[HN Gopher] OpenAI pursues public benefit structure to fend off ...
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OpenAI pursues public benefit structure to fend off hostile
takeovers
Author : JumpCrisscross
Score : 116 points
Date : 2024-10-09 16:53 UTC (6 hours ago)
(HTM) web link (www.ft.com)
(TXT) w3m dump (www.ft.com)
| nuz wrote:
| Not necessarily to fend off hostile takeovers, Anthropic adopted
| that structure too and it might be that they're just admitting
| that it's the right option
| Recursing wrote:
| > The PBC model is relatively new. Delaware, where most
| companies are incorporated, only adopted PBC legislation in
| 2013 and then changed provisions in 2020 to make the structure
| more enticing. Of the thousands of publicly traded companies in
| the US, fewer than 20 are PBCs. [...]
|
| > However, it has proved popular with AI companies. Both
| Anthropic, the maker of the Claude AI tool, and Musk's xAI are
| PBCs. One person close to xAI said this meant its probability
| of being sued was reduced if it did not act in accordance with
| the shareholders' interests.
|
| [...]
|
| > "It is intentionally a way for incumbent management and
| directors to entrench themselves," he said. "If you can convey
| the idea to people that you are a good enterprise, a morally
| safe enterprise and that comes with very little constraints,
| that has to be tempting to entrepreneurs."
| yawnxyz wrote:
| That really goes against the original spirit of the PBC,
| which was the exact opposite: you should be able to fend off
| (not get sued by) evil profit-seeking shareholders, while
| pursuing the long-term vision.
|
| But I guess these things goes both ways, and the path to hell
| is paved with good intentions.
|
| We just can't have any nice things.
| lotsofpulp wrote:
| I can't imagine thinking agency risk would be reduced by
| the agent(s) declaring good intentions.
| yieldcrv wrote:
| Public Benefit Corporations (especially with the B-Corp
| certificate) is just a marketing strategy for gullible
| people uncomfortable with capitalism
|
| But like with all entities, there is nothing inherent about
| them that would make the individuals within them act
| differently than a simple C-Corporation.
|
| It all comes down to the bylaws.
| hn_throwaway_99 wrote:
| As the article says, the PBC structure has never been
| tested in court, therefore this is all speculation at this
| point, so it seems a bit premature to despair.
|
| Yes, a big benefit of a PBC is that you're not only
| beholden to increasing shareholder value - that's obviously
| inherent to the PBC model, and I think it could be used for
| both "good and bad". At the same time, PBCs need to say
| what their "public benefit" is, and (my understanding is
| that) they have fiduciary responsibility to others besides
| just shareholders. This, I imagine they could also be sued
| by people saying they aren't fulfilling their public
| benefit mission. Point being, PBCs have pros and cons, and
| it will take some court cases to find out where the line
| truly lies.
| DebtDeflation wrote:
| What does it even mean to fend off hostile takeovers when
| Microsoft owns 49% of the company and the remaining 51% is
| split between a small number of investors (Musk, Thiel,
| Infosys, AWS, and a half dozen VC funds). All it would take
| would be one of those other early investors to join up with
| Microsoft and they would have a majority ownership stake.
| htrp wrote:
| Did infosys actually get equity when they donated to it as a
| nonprofit?
| throwaway314155 wrote:
| I had thought that was most of the reason Elon is lashing
| out, because he donated to the non profit and received no
| equity.
| NewJazz wrote:
| Is it hostile if the call is coming in from the house?
| emilamlom wrote:
| Here's a Reuters article about it for those that can't access the
| Financial Times article:
| https://www.reuters.com/technology/artificial-intelligence/o...
| mullingitover wrote:
| This is great, and I'd like to see more of it. Honestly we should
| be asking why we tolerate any type of corporation _except_ one
| that 's public benefit. Why are we as a society giving owners of
| capital any special, privileged shield from liability if they
| aren't using it for the betterment of society?
|
| And it wasn't ever thus, either. _Dodge v. Ford Motor Co._ really
| screwed things up.
| wging wrote:
| It's better compared to the baseline of a for-profit
| corporation, especially given the stakes -- but it's strictly
| worse compared to the intended purpose of the existing
| structure that was recently hollowed out. The nonprofit entity
| that was originally supposed to be in control actually won't
| be.
|
| I'd also question whether there is actually going to be a
| meaningful check on any of OpenAI's actions, compared to what
| there would be for a for-profit corporation. I'd bet no.
| mullingitover wrote:
| I agree that in this case, PBC is a downgrade in terms of
| strictness of mission. In general though, PBC is better than
| standard corporate goals of strictly maximizing shareholder
| value, employees/customers/the public be damned.
| baking wrote:
| The nonprofit will hold stock in the BPC. I think the effect
| of this is that the nonprofit board, which is independent of
| Altman, will be restricted from selling their shares. However
| the nonprofit will eventually convert from a public charity
| to a private foundation and will be required to give away a
| percentage of their assets every year. I'm not sure how that
| will work with a BPC.
| dr_dshiv wrote:
| Who gets to decide? Thats the challenge.
|
| The amazing thing is that the pursuit of personal enrichment,
| when regulated in moderation, tends to create a system that is
| in the public's benefit. So we allow companies that are self
| interested because that, at scale, actually _supports the
| public benefit more_ than requiring all companies to do
| specific things mandated as for the public benefit.
| mullingitover wrote:
| > tends
|
| _Tends_ is doing a lot of heavy lifting here.
|
| The model of "Let's have the worst people do whatever they
| want, for the most selfish possible reasons, and hope for the
| best" has also produced a horrific amount of suffering. Crazy
| amounts of socialized externalized losses get hand-waved
| away.
| dmitrygr wrote:
| And yet all the most prosperous countries in the world are
| the ones that allow individuals to seek unbounded profits,
| and all the darkest holes of history are in situations that
| attempt to tell people how to live
| mullingitover wrote:
| Every single society has told people how to live since
| the Code of Hammurabi. The darkest times in history have
| happened when people with power dehumanized large groups
| of people, and that's not particular to any economic
| philosophy.
| Muromec wrote:
| Why the most prosperous country in the world has
| homeless, opioid epidemic and is pretty consistent in
| having the same kind of problems? Can you really call it
| the most prosperous then?
| dmitrygr wrote:
| Yes I can. Because none of the others would allow my
| family the standard of life we have here.
| mullingitover wrote:
| The US does a great job at hyping itself, but let's be
| realistic: it's 20th in human development index[1].
| "Sure," you might say, "regular people don't do as well
| here, but you can get ahead here if you work hard! That's
| the American Dream(tm)."
|
| Nope, it's also 27th in social mobility[2].
|
| [1] https://en.wikipedia.org/wiki/List_of_countries_by_Hu
| man_Dev...
|
| [2] https://en.wikipedia.org/wiki/Global_Social_Mobility_
| Index
| schmidtleonard wrote:
| Waking up on the wrong side of a hundred monopoly rents
| enforced by the property rights of rich people doesn't
| feel like freedom to me.
|
| Yes, fully socialist countries seem to be doing even
| worse, but so many of the good parts of my employment
| contract came from the New Deal and its wild success
| shows in everything from the infrastructure to the
| demographic charts that are still defined by echoes of
| the baby boom! It's no wonder the businessmen got
| together and tried to coup FDR and have spent the last 50
| years trying to wind back these policies. We don't need a
| Glorious Revolution but we do need another Roosevelt.
| dontlikeyoueith wrote:
| > all the darkest holes of history are in situations that
| attempt to tell people how to live
|
| I sure hear a lot of faux-market fascists telling me how
| to live these days.
| marcusverus wrote:
| > The model of "Let have the worst people do whatever they
| want, for the most selfish possible reasons, and hope for
| the best" has also produced a horrific amount of suffering.
|
| This is a profoundly unserious framing. Suffering is the
| default state of man, and our current system has done far
| more to eradicate said suffering than any other.
|
| The historical alternative system was voluntarily abandoned
| by all of its impoverished practitioners in favor of the
| current system.
|
| The current "alternative" to our system is just our system
| with high taxes.
|
| Just take the L.
| mullingitover wrote:
| > Suffering is the default state of man, and our current
| system has done far more to eradicate said suffering than
| any other.
|
| This seems like gaslighting. Of all the takes, "You were
| meant to suffer, so if I made you suffer and then I did
| stuff to reduce the suffering you should be grateful" is
| certainly one of them.
| FridgeSeal wrote:
| > Suffering is the default state of man
|
| What an awful and depressing view to hold. I hope one day
| you find a small piece of happiness in your life.
|
| Things used to be worse, and our default state is
| "suffering" so we should give up, stop here and lick the
| boots of the current, obviously flawed system? That
| doesn't even make sense as an argument.
| schmidtleonard wrote:
| Chopping up the future and selling it to rich people is a
| brilliant way to obtain decentralized skin-in-the-game
| capital allocation decisions. But then the future arrives and
| it belongs to rich people whose only goal is to
| squeeeeeezzzzzeee.
|
| Capitalism is good at avoiding boondoggles but it's a sucker
| for asset pumps. We don't have to pay heavy taxes to support
| a gigantic network of high-speed trains to nowhere but we do
| have to pay monopoly rents on land, two-sided markets,
| Metcalfe-law networks, and so on.
| renewiltord wrote:
| My life has been more improved by people acting for their own
| profit and being open about it than people ostensibly acting
| for the "public benefit"
| IncreasePosts wrote:
| First of all, it is extremely difficult to say whether certain
| actions are good for society. I think there are some things
| that you can say are clearly good or bad for society, but what
| about all the stuff in the middle?
|
| Would the Coca-Cola company be allowed to exist in this world?
| Are professional sports team good for society?
| __MatrixMan__ wrote:
| Requiring benefit is a huge step from where we are. Perhaps
| it would be easier periodically determine the n most harmful
| and dissolve them. Predation is known to make an ecosystem
| healthier.
|
| This would sidestep the problem of:
|
| > but what about all the stuff in the middle
| waldohatesyou wrote:
| What do you think the top 10 worst companies are? How
| likely do you think it is that your list matches mine or
| anyone else's?
| notJim wrote:
| > Requiring benefit is a huge step from where we are.
|
| The phrase "requiring benefit" is doing a huge amount of
| heavy lifting in this statement by assuming benefit is
| something that can easily be agreed upon, or that it's not
| already taken into account.
|
| Since it will obviously be difficult to agree on this, what
| if we just vote? I'd propose a system where each of us gets
| a certain amount of tokens, and then we use our tokens to
| vote on which products are beneficial. Those companies that
| make beneficial products will receive the most tokens. They
| can distribute some of them to their employees and
| shareholders. The companies that don't provide enough
| benefit will naturally go under as they fail to accumulate
| enough tokens to attract employees. We can also set up
| systems to ensure that everyone receives a minimum number
| of tokens, and also so that certain people don't accumulate
| so many tokens as to give them too much control over
| society.
|
| I believe this system will work well for rewarding
| companies which produce benefits and punishing those who
| don't and look forward to it being implemented.
| mullingitover wrote:
| Sure, it's hard to say exactly what's good for society, it's
| a broad aim. However, being a PBC also insulates you from
| extremely short-sighted shareholders. It's different than
| being a charity.
|
| Coca-Cola could easily be a PBC, so could pro sports teams.
| It just gives you the freedom to shut down short-sighted
| activist shareholders who can't see past next quarter. It
| doesn't require you to be Mother Teresa, it just doesn't let
| anyone punish you if you decide that's what you want to be.
| vintermann wrote:
| As I recall, Kickstarter was a very early Public Benefit
| Corporation. If nothing else, it probably gives a card to
| activist employees who think the corporation is hurting the
| public in some particular way.
| anticensor wrote:
| Because Coca Cola is more than gaseous sugar water.
| nradov wrote:
| Because the privileged shield from liability encourages
| economic growth and raises the standard of living for
| _everyone_. Without that shield, potential investment losses
| would be infinite and investors would hoard their capital
| instead of using it to fund new ventures. Our entire economy
| would be smaller, slower, and less innovative.
|
| Yes occasionally corporate owners and managers do bad things,
| and escape serious financial consequences due to the liability
| shield. So what. That is an acceptable consequence considering
| all of the other benefits.
| hn_throwaway_99 wrote:
| After reading your comment, I did a little searching and found
| a great essay on the shareholder primacy standard in Delaware:
| https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2916960
|
| Contrary to what a lot of other commenters are saying, the
| shareholder primacy rule is relatively recent (basically since
| the 80s), and before that there was broad recognition that
| corporate boards could balance the interests of various
| stakeholders. This essay also argues that Dodge v Ford Motor
| (which was in the Michigan Supreme Court) actually had little
| practical impact - it was cases like _Unocal_ and _Revlon_ in
| the Delaware courts that had a much bigger impact on actual
| board behavior in the US.
| anticensor wrote:
| Unlimited corporations (anonymous and personhood but not
| limited liability) could also be tolerated.
| rqtwteye wrote:
| As far as I understand Public Benefit is as meaningless as non
| profit. The names are extremely misleading. A public benefit
| corporation doesn't necessarily have to provide benefits for
| the public and non profits can be extremely profitable for the
| right people.
| randomtoast wrote:
| > Chief executive Sam Altman will also receive equity for the
| first time in the for-profit company, which could be worth $150
| billion after the restructuring
|
| A net worth of $150 billion is quite an achievement.
| csallen wrote:
| It's saying the company itself is worth $150B, not Sam Altman's
| net worth
| aleph_minus_one wrote:
| $150B is just a (somewhat arbitrary) estimate of the current
| value of OpenAI.
| tananaev wrote:
| Poorly phrased. $150 billion is the total company valuation,
| not the share that Sam would receive.
| Lerc wrote:
| Is the article linked on archive different? This text is not in
| the article I read.
| sorenjan wrote:
| Don't play their game where they pretend that their net worth
| is proportional to their achievements.
| jjulius wrote:
| If anybody is as confused as I was, the quote in this comment
| is from a separate article from weeks back...
|
| https://www.reuters.com/technology/artificial-intelligence/o...
| tivert wrote:
| > A net worth of $150 billion is quite an achievement.
|
| And not too long ago he was touting he was in it for the good
| of humanity, and "proved" it by only taking a $60k salary with
| no equity.
|
| A true paragon of honesty and straight-dealing.
| orra wrote:
| Indeed. Plus it's rather late in the company lifespan for
| them to be handing out large swathes of equity. A weird
| decision for a company nominally controlled by a non-profit.
| _sword wrote:
| Reads like a play to dilute the power of executives that
| departed
| diggan wrote:
| I can't read the article, nor am I deeply familiar with US
| financial structures, but are OpenAI doing the same as Bluesky, a
| Public Benefit LLC? Another HN comment mentions OpenAI adopting a
| "PBC model" but I'm not sure if that's the same or not. If not,
| what are the material differences?
| theptip wrote:
| It's a Public Benefit Corporation (sub-type of C-corp) not an
| LLC.
| goles wrote:
| https://archive.ph/59oI0
| CatWChainsaw wrote:
| Can't wait to see the contortions Altman pulls to retain a
| Zuckerberg-tier grip on the company, they'll put Cirque do Soleil
| to shame.
| TZubiri wrote:
| It's not that hard we just have the original not-for profit and
| then a non-profit llc, and then 503c, all of that gets grouped
| under a Hybrid profit holding, which funds the PBS but has no
| ownership relationship. Meanwhile a sister L3C invests in the
| original NFP without profit motives, but retains call stock
| options WITH voting rights (only if the option is NOT
| executed). The for profit LLC is just a holder of the stock and
| IP in Ireland, nothing suspicious about it, do not concern
| yourself with this entity.
|
| Source: I made it up
| neilv wrote:
| There's also the subtitle on the article:
|
| > _ChatGPT maker considers largely untested company model to
| protect chief executive Sam Altman from outside interference_
|
| Or maybe the motivation is some other technical maneuver.
|
| Or maybe the motivation is PR/optics.
|
| Is there anyone who trusts OpenAI to be honest about their
| intentions, at this point?
| yieldcrv wrote:
| > ChatGPT maker will retain a not-for-profit entity, which would
| be independent and have a stake in the PBC. This not-for-profit
| would have access to research and technology but solely focus on
| pursuing OpenAI's mission of benefiting humanity.
|
| And up to 60% tax deductions for the for-profit entity and
| executives that carry forward for 5 years when unused and exceeds
| current year Modified Adjusted Gross Income
| jcheng wrote:
| Can you explain how that works? Why would either the for-profit
| entity or the executives get a tax deduction because one of the
| stakeholders is a nonprofit?
| w10-1 wrote:
| Poison pills are much more effective at fending off takeovers. I
| think the public benefit form mainly helps with workforce and
| customer alignment to dampen disruptions from transformative and
| invasive applications.
|
| Peter Gassner converted Veeva (pharmaceuticals software) to
| public benefit a few years ago. Veeva is probably 10X smaller and
| mostly captured by big pharma customers who don't want to compete
| on software infrastructure and want one place to stay in (FDA)
| compliance. So in that case the stakeholders have a pretty clear
| and distinct voice and mission.
|
| In the absence of dominant stakeholders, it's unclear who would
| govern OpenAI as a public benefit corporation. At a minimum, it's
| a moral hazard and an invitation to bureaucracy and politics.
|
| I'd be interested in OpenAI developing super clear and
| transparent customer feedback channels. That could improve AI,
| give incentive for people to participate in model improvement
| (instead of reflexively protecting their data), and be a forcing
| function against governance gaming. Amazon/Bezos has strong
| experience in managing by metrics, so it's a shame OpenAI has
| committed itself to Azure/Microsoft.
|
| Another alternative is the M-form, where subsidiaries are
| coordinated but live or die based on their own performance rather
| than cross-subsidies (recently in Google becoming Alphabet). But
| the history there isn't particularly good for innovation, and
| even profit lags except in industries with stable markets
| (Berkshire-style).
| svnt wrote:
| I agree with most of what you've said, but here:
|
| > Amazon/Bezos has strong experience in managing by metrics, so
| it's a shame OpenAI has committed itself to Azure/Microsoft.
|
| If they are a customer/investor, as opposed to an internal
| leadership team, it seems preferable to have someone with
| comparable resources who is more permissive/hands-off.
| RONROC wrote:
| It's actually incredible how much headlines there are regarding
| OpenAI--how much cap they're raising, the ins and outs of their
| corporate structure, how much that psychopath will be compensated
| --yet very little on what they've actually shipped.
| osigurdson wrote:
| >> obliged to balance the best interests of shareholders, a
| public benefit, and stakeholders, such as employees and society
|
| This seems like a very murky structure. Probably fine in good
| times but how would it operate in practice when things are going
| badly?
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