What to consider before firing the CEO of a major technology company

Disclaimer: This article is written by Amwene Etiang. Any views and opinions expressed in this article are those of the writers and do not necessarily reflect the views or positions of the team editor nor any entities they represent.

Open AI was founded 7 years ago by Sam Altman and Greg Brockman to develop artificial intelligence. About two weeks ago Sam Altman was abruptly fired by the board of directors of Open AI, with little explanation given for why this decision was made. However, Altman was, 110 hours after being fired, reinstated as CEO of the company following pressure from employees and investors. The initial title for this article was “What are the implications of Sam Altman being fired from Open AI – for the company and the development of AI more generally?” However, given that a day in the tech space tends to be equivalent to a week otherwise (and that title would have been too long), I can no longer use it. Instead this article will highlight three takeaways from the week between Altman was fired and then rehired, particularly for the new board of directors.

Consider who else may hire your CEO before letting them go.

It is important to consider what the most senior employee will leave the company with and to whom he/she will take their expertise. No sooner had Altman been fired by the board of Open AI, than he was offered a role at Microsoft to lead a new senior AI research team. Not only was Altman offered a job at Microsoft, but also was his co-founder, Greg Brockman. Besides the temporary loss of the two founders of the company, only 7 years after its inception, Open AI could have potentially lost key intellectual property with these two people moving to Microsoft, jeopardising their first-mover competitive advantage over other competitors in the fast-growing market. However, this occurrence would have been subject to what Altman and Brockman’s contracts with OpenAI stipulated, particularly restrictions on the information that could be shared with other companies and non-compete clauses. Nonetheless, Microsoft invested $1 billion into OpenAI in 2019, owning a minority stake in the company and the exclusive licence to the technology underlying GPT-3. So the risk of Altman and Brockman leaving with crucial information to Microsoft was perhaps minimal. Although, in the immediate aftermath, some speculated that Microsoft was in a position to buy OpenAI entirely. However, Microsoft may have been wary of acquiring two big technology companies in the span of two years, given that competition authorities in the very recent past have opposed Microsoft’s acquisition of its relatively smaller but nonetheless powerful competitors on the basis of its already dominant market position (I recently wrote an article on the initial blocking but eventual allowance of Microsoft’s acquisition of Activision, a game developer, by the US and UK competition authorities).

Consider the impact of the departure of the CEO on your employees.

As opposed to offering to buy OpenAI formally, Microsoft offered to absorb all the 743/770 employees at the company who threatened to resign if the board of directors did not resign and reinstate Altman and Brockman. All the engineers and technical staff at OpenAI also have information that is invaluable to the development of the technology. Just a mass exodus of staff, let alone some of the best people in the field, would have seriously injured the company. The employees may also have been hindered from leaving by non-compete clauses in their contracts, preventing them from opening companies that were in direct competition with OpenAI. Nonetheless, this episode has demonstrated the power of collective action and perhaps sets a precedent for employees of tech companies to mobilise to advocate for their position on various matters.

Consider and communicate the reasons for firing the CEO

Arguably, the main reason Altman’s firing led to such a backlash was because there were no clear reasons communicated about why he was fired. Some speculated that as a younger, more forward-looking, less risk-averse tech leader, the board considered that he was permitting the development of AI at too fast a rate and prioritising profit over safety aspect. This is important to note given the unique structure of the company. Open AI is a for-profit company that is governed by a non-profit in order to prevent artificial intelligence from being developed with the sole focus of profits and without consideration of the safety and impact of the technology on society. However, given that the board has not yet clearly articulated its reasoning, this is implausible as Altman willingly went to the US Congress in May to urge them to regulate artificial intelligence. Very rarely does a tech founder ask for regulation of their technology. This signals that Altman clearly wants to work with regulators to ensure that the technology is developed safely. The implausibility of this reasoning was exacerbated by a lack of clear communication from the board. Even Ilya Sutskever, one of the board members who cast the deciding vote to fire Altman and co-founder of the company, publicly tweeted (or ‘X-ed’) that he regretted his decision. Should this decision have been permanent, depending on whether Altman was given clear reasons for why he was fired, the directors/OpenAI could have exposed itself to the risk of a claim of unfair dismissal being brought against them by Altman and Brockman.

Conclusion

In sum, before firing anyone, let alone one of the most senior employees and founders of the company, it is important to consider three things. First, who will hire them next and how the transfer of expertise could lead to the business losing its competitive advantage. However, this can be remedied to a small extent by restrictive clauses on the transfer of intellectual property in the contracts. Despite this, employees may disagree with the decision, leading to the second point – consider how employees will react to the change of leadership. In this case, they threatened to leave, seriously risking the existence of the company. Lastly, be clear on the reasons for firing the CEO. Even if you have solid reasons, these ought to be clearly communicated to prevent backlash from employees and investors, not to mention the risk of litigation from the person fired themself.