OpenAI governance opens it to state AG pressure

• But exactly how humanity will get a say in how the organization is run from day to day remains unclear.

Where it stands: The OpenAI nonprofit will appoint the board of the for-profit, and will it also own a significant chunk of its shares. The nonprofit will also have control of a majority of votes at the for-profit, regardless of how many shares it owns, per a company spokesman.

The big picture: The question is exactly how the nonprofit will exercise its obligation to humanity beyond appointing individuals to the for-profit board.

• After all, once they're on the for-profit board, and regardless of who nominates them, those individuals will be paid and have a financial incentive to maximize profits.
• "The whole point of is this is that the nonprofit controls the for-profit," says Jill Horwitz, a professor at UCLA School of Law. "If all they're doing is appointing people and deciding whether to go public, then how is the nonprofit purpose going to continue to control the subsidiary? Because that's what matters."

Between the lines: The for-profit will also always have the argument that greater revenues and greater profits are necessary to pay for the engineers and compute needed to stay ahead of the AI pack. After all, humanity doesn't benefit if some purely for-profit competitor ends up dominating the space.

• "You can have all the right rules and structure," says Ellen Aprill, a senior scholar in residence at UCLA School of Law, "but it comes down to the board doing its duty. That's the issue. Money is very enticing."

Where it stands: In the U.S., the primary regulators of nonprofits are state attorneys general. Indeed, OpenAI said this week it continues to engage in "constructive dialogue" with the AGs of California, where it's based, and of Delaware, where it's incorporated.

• The OpenAI board has a clear responsibility, while the California AG, in particular, also has a responsibility to make sure the OpenAI board does what it says it will do.

• "When you get nonprofits and for-profits acting together, you need oversight," according to Horwitz, citing a lesson learned from studying nonprofit hospitals that merged with for-profit hospitals. "That oversight should be funded by the entity, because the entity has all the money."

Zoom in: The state of California has an active charities bureau where most of the pressure on OpenAI will likely come from.

• The California AG also may have more standing than Delaware to oversee its day-to-day operations rather than just its incorporation paperwork.
• The California AG thus far has not formally signed off on any plan. It has just given feedback to OpenAI, which has incorporated that feedback into its strategy.
• That kind of semiformal oversight will likely remain a permanent part of the OpenAI governance mechanism, given that it now says it will remain controlled by the nonprofit in perpetuity.

The bottom line: As Horwitz tells Axios, "I don't think we're done seeing attorney general involvement in the unfolding of the OpenAI story."