question to think it could generate trillions in profits. Without profit caps, there would be no legal obligation to share that money with the world, beyond what they pay in taxes and whatever stake the nonprofit retains.

Perhaps more importantly, nonprofit control makes it easier for directors to justify decisions that are good for the world or safety but bad for the bottom line. Shortly after Altman was fired, OpenAI's chief strategy officer Jason Kwon reportedly told then-director Helen Toner that by voting for the firing, she had violated her duties — but under the nonprofit structure, her duty was to humanity writ large, not shareholders.

A fiduciary duty to humanity may sound silly, but the degrees of freedom it offers could matter enormously in moments of crisis or when making key decisions about powerful AI systems.

Four predictions

Based on my past reporting and reading between the lines of the announcement, here's what I expect to happen:

1. The profit caps will be gone, replaced with a "normal capital structure where everyone has stock" — and that stock entitles you to uncapped future profits.

2. OpenAI won't have to pay back the $26.6 billion to investors because they've signed off on this change in return for the profit caps being eliminated.

3. The nonprofit will be compensated tens of billions by the for-profit entity for the removal of the caps.

4. The nonprofit will largely use that money to buy OpenAI services for nonprofits and governments, targeting constituencies that can make life difficult for the company (like California nonprofits).

As Altman wrote in the letter, the nonprofit "will become a big shareholder in the [new public benefit corporation for-profit entity], in an amount supported by independent financial advisors, giving the nonprofit resources to support programs so AI can benefit many different communities."

Is this a victory?

The "Not for Private Gain" letter from civil society leaders, former employees, and Nobel laureates that Obsolete covered last month argued that no sale price could adequately compensate the nonprofit for what it would be giving up — control over a company that might build AGI. They essentially said: this isn't a debate about fair market value.

In response to the news, former OpenAI researcher Todor Markov tweeted:

Glad you're making this commitment.

I do think it's unfortunate that you only made it after public pressure and the Attorneys General getting involved. Had you done this back in December, it would have looked like principle, not like you got dragged kicking and screaming.

Still, regardless of your true motivations, this decision is a win for the broader public. We’ll be watching closely to make sure nonprofit control remains more than just words on paper.

Page Hedley, who led the "Not for Private Gain" letter and also used to work at OpenAI, is less sure that this is a win. "We’re glad that OpenAI is listening to concerns from civil society leaders and Attorneys General Jennings and Bonta," he wrote in a statement that raises these questions:

Will OpenAI's commercial goals continue to be legally subordinate to its charitable mission, which is enforceable by the attorneys general?

Who will own the technology that OpenAI develops?

Hedley concludes, "The 2019 restructuring announcement made the primacy of the mission very clear, but so far, these statements have not."

Whether this development marks a meaningful victory for those concerned about OpenAI’s governance — or just a clever repackaging of its original plans — remains an open question.

Thanks to Ian MacDougall and Sid Mahanta for the excellent and timely edits.