Altman's Odyssey: The Boardroom Saga

0:00a hundred billion dollar lawsuit, never recovering these guys. No board insurance would cover it. They would be so far beyond that. I mean, just like suicide financially and like in the corporate world, I'm gonna guess that they're gonna be pariahs from anybody except hardcore anti-AIRs. How much more successful would you be if you had lunch once a week with insanely successful entrepreneurs who shared their biggest secrets on how they think and achieve success? Grab your seat at the table, because this is Business Lunch with Roland Frazier and Ryan Dice.

0:40Welcome to another episode of Business Lunch. And today's a snackable episode with Roland where he's going to get into some more tactical strategies that you can start using to live a rich and happy life. If this is the first snackable episode you're hearing, I'd encourage you to go back and listen to some of the other episodes that Roland has put out. And if you want to get notified every time we release a new episode, go to the new businesslunchpodcast.com website, and we'll send you detailed notes along with every episode. That's businesslunchpodcast.com, www.businesslunchpodcast.com, and you can sign up for the free email newsletter where you'll be able to get all the highlights and resources from the episodes.

1:15Hey, everybody. Welcome to another episode of the Business Lunch Podcast with Ryan Dice and me, Roland Frazier. Good to see you guys. Hey, Ryan, what's going on? we uh we just wrapped up uh the thanksgiving holiday um here in general when we do episodes we like to keep it kind of evergreen i think this one is going to be incredibly uh timely because we just wrapped thanksgiving which means we just wrapped black friday in the midst of a cyber monday kind of goodness but we also just wrapped the insanity around that all that went down with uh sam altman and open ai and all kind of that board takeover craziness i think it'd be fun just to chat about all that in one fell swoop have an episode that'll basically be helpful and meaningful for like a week and then nobody will listen to ever again what do you think i like it my favorite uh headline from uh for most clever headline from that whole uh drama was control ultimate delete that's pretty good that's that's pretty good that's pretty good all right all right for those go ahead yeah but for those who didn't hear can i give a quick uh a quick timeline of the events that went down if anybody was you know not paying attention out there so all right i got this is according to axio so on november 16th which i guess was a friday uh or maybe that was i'm all right i'm already off yeah sorry november 16th was a was a thursday um no that was yeah 16th thursday so apparently sam altman on november 16th good prep work by the way ryan nail it um gets called in to a meeting with the board.

2:47They asked him to join a Google Meet chat. He shows up for Google Meet and finds out on Friday that, hey, he's out, right? Now, it's been reported that Microsoft, who owns half of OpenAI, right? Microsoft learned of Altman's firings a minute, the exact word is a minute, before the world was informed on Twitter. That same day, this is Friday, November 17th, OpenAI releases a statement that Sam Altman will be leaving the company after a deliberative review process by the board. Okay. And that Greg Brockman will be stepping down as chair of the board. November 17th, late that meeting, Brockman announces that he's quitting.

3:37So the chair of the board's out. The CEO is out. On November 18th, Microsoft. So the next day, Microsoft is like, we got them. Sam Altman and Brockman, they're both going to be joining. They're going to be leading and driving the new era of AI at Microsoft. You got on then on, yep. So November 19th, Microsoft announces that they've hired both Altman and Brockman. Altman tweets, the mission continues, but this time at Microsoft. On November 20th, OpenAI announces another interim CEO. In this case, it's their second CEO, Twitch co-founder Image here, who served in the role for a total of like 55 hours.

4:20Because that same day, November 20th, this is a Monday, 98 % of OpenAI's 700 plus employees signed an open letter, basically telling the board to quit. saying we're with Sam. And we're going to Microsoft. Yeah, their chief scientist is like, I made a really big mistake by suggesting that he go out. On November 21st, OpenAI releases ChatGPT with voice to unpaid users to basically be like, it's fine. We're still releasing stuff. Wait a minute. I think that what's not in there is, I don't know exactly when it happened, but also the board reaches out to Anthropic and suggests that Anthropic's CEO become the CEO of OpenAI also occupying both positions and that OpenAI gets acquired by Anthropic, even though Anthropic is funded by basically all of the competitors to the primary investors in OpenAI.

5:18Yeah. Then on November 21st, just after 10 p.m., OpenAI releases a statement saying that it has come to a deal in principle for Altman to return as CEO with a new board, a new board, a new chair. So in, let's see, five-ish days, in five days, he's out, he's going to Microsoft, nah, he's coming back, board is out. What a freaking mess to go through all of that. And the fascinating thing to me is we still don't know why. It was speculated at one point that Maybe there was some financial malfeasance. The COO came out and said, nope, wasn't anything to do with that. The best I've heard, and I don't know if you've heard any conspiracy theories, but the best I've heard is that the board member who drove to push Sam out had written some paper that basically said that AI and open AI in particular is a problem.

6:12And Sam was like, hey, as a board member, kind of uncool for you to publish that paper. If you're going to be on our board and basically say the company that you're on the board of sucks, I don't like that. And she didn't like being told that he didn't like it. So she's like, let's get rid of the guy. And also, allegedly, they had a meeting shortly before this all went down where they revealed QSTAR, which is AGI, which is artificial general intelligence, had been achieved or dang near it. And that that caused her and the other board member that was with her to basically say, we can't do this.

6:50And Sam and the other guys are like, man, this is it was really profit versus concern for humanity and profit one. That's that's basically what happened because it always will. Because humanity is who humanity is. It's the scorpion and the frog. Humanity is the scorpion. It will absolutely kill itself because that's its nature, right? So there are those who are not that way, but more that are. And I err on the profit side, although I am pro-humanity too. But I think that's it. The company was a conflicted mission, a conflicted mess of a mission and structure to start with. It's for profit, but then when it returns 100 times the investment of the people that put money into the profit part, the profit becomes nonprofit again to realign with the it doesn't make any sense.

7:46And I think that's that's what it was, is they they didn't know what they wanted to be. I think like Musk left because he saw that inherent conflict earlier on. And this was really what happened is that ChatGPT took off. All of the commercial applications are clear. The app store is, or sorry, GPT store is going to come out. And they're looking at monetizing on the monetization path. This is a company that could be bigger than Apple. And I think the people that are the profit people see that. And the people that were with the Rand Corporation and writing papers about the badness of AI, disagreed with that.

8:26And they had a terrible structure. I want to say that there were only four board members. I remember I looked all of them up and read their whole backgrounds. And it was truly well done in terms of having people that were not profit versus people that were profit. But ultimately, it just couldn't coexist. You can't have a for-profit and a non-profit like this that coexist where a giant opportunity to be the next Apple or Google is going to just go to the incumbents. That's not going to ever be allowed to happen. There will be people that will not let that happen. And then the think about the 700 and some people who were looking at an $87 billion valuation that they were going to be able to sell their shares at because that's a secondary offering that's happening now on those shares went away.

9:16So they were like buying planes and houses in their mind. Explain that for people who don't understand secondary shares and options and those kind of things. Break that down. As to why 98 % of the employees were so incentivized to write that and why maybe it wasn't just a pure love for Sam Altman. Yeah, I think that they probably shared his vision more than they shared the other because the other was basically, hey, let's stop. We've gone too far. We should stop now. And I'm sure that Google and the Claude guys and Musk were like, yeah, you guys should stop for sure. We'll just, you know, we'll take it from here.

9:53Thanks. And the employees who really came in as many of them do in the tech world, assuming that as the value gets established, they'll be able to cash out and make a bunch of money off their options. They're sitting there with a offering that is about to go. That's like a done deal at, I think three times higher than it was earlier in this very year. and they're looking at their, they're going to get to cash out and get a bunch of money. So they're out, like I said, they're pre-buying airplanes and houses and ski chalets and vacations and retirement. And, um, and all that just got taken off the table because the secondary offering people were like, yeah, that's not going to happen because you guys are too messed up right now.

10:37You, you absolutely, we see no reason or way that we're going to do this secondary offering while you are unsure of who you are and who you want to be. Because by the way, that's a valuation based on future profitability, not future goodwill to humanity. So I think it was really just a conflicted mess of a startup, a conflicted mess of a board. And then the board behaved terribly irresponsibly to me. There was the urgency that we may not know of that I can only imagine could have been was that Qstar was going to be released and AGI was going to be available to the masses via chat GPT. And they were like, we need to stop this today.

11:24But it could have been done so much better. I mean, in terms of how things get handled. So I'd say like, number one, if you are like, if we're looking at takeaways, holy crap, communication guys. This felt like a bunch of teenagers stamping their feet and holding their breath. and saying, you know, you can't be part of our company anymore because you don't agree with us instead of, you know, hey, this is a big thing for humanity. Let's talk about this. Let's figure it out and have conversations. And if we can't, then let's come up with a transition plan. And let's maybe talk to the investor that gave us$15 billion more than a minute before the decisions already been made.

12:02But I'm sure Microsoft, like when that was all going down, I was talking to you and other people as Microsoft was like, yeah, so we'll just hire everybody. Okay. You know, we'll acquire the$87 billion company in exchange for our$15 billion. We'll let the$15 billion go and we'll just own ChatGPT version two. I mean, that is just crazy. So anyway, I think that's the big thing. In terms of the secondary, just to explain that for guys that don't, for people that don't understand, that is that even though the company is not public, There is a market of investors that would like to come in and buy the shares of the founding people and the founding investors in companies.

12:45And that's generally called a secondary market. So the primary market is that the people come in and they make their initial investment. The employees come in and they get their options. And then the next thing or the second thing, secondary, is that then investors that are outside that didn't get to participate in that want to buy some of those shares. and that becomes an offering that can be made to them. And so that was what was going on there. So yeah, I'd say that drove much, much more. Not that like if I was choosing, I wouldn't have chose Sam between the choices that were available. But I'd say that had a lot to do with it because they were looking at really not being able to realize the exit that they had in their view.

13:30Like their hands were on it And it was being drug away from them. And with no real likelihood of a future thing, because what happens to the company when it gets lost like that? With a new CEO that, you know, I don't know, which to me, their choices of CEO were questionable. Their offer to try to sell the thing was questionable. The whole handling just, it felt very, very immature. Yeah. I mean, even the reaching out to the CTO to say, hey, we want you to be the interim CEO now. And then the decision is made. I mean, it seems like you would want to make that decision. You're going to exit somebody.

14:15Like you said, you're going to do it maturely. Hey, we obviously have some differences. And it's at the board's discretion to fire the CEO. That's what boards get to do. And so if they've made that decision, it seems like you'd have, like you said, a bit more conversation. A process of working that out so that you don't have essentially the person who's being fired, the primary shareholder and the new CEO, the incoming CEO, who was the CTO, essentially all finding out within about a few hours of one another. That just doesn't seem all that wise, all that smart. And it seems like it was a pretty complete disregard for your giant investor also.

14:53Yeah. I mean, why bother telling them at all? if you're telling them 60 seconds before it happens, right? Right. I mean, my goodness. Anyway, so some things to think about, I think, would be number one, choose your structure carefully and try to have it aligned. Like if you're going to be nonprofit, be nonprofit. If you're going to be for profit, be for profit. If you're going to be both, then have a nonprofit that has a different leadership than the for profit. And have your license agreement or whatever in place so that everybody knows what the deal is and there's not this inherent conflict.

15:34The second thing in the room on that real quick, I think Salesforce has an interesting structure where they basically have a nonprofit arm of Salesforce that I believe is still owned by, you know, and still has some control by Salesforce. But the nonprofit stays nonprofit and it does its nonprofit stuff. But there's still very much an overarching for profit. I've known people, you know, I had a business partner at one point who was adamant about having a nonprofit because, you know, it just looks better. It sounds better. But once you make that tax status election, it's really hard. Damn near impossible to go for profit.

16:12So be careful with that one. There's ways to be charitable and even to have non a nonprofit arm of a for profit business. But to take a business that is nonprofit, for profit is tough, not just legally, but I think this is where you're going next, culturally, from missionally. Yeah. Yeah. Why don't you speak to that? I mean, I think address it. Well, what I mean, what you said there, I think, you know, in terms of big lesson structure matters, but so does mission and vision alignment. And when you find that there is that there is mission and vision alignment across the leadership and leadership can be the executive team.

16:49the leadership can be co-founders, leadership can be the board, then alignment must occur. And the rule is you got three options, right? Anytime there is misalignment at the leadership level, your options are number one, talk about it, discuss it, and everybody become realigned and true believers to the new thing, right? So option A, everybody becomes a true believer to the one thing option b is disagree and commit i'm still not totally sure that this is the right thing as far as anybody is concerned outside of this room i'm all in i think the board heard disagree and throw a fit yeah well so i'll come to that one that's the non-option option four um i'm talking about the acceptable options are disagree and commit and that's one and what that doesn't look like is getting to, you know, talk behind people's back.

17:43It doesn't look like, you know, if somebody asks like, well, I'm doing this, like, well, it's not what I wanted to do. No, that's not a disagree and commit, right? Disagree and commit is as far as anybody else is concerned, you are as bought in as the person who championed it to the first. And if you can't do that, then we got option C, which is recuse. Quit, right? Quit, but do it in a mature manner where you try to look out for, and this is important, the stakeholders, right? All of the stakeholders that are involved in that company, including Microsoft in this case, pretty significant one, maybe should have got their opinion or shouldn't have ever taken their money.

18:16The fourth option, which is basically bitch and collect a paycheck, is not a good option. And that's what these people want to do. I want to complain. I want to, you know, whine and moan like a toddler. You don't get to do that, that is not a viable option when you take one of these big grown-up roles. And this could be a big grown-up role at a company as big as OpenAI, or it could be a big grown-up role at your own business, even if you're just getting started. If you've got a company and you're taking on a leadership role, it is the job of the leadership team starting first and foremost with the CEO who, in coordination with the board, sets the vision to make sure that you've got alignment there.

18:55And if you don't, you have to get alignment or whoever finds himself on the outside looking in, they got to go. Doesn't mean they're a bad person. Doesn't even necessarily mean they're wrong, but you can't have somebody lingering there with a misaligned vision. So that to me was huge takeaway from this. Yeah, I think so too. And, and, uh, so just to summarize that it's basically agree and go with it, disagree and commit, disagree and quit. And then the unacceptable disagree, throw a fit. Um, so those are kind of our, our options. I like that. Okay, so now we've talked about the culture. Now let's go down to the for-profit side.

19:33And what happens, let's say that we extrapolate and say what you have maybe is a disagreement between the board and the CEO. And in this case, I think also you had potentially a disagreement between the investor and the board. So the investor and the CEO were aligned, or at least the primary investor, and the board was disaligned with those two. How can you deal with that? That's a structural thing. So if you think about the investors elect, the investors slash owners of the company typically in a for-profit will elect a board of directors. The board of directors elect the officers. The CEO is one of those officers.

20:18So the CEO serves the board. The board has the ability generally to terminate the CEO. How can you structure something that protects the investor shareholders and or the CEO from a board that goes rogue, which is basically what happened here? That's something that you see that's present in the structures of Warren Buffett's Berkshire Hathaway, of Facebook, of Nike, where some level of extra control is exercised by the primary investor. So if you're Microsoft going into a deal like this, you ideally would want to have a super majority that you've got, or you've got more voting shares than somebody else, or you've got more board seats than somebody else.

21:10And so the revised board that they're talking about ultimately having open AI, you know, on open AI will be that Sam Altman will be on the board, that Microsoft will be on the board, and it will be expanded so that there will not be in the future the possibility of this weird coup kind of thing. because I think part of the challenge was that the board was so small. Also, they were able to have a quorum excluding the two people who would have voted against that would have actually had a dialogue. And you can build in additional protections so that there is contractually requirements that processes take place that didn't take place here so that you have an organized transition.

22:01But no matter what, I mean, like to me, these guys were just absolutely irresponsible just to, let's just call it like you see it. I mean, they had a disagreement. They took action independently, didn't consult or try to win over or get a consensus from the investor. Almost like think of the liability that these guys would have had personally. I mean, like a hundred billion dollar lawsuit, never recovering these guys. No board insurance would cover it. They would be so far beyond that. I mean, just like suicide financially and like in the corporate world, I'm going to guess that they're going to be pariahs from anybody except hardcore anti-AIRs.

22:45They're like, I mean, just really just so, so. They would have to go and be like some lobbyist for some poorly funded, you know, destroy the machines, nonprofit kind of thing. It's probably not going to work out very well. And, you know, I hadn't thought about that before, but the liability is probably the thing that got everybody back to the table. I bet one of those folks' attorneys said, do you realize what you've done? the liability that you have opened up by not following, because I would also be willing to bet that they do have some type of process that they need to go through to remove a CEO.

23:21Most board docs do. And so if they didn't follow their own processes, to your point, the example I looked it up. So Meta, Facebook, they have two classes of shares, class A stock with one vote per share, class B stock with 10 votes. one of them maybe it's either buffett or uh nike that's got i think 200 votes it's like i love yeah so so class b which that's all zuckerberg's he owns 13 of meta stock but he controls 61.1 percent of the vote because he's got class b uh and you see this happen a lot and you know this became the trend in silicon valley and the trend with a lot of companies because they realized it's a mistake to force these founders out.

24:08Steve Jobs being kind of the prototypical example of don't just shove a founder out the door. And so you had all these founders who, when they went public saying, I don't want that to happen to me. Right. And it's funny, we've seen a trend away from that. Right. You've seen a trend now to where, you know, with, with frankly, a lot of the scandal, like the Adam Newmans of the world, you know, and the different FTX thing, you've seen a trend away from that, away from the founders getting wherever they wanted towards more board governance. I think this just, whatever pendulum shift was occurring, toodaloo.

24:43Like it's gone. I think it's a good lesson though. I've had multiple people who were going public or bringing in stock option plans and things like that, particularly going public that I've advised that were being told by the investment bankers and the market makers that they would not be able to float the offering with supermajority things like that. And I said, it's clearly wrong. And my favorite story on that was that Phil Knight, when Nike was going public, he was on the phone with the New York investment bankers and they were like, no, you can't have this super majority thing. And he's like, I'm not going to do the offering.

25:30I will not go public if I don't have that. And they were like, I think it was like a 15 second pause. And then it was like, okay. And then it went on and that's it. It's that's part of negotiating. Of course, they would rather you not have it. Of course, it's easier to sell when they can, when they don't have that to talk about. But to me, it could also be a plus. It's like, I kind of wanted Bezos in the seat of Amazon as long as he would possibly stay there. I want Buffett as long as he will stay. I mean, you know, it's like, and maybe he'll make mistakes. Okay. But daggone, look what they've returned.

26:04Look what all these people have returned to the people that they invest with. And the boards are often short-sighted and they're often focused on the short term and not thinking about, they're thinking about what are the quarterly results and how does this impact things that maybe aren't as long-term a vision as most founders have. So to me, it's, and there's multiple, there was a great newsletter article, and you probably subscribe to it too, that broke down all of the lead founder removal returns. And it's just consistently, you know, from Sarah Blakely, who did that, she brought in a CEO, stepped down, came back, vision lost, you know, and Jobs is a great example with Scully, right?

26:46And this one, I think, is the shortest one. I think maybe the only thing shorter than this was the Liz Trust is the prime minister in the UK for five minutes. But what is it? The scared emoji? Yeah. Yeah. The 55 minutes was the fastest semi-public large company CEO tenure, I think, in the history of CEOdom. Crazy. Anyway, hopefully interesting things there. Good takeaways for you guys. I think thankfully Altman's back. They definitely would have lost tremendous momentum, even if they'd moved the whole shebang over to Microsoft. So I think it's really good, but I think it's good lessons in looking carefully at your governance documents, seeing what the board can and can't do, building in a required adulthood maturity process for them to go through, and also thinking about your ownership.

27:35If you're a founder or controller of a company and you're thinking of raising capital or going public, then I think that it makes sense for you to think about, are there things that you can build in? And then you so well broke down that culture and how do you deal with disagreement and having an idea of that built in that our plan is we're going to agree or we're going to disagree and commit or you can leave. But none of this playground stuff. Thoughts before we sign up? I think it's the reason that we like to build bootstrap companies without a lot of boards. It's the reason that we like to work with bootstrap companies that don't have big boards in place.

28:21And so as long as you can avoid a board of directors, you should. You should have a board of advisors. Have an advisory board that is there to advise you and to support you and to enable you. But woof, if it's your company and you're the founder, try to avoid having somebody else who can fire you. Because that's not, I'm guessing if you started the company, that's not what you signed up for for as long as you can. I agree. Well, thanks guys for joining us today on this episode of Sam Altman Delete. And we will see you next time. If you like this stuff, please share it with your friends. And we'll see you next time on Business Lunch.

28:57Hey, Roland Frazier here. If you're looking for a way to grow your business exponentially, to get more customers and ultimately increase your wealth, there's no faster way to do it than to acquire other businesses that already have the customers, products, services, teams, and media that you want. If you want to double your sales, just acquire a company that has the same sales as yours. It sounds simple, but far too many people end up starting new businesses that fail and forget that they could skip all the hard stuff and just acquire one that already exists. There's a reason why private equity firms, family offices, big companies like Apple, Google, and some of the smartest entrepreneurs on the planet do not start new businesses from scratch.