Is OpenAI Still a Nonprofit? Consumer Group Urges Investigation

A consumer rights advocacy group is urging the California attorney general to scrutinize generative AI darling OpenAI's nonprofit status.

"Recent news reports suggest that the non-profit OpenAI may be acting under the control of its for-profit subsidiary affiliate or prioritizing profit over its non-profit purpose," the nonprofit consumer-advocate organization Public Citizen wrote in a Tuesday announcement. "If that is the case, California law would require the attorney general to seek OpenAI’s dissolution, divestment of its assets, and reinvestment of those assets in charitable purposes."

San Francisco-based OpenAI has two corporate entities, OpenAI Nonprofit and OpenAI LP, a for-profit company that is supposed to be wholly controlled by the nonprofit entity's board. This dual-entity structure was announced by OpenAI back in 2019.

The context for Public Citizen's letter to California Attorney General Robert Bonta is OpenAI's governance skirmishes back in November, when the company's CEO Sam Altman had been fired by OpenAI's board. Altman was later rehired, but three board members were ousted.

Public Citizen's letter to California's attorney general suggested that the OpenAI for-profit entity may have taken control around that time.

"Close observers of the recent tumult at OpenAI tell a consistent story about why its CEO Sam Altman was dismissed and then brought back: for-profit interests defeated non-profit considerations," said Robert Weissman, president of Public Citizen, in the organization's announcement. Weissman authored the letter to Bonta.

Weissman further explained via a phone call that OpenAI's governance isn't always clear that the nonprofit entity is in control, in which case OpenAI should be dissolved by the state:

When you hear OpenAI's valued at $86 billion, or valued at $100 billion, that's actually the for-profit that has that valuation, but it's controlled by a nonprofit. And we're saying, well, it looks like it's not by the terms. The nonprofit is supposed to control the for-profit. But, based on what happened, it appears more like the for-profit is in the driver's seat, and really controlling the nonprofit. If that's so, then the nonprofit is no longer serving its function and abiding by the terms of its registration in California. And in which case, the remedy is for the Attorney General to dissolve the nonprofit.

A precedent for dissolving OpenAI can be found in the past when Blue Cross California converted into a for-profit entity in the 1990s. That conversion resulted in the creation of it "two charitable foundations with more than $3 billion," the announcement explained.

During the November skirmish at OpenAI, Microsoft, which has invested billions in OpenAI, briefly hired both Altman and OpenAI's President Greg Brockman, who had quit to support Altman. OpenAI later rehired back Altman and Brockman, and Microsoft gained OpenAI nonvoting board member status.

Weissman indicated that Microsoft is not a party in Public Citizen's complaint to California's attorney general, but that it is still "part of the story" regarding OpenAI's nonprofit status. Presumably, Microsoft's billions were invested in the for-profit entity. And it's not clear if its non-voting OpenAI board seat is for the nonprofit entity or the for-profit entity, he added.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.