“OpenAI Investors considering Suing the Board After CEO’s Abrupt Firing”, 2023-11-21 (; backlinks):
Some investors in OpenAI, makers of ChatGPT, are exploring legal recourse against the company’s board, sources familiar with the matter told Reuters on Monday, after the directors ousted CEO Sam Altman and sparked a potential mass exodus of employees.
Sources said investors are working with legal advisers to study their options. It was not immediately clear if these investors will sue OpenAI.
…As a result, employees have more leverage in pressuring the board than the venture capitalists who helped fund the company, said Minor Myers, a law professor at the University of Connecticut. “There is nobody exactly who is in the seat of an injured investor”, he said…Nonprofit boards have legal obligations to the organizations they oversee. But those obligations, such as the duty to exercise care and avoid self-dealing, leave a lot of leeway for leadership decisions, experts said. [And they would have insurance] Those obligations can be further narrowed in a corporate structure such as OpenAI, which used a limited liability company as its operating arm, potentially further insulating the nonprofit’s directors from investors, said Paul Weitzel, a law professor at the University of Nebraska.
Even if investors found a way to sue, Weitzel said they would have a “weak case”. Companies have broad latitude under the law to make business decisions, even ones that backfire. “You can fire visionary founders”, Weitzel said. Apple famously fired Steve Jobs in the 1980s, before bringing him back around a decade later.