24 November 2023

In the course of five head-spinning days in Silicon Valley, the tech industry witnessed first the surprise ouster and then the triumphant return of Sam Altman, CEO of AI powerhouse OpenAI, one of the world’s most valuable startups.

The dramatic twist ending to this story of tech industry intrigue, Altman’s return to the helm of OpenAI also represents a significant victory for Microsoft, OpenAI’s biggest investor.

The tech giant, led by CEO Satya Nadella, played a pivotal role in orchestrating Altman’s reinstatement, working collaboratively with fellow investors to reverse the shock decision to remove Altman. Nadella’s steadfast public support for Altman and the strategic conditions set for Altman’s return have solidified Microsoft’s influence over the unfolding events and the future of the strategically vital OpenAI.

Let’s look at the moves Microsoft made that will help it exert greater control over OpenAI, a startup pivotal to Microsoft’s ambitious AI strategy.

The Once and Future CEO

While Altman is in good company when it comes to founders who were ousted from their companies only to return later—including Steve Jobs, who was dismissed from Apple in 1985, only to stage a triumphant return over a decade later, and Twitter co-founder Jack Dorsey, who got the sack in 2008 followed by his return as CEO seven years later—even by Silicon Valley standards, Altman’s removal was dramatic.¹ Microsoft, which has a $13 billion stake in OpenAI, found out about the board’s decision to remove Altman with only minutes’ notice.²

Given the importance of OpenAI to their future plans, Microsoft swiftly mobilized to reverse Altman’s ouster, collaborating with other key investors such as Thrive Capital and Tiger Global Management to get the job done.³ Microsoft’s CEO, Satya Nadella, was instrumental in securing Altman’s return, not only publicly supporting Altman but also extending an offer for Altman to join Microsoft and establish a new in-house AI research group—a move meant to show OpenAI’s board, as well as investors and others in the industry, Microsoft’s determination to keep Altman in the Microsoft fold.⁴

The agreement for Altman’s return, reached after four days of intense negotiations, was not without its challenges. The various parties deadlocked over the fate of the existing board members who had voted to remove Altman and had already appointed former Twitch CEO Emmett Shear as the new head of the company.⁵ This move led to the majority of OpenAI’s 770 employees, fearing the departure of Altman and disillusioned by the board’s handling of the situation, to sign a letter threatening to quit and decamp en masse for Microsoft, unless all directors resigned and Altman was reinstated.⁶ This collective stance, coupled with the offer to hire Altman, solidified Microsoft’s strategic play and hinted at the potential for Microsoft to scoop up virtually all of OpenAI’s valuable talent pool if the OpenAi board proved to be holdouts.

Microsoft’s Strategic Influence in OpenAI’s Board Reshuffle

The return of Sam Altman as OpenAI CEO also heralds a profound transformation of OpenAI’s board. Having had their removal of Altman reversed, the board is undergoing a complete overhaul, with only Quora CEO Adam D’Angelo retaining his position. Additionally, former U.S. Treasury Secretary Larry Summers and former Salesforce co-CEO Bret Taylor will also be immediate additions.⁷

Plans for a nine-person board are already in motion, signifying a deliberate effort to foster stability and effective governance, spearheaded in large part by Microsoft.⁸ “We are encouraged by the changes to the OpenAI board,” Nadella said in a post on X (formerly Twitter). “We believe this is a first essential step on a path to more stable, well-informed, and effective governance.”⁹

With a vested interest in OpenAI’s technology as part of its AI strategy, Microsoft stands to benefit most from the makeup of the new board, potentially receiving multiple seats at the table. While Altman himself will initially not take a board seat, it is anticipated that he will eventually join, underscoring the collaborative nature of the deal between him and Microsoft.¹⁰

Microsoft’s strategic moves extend beyond mere board restructuring, however. The inclusion of Larry Summers, a prominent Harvard academic with ties to Wall Street, and Bret Taylor, known for his directorship at Shopify Inc. and having acted as a calming influence during Twitter’s sale to Elon Musk, aligns with Microsoft’s drive to see more stability at OpenAI. Summers’ and Taylor’s presence at OpenAI while the new board is put in place will also help soothe any concerns the shakeup has caused on Wall Street, underscoring Microsoft’s careful orchestration in ensuring OpenAI’s leadership aligns seamlessly with its long-term AI ambitions.¹¹

Conclusion

Beyond the dramatic twists and turns, the saga of Sam Altman has underscored Microsoft’s strategic influence as a stabilizing force for OpenAI, averting potential upheaval among investors and employees alike and the situation has turned into an unlikely win for Microsoft.

Microsoft’s reliance on OpenAI’s cutting-edge technology is vital to its ambitious AI strategy, positioning the tech giant as a formidable challenger to other players in the field. The orchestrated triumph in reinstating Altman highlights Microsoft’s strategic gains in shaping leadership, board dynamics, and market influence amidst the turmoil at OpenAI.

As the dust settles, Microsoft stands poised to reap the benefits of its strategic triumph. Faced with the potential exodus of OpenAI’s talented workforce to Microsoft, the OpenAI board had little choice but to accede to the demands, signaling Microsoft’s influence over the startup’s future. With a potential seat on a reshaped OpenAI board that aligns seamlessly with its long-term AI ambitions, Microsoft emerges as a key player shaping the future of AI innovation.

EDGE ETF: Investment in Innovation

The Evolve Innovation Index Fund (EDGE ETF) is an 8-in-1 innovation fund that invests in disruptive innovation themes across a broad range of industries, including: cloud computing, cybersecurity, egaming & esports, automobile innovation, 5G, fintech, genomics, and robotics & automation. For more information on EDGE ETF, visit our website at https://evolveetfs.com/edge/ or click here. Give your portfolio an EDGE.

 

ENDNOTES

1. Metz, R., Chang, E. & Savov, V., “Altman Returns as OpenAI CEO in Chaotic Win for Microsoft,” Bloomberg, November 22, 2023; https://www.bloomberg.com/news/articles/2023-11-22/sam-altman-to-return-as-openai-ceo-with-a-new-board
2. Fried, I., “Microsoft is a key investor in OpenAI. It was blindsided by Sam Altman’s exit,” Axios, November 18, 2023; https://www.axios.com/2023/11/17/microsoft-openai-sam-altman-ouster
3. Metz, R., Chang, E. & Savov, V., “Altman Returns as OpenAI CEO in Chaotic Win for Microsoft,” Bloomberg, November 22, 2023; https://www.bloomberg.com/news/articles/2023-11-22/sam-altman-to-return-as-openai-ceo-with-a-new-board
4. Isaac, M., Roose, K. & Metz, C., “Microsoft Hires Sam Altman Hours After OpenAI Rejects His Return,” The New York Times, November 20, 2023; https://www.nytimes.com/2023/11/20/business/openai-altman-ceo-not-returning.html
5. Novet, J. & Kiderlin, S., “OpenAI is hiring former Twitch CEO Emmett Shear to run company two days after ousting Sam Altman,” CNBC, November 20, 2023; https://www.cnbc.com/2023/11/19/openai-is-hiring-former-twitch-chief-emmett-shear-as-ceo-.html
6. Evans, P., “Majority of OpenAI employees threaten to quit as backlash against ouster of CEO continues,” CBC News, November 20, 2023; https://www.cbc.ca/news/business/microsoft-sam-altman-openai-chatgpt-1.7033588
7. Baccardax, M., “Sam Altman returns as OpenAI CEO, Microsoft scores with new board, tighter control,” The Street, November 22, 2023; https://www.thestreet.com/investing/stocks/sam-altman-returns-as-openai-ceo-microsoft-scores-with-tighter-control
8. Patel, N. & Heath, A., “Sam Altman to return as CEO of OpenAI,” The Verge, November 22, 2023; https://www.theverge.com/2023/11/22/23967223/sam-altman-returns-ceo-open-ai
9. Baccardax, M., “Sam Altman returns as OpenAI CEO, Microsoft scores with new board, tighter control,” The Street, November 22, 2023; https://www.thestreet.com/investing/stocks/sam-altman-returns-as-openai-ceo-microsoft-scores-with-tighter-control
10. Metz, R., Chang, E. & Savov, V., “Altman Returns as OpenAI CEO in Chaotic Win for Microsoft,” Bloomberg, November 22, 2023; https://www.bloomberg.com/news/articles/2023-11-22/sam-altman-to-return-as-openai-ceo-with-a-new-board
11. Ibid

The contents of this blog are not to be used or construed as investment advice or as an endorsement or recommendation of any entity or security discussed. These contents are not an offer or solicitation of an offer or a recommendation to buy or sell any securities or financial instrument, nor shall it be deemed to provide investment, tax or accounting advice. The information contained herein is intended for informational purposes only.

Commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds (funds). Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. There are risks involved with investing in ETFs and mutual funds. Please read the prospectus for a complete description of risks relevant to ETFs and mutual funds. Investors may incur customary brokerage commissions in buying or selling ETF and mutual fund units.

Certain statements contained in this blog may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Evolve Funds undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.