Is Musk Right About OpenAI?
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3/7/24 – Issue 8.57 – Your weekly news on all things board. 

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The world is awash in lawsuits and claims related to Elon Musk right now. Former Twitter executives are suing Musk over unpaid severance, and the lawyers who got Musk’s mammoth pay package struck down are seeking $5.6 billion in Tesla stock as payment. But the biggest suit this week might be Musk’s own against OpenAI, where he claims that by creating a for-profit arm, the company is going against its foundational mission. Musk, who helped found OpenAI in 2015, claims the company’s technology is now too powerful to be owned by any one entity. Skeptics say Musk is trying to ensure that only one entity profits from AI (himself). But he raises interesting questions: How powerful is AI at the moment? And when does the mission of ensuring its ethical use begin to run counter to a company’s mission of profitability and shareholder value? These are questions that will become more urgent as the world’s largest tech companies begin to develop their own versions of generative AI technology. 

 

In other news, McKinsey looks at the rising complexity of board work; GE Vernova’s spin-off; Lessons from Harvard’s board turmoil; and the increased focus on internal audit. 

 

In the Spotlight

 

Musk Sues OpenAI for Breach of Contract

As a co-founder, he claims the company abandoned its founding mission

 

“The lawsuit, filed late on Thursday in a San Francisco court, marks a dramatic escalation of a long-simmering feud between tech industry titans over the future of AI. It pits Musk, one of the world’s richest people, against the world’s most valuable company, Microsoft, and Altman, one of Silicon Valley’s leading personalities who has achieved global fame as OpenAI’s CEO. It also sets up a potential courtroom debate over a topic that has roiled policymakers and businesses for much of the past year: How scared should we all be about advances in AI—and how soon? Musk, who helped found the ChatGPT maker in 2015, claims OpenAI’s close relationship with Microsoft goes against the company’s original commitment to public, open-source AI. Upon founding OpenAI, Musk and co-founders Altman and Greg Brockman agreed to pursue the nonprofit approach “for the benefit of humanity,” and not any single company, according to the court filing. At the time, the founders’ goal was to create a nonprofit counterweight to Alphabet’s Google, which Musk thought was too powerful in AI.” THE WALL STREET JOURNAL

 

The Paradox at the Heart of Elon Musk’s OpenAI Lawsuit

Is AI too powerful to be for-profit?

 

“On one level, the lawsuit reeks of personal beef. Mr. Musk, who founded OpenAI in 2015 along with a group of other tech heavyweights and provided much of its initial funding but left in 2018 over disputes with leadership, resents being sidelined in the conversations about A.I. His own A.I. projects haven’t gotten nearly as much traction as ChatGPT, OpenAI’s flagship chatbot. And Mr. Musk’s falling out with Sam Altman, OpenAI’s chief executive, has been well documented…But amid all of the animus, there’s a point that is worth drawing out, because it illustrates a paradox that is at the heart of much of today’s A.I. conversation — and a place where OpenAI really has been talking out of both sides of its mouth, insisting both that its A.I. systems are incredibly powerful and that they are nowhere near matching human intelligence.” THE NEW YORK TIMES

 

From Boardspan this Week:

 

Board Succession Planning: Define Your Board’s Future
Wednesday, March 20, 2024 at 2pm ET

 

We’ve had a lot of interest in our next webinar, where Boardspan Founder and CEO Abby Adlerman and Jamie Gorelick, Lead Independent Director at Amazon and member of the Corporate Nominating & Governance Committee at Verisign, will discuss how Board Succession Planning is key to aligning your board to the strategic vision and goals of the company and the constantly evolving market landscape. We hope you can join us on March 20–bring your questions.

Register for the Webinar

 

Across the Board

 

Former Twitter Executives Sue Musk Over Unpaid Severance

Former CEO, CFO, legal chief, and GC dispute Musk’s claim he had cause to fire them 

 

“Four former top Twitter executives sued Elon Musk, saying he owes them a collective more than $128 million in severance. The executives, who led the company during a lengthy and at times hostile takeover process in which they sued the billionaire to follow through with the acquisition after Musk changed his mind, say he fired them citing gross negligence and willful misconduct, which they deny. Musk said at the time they were fired for cause and he didn’t have to pay severance. The lawsuit, filed Monday in federal court in California, escalates a more than yearlong dispute between the former executives and the billionaire. The plaintiffs are Parag Agrawal, Twitter’s former chief executive; Ned Segal, its former chief financial officer; Vijaya Gadde, its former chief legal officer; and Sean Edgett, its former general counsel.” THE WALL STREET JOURNAL

 

Lawyers in Musk Compensation Case Seek $5.6 B in Tesla Stock
Amount would be a record-breaking payday and a rare stock payout

 

“Chancellor Kathaleen McCormick’s January decision to strike down Musk’s pay package at Tesla was the largest verdict in the history of the Delaware Chancery Court.  McCormick ordered Musk, Tesla’s chief executive, to return the stock options he received under his 2018 compensation package, which the company had valued at a maximum of $55.8 billion. The judge sided with Tesla shareholder Richard Tornetta, who alleged that the board of directors breached their fiduciary duties to investors in approving the compensation. It is now up to McCormick to figure out how much returning the compensation package would be worth to Tesla—and, relatedly, how much of that pie attorneys should receive in the form of fees. “The lawyers who did nothing but damage Tesla want $6 billion. Criminal,” Musk wrote on X Friday night.” THE WALL STREET JOURNAL

 

The Rising Complexity of Board Directorship (PODCAST)

Three experts offer advice on advice on dealing with increased responsibilities

 

“Sean Brown: The business world has changed dramatically over the past few years. What does it mean to be a board director today? Frithjof Lund: With all the new challenges coming up, from geopolitics to generative AI and digitization to sustainability, being a board director is probably more complex than ever. New topics pile onto the board agenda almost by the day. We’ve also seen a massive increase in the expectations of the board to engage on strategy, investments and M&A, performance management, risk, talent, and the organization.” INSIDE THE STRATEGY ROOM (MCKINSEY)

 

GE Board of Directors Approves Spin-Off of GE Vernova
Following completion of the planned spin-off, GE will operate as GE Aerospace

 

“General Electric Company's Board of Directors announced its approval of the previously announced spin-off of GE Vernova, clearing the way for the launch of GE Vernova and GE Aerospace. According to GE Chairman and CEO and GE Aerospace CEO H. Lawrence Culp, Jr., both companies will be fully independent, with GE Vernova focusing on the energy transition and GE Aerospace handling flight.” YAHOO FINANCE

 

The Bitter Board Lessons of Harvard’s Disaster

Takeaways from a cautionary tale

“The negative buzz over board challenges experienced by Harvard, Tesla and Boeing shows remarkably parallel problems over the same period. Harvard’s stumble is particularly educational for boards facing a governance crisis. At a recent Yale Higher Education Leadership Summit, 87 percent of 70 college and university presidents attending concluded that it was right for Harvard’s former president, Claudine Gay, having lost the legitimacy to lead, to step down, with 60 percent also expressing support for Harvard in pushing her from office…However, with the Harvard Corporation board silent at the time of the exit and for months afterward, it is not surprising that people were confused. Morning Consult survey data shows major reputational damage to the Harvard brand by the general public, with falling applications, job placement problems and a withdrawal of major donors.” CORPORATE BOARD MEMBER

 

Labor Group Drops Campaign For Starbucks Board Of Directors 

Starbucks reports significant progress in talks with Workers United

 

“A coalition of labor groups has ended its proxy campaign to nominate three people for Starbucks’ board of directors amid tense labor negotiations at some Starbucks stores, after the company reported significant progress toward negotiations with the Workers United union…The Strategic Organizing Center (SOC), a coalition of several North American labor groups and itself a Starbucks shareholder, launched a campaign in November to elect its own slate of three new directors at the coffee giant’s March 13 shareholders meeting, including a former National Labor Relations Board chair. But the organization announced Tuesday it was withdrawing its nominees following last week’s announcement that Starbucks and the Workers United union had agreed to work together to create a framework for collective bargaining agreements at unionizing Starbucks stores.” FORBES

 

The Board of Directors Is in Charge (OPINION)

Moelis, Crown Castle, and other examples of dealing with activism

 

"The shareholders don’t make the decision; the board does. Now, the directors are elected by the shareholders, and when the company has a controlling shareholder, the idea that the directors are in charge can feel somewhat absurd. The controlling shareholder — say, a founder and chief executive officer who owns 60% of the stock — can come into the boardroom and say ‘I want you to sell all of the company’s assets to me for $1,’ and the directors will say ‘no, in our independent judgment that’s a bad idea,’ and the founder/CEO/shareholder will say ‘okay you’re fired,’ and she will replace them with more pliable directors. And she can do that, because she has the votes.” BLOOMBERG

 

Relationship Between CEOs And Boards Needs Improvement

Many CEOs judge themselves harshly on their ability to operate efficiently with their board

 

“Can your board honestly assess whether there is effective interaction with the CEO?  Effective communication between the board and CEO doesn’t mean that there will be no friction. There will be disagreements, but are there mechanisms in place to work through the rough patches? Do directors and the CEO agree on how an effective board should operate? Is there respect for differing opinions? Is there tolerance and acceptance when additional convincing (or research) is required to gain consensus? Most of the time, board members and the CEO know when there are problems in the boardroom.” CORPORATE BOARD MEMBER

 

Latino Representation on Fortune 1000 Boards Grows

KPMG report notes an increase from 2.7 percent in 2019 to 5.0 percent in 2023

 

“The study shows slightly greater gender diversity among Latino directors: 32 percent of Latino directors are women, compared to 30 percent of all public Fortune 1000 directors. Among the newest Latino directors--those added to boards between January 2022 and June 2023--only 28 percent are women. Of all directors who joined public Fortune 1000 boards in the same time frame, 39 percent are women. In terms of age diversity, Latino directors contribute to a younger demographic on boards. Roughly half of the Latino directors studied are under the age of 60, a notable contrast to the broader demographic of all public Fortune 1000 directors, where only one-third fall into this age bracket.” KPMG

 

Role of Internal Audit in ESG Heats Up Amid Wave of Regulation

Internal audit teams' responsibility to verify material ESG data continues to expand

 

“Across corporate governance, internal audit executives are central to board oversight duties and in particular interfacing with the board’s audit committee. Indeed, audit executives’ duties include risk management, controls, and governance processes and policies, and they report on these to boards of directors, audit committees, and relevant stakeholders…The role in internal audit in ESG data and reporting is critical for the usefulness of sustainability information to be enhanced, both to improve the value of sustainability information and to be capable of verification. Verifiable data signals to investors that the information is reliable and can be trusted to be complete, neutral, and accurate.” REUTERS

 

Time to Rethink Talent in the Boardroom

A big challenge is finding time amid a growing list of priorities vying for boards’ attention

 

“Boards, like the organizations they oversee, are being pulled in multiple directions: The advent of innovative technologies like generative artificial intelligence, evolving stakeholder expectations, demands for climate action, the need for progress on diversity, equity, and inclusion, and the changing economic, political, health, and geopolitical landscape are all transforming the role of organizations in society. Ultimately, at the center of all this change are the people inside organizations doing the work.” HARVARD LAW SCHOOL FORUM ON CORPORATE GOVERNANCE

    Seat at the Table

    • AT&T elects to its board Marissa Mayer, former President and CEO of Yahoo!

    • Signet Jewelers adds to its board Sandra Cochran, former President and CEO of Cracker Barrel Old Country Store

    • WM welcomes to its board Tom Bené, former Chairman, President and CEO of Sysco Corporation

    • Big Lots announces to its board Maureen Short, former CFO of UpBound Group, formerly known as Rent-A-Center

    • Quantum computing firm IonQ elects to its board Bill Scannell, President of Global Sales and Customer Operations at Dell Technologies

    • Seagate appoints to its board Robert Bruggeworth, President and CEO of semiconductor firm Qorvo

    • Paylocity adds to its board Craig Conway, former President and CEO of software firm PeopleSoft

    • Booz Allen appoints to its board Mac Thornberry, former Texas Representative of the U.S. House of Representatives

    • Genco Shipping & Trading LImited welcomes to its board Paramita Das, former Global Head of Marketing, Development and ESG, Metals and Minerals at Rio Tinto

    • FuboTV elects to its board Neil Glat, former President of the New York Jets

    • Alkermes appoints to its board Nancy Lurker, former CEO of EyePoint Pharmaceuticals

    • Energy firm NOV welcomes to its board Patricia Martinez, former Chief Energy Transition Officer at Enerflex

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