What does OpenAI’s restructuring mean for the future of the AI industry?

OpenAI’s recent restructuring of its for-profit arm to a public benefit corporation is a smart move that will allow the organization to increase its investment opportunities and maintain its nonprofit roots, according to a Northeastern University nonprofit management expert.

“They are still keeping their nonprofit legacy intact in many ways,” says Cortney Nicolato, a Northeastern lecturer and president and chief executive of the United Way of Rhode Island, a branch of a global nonprofit that provides and funds social service programs to people in need.

OpenAI recently announced after months of negotiations between attorneys general in Delaware, where it was incorporated, and California, where it is currently based, that it had changed the organization’s structure.

As part of the reorganization, OpenAI, the well-known AI technology company, changed its for-profit business into a public benefit corporation. A public benefit corporation is a type of for-profit business that, in addition to having shareholders, has committed to pursuing societal causes.

OpenAI’s recently renamed nonprofit arm, the OpenAI Foundation, has a 26% equity stake in the company. Microsoft, which has long been one of the company’s biggest supporters, has a 27% equity stake in the company. The other 47% equity stake is owned by employees, previous employees, and current and new investors, according to an OpenAI blog post.

Nicolato says OpenAI’s pivot to a public benefit corporation makes sense as it is increasingly becoming one of the more popular business models for companies looking to make societal changes.

Similarly, Anthropic, another AI company, is a public benefit corporation.

Other companies that follow a similar structure are Bombas, which in addition to selling socks, also gives them away; Toms Shoes, which gives away a free pair of shoes for every pair sold. They are what are known as B Corporations, which, similar to public benefit corporations, have a social component to their for-profit businesses.

“There are a lot more B Corps now than there were before,” says Nicolato. “So I’m not surprised that they went this route because it offers more opportunity to license out products.”

At the same time, however, given that the nonprofit’s arm retains a large stake in the private arm, it means it is still acting as a check on the organization as a whole, she says.

In addition to the restructuring, OpenAI announced that it is investing $25 billion for the nonprofit arm to focus on two specific areas—health care and AI resilience.

“I think what they’ve done with their nonprofit arm is really hone exactly what that nonprofit will be focused on,” she says.

But why did OpenAI do this restructuring in the first place? What are the economic benefits?

Gastón de los Reyes, an international business and strategy professor at Northeastern University, says this new restructuring significantly increases OpenAI’s capital investment opportunities as it continues to spend billions on the development of its AI technologies.

“What this change allows is for a lot more investors to be able to make huge amounts of money by owning a share of OpenAI,” he says.

Specifically, this new structure positions OpenAI for a potential initial public offering and removes a previous profit cap for investors, he explains.

“The floodgates of the capital have been opened to keep this arms race going between OpenAI, Google and Anthropic,” he says, highlighting the companies’ pursuit of artificial general intelligence, a form of AI that is cognitively as capable or more capable than humans.

Notably, OpenAI was incentivized to create the new corporate structure to take full advantage of an investment from the Japanese conglomerate Softbank, de los Reyes says.

Speaking to the nonprofit’s now massive $130 billion stake in the for-profit arm, Craig Welton, also a Northeastern lecturer and the chief development officer of the Boys and Girls Clubs of Dorchester, a local branch of the national after-school organization, says the potential societal benefits are massive.

“It will probably be the most well-funded foundation in the country when it’s all said and done,” he says.

Whether the organization actually lives up to its goals will certainly depend on its nonprofit and for-profit boards in maintaining OpenAI’s stated missions and goals, he says.

This story is republished courtesy of Northeastern Global News news.northeastern.edu.