Last October, the news that OpenAI was planning to simplify its unusual nonprofit structure caught the attention of economic-justice activist Orson Aguilar. He feared that the ChatGPT maker’s plan to transition into a more conventional company, from which investors could generate unlimited returns, would financially hurt the working-class communities he has spent nearly 30 years fighting to protect.
Aguilar’s new organization, LatinoProsperity, focuses on intergenerational wealth building, and he believed cutting-edge AI chatbots such as ChatGPT would become an integral part of many good-paying jobs of the future. But after reading about OpenAI’s desires, he worried that transitioning into a public-benefit corporation empowered to chase profits would enrich the already wealthy and neglect the startup’s stated mission to benefit all of humanity with AI.
Aguilar decided to make a phone call that day, kicking off a series of events that eventually led him to become one of the leading voices battling over OpenAI’s future and the establishment of what may become the deepest-pocketed charitable foundation in the world.
Today, OpenAI’s for-profit business is controlled by a nonprofit, and the returns for investors are capped. But as OpenAI’s ambitions have grown, and staying on the cutting edge has required it to raise significantly more funding, investors have demanded greater payback.
OpenAI said a recent $40 billion investment round propelled its valuation to $300 billion, but 75 percent of the pledged cash is contingent on the startup completing a structural revamp by early next year. A byproduct of the move, the AI startup said in a December blog post, would be the creation of “one of the best resourced nonprofits in history”—albeit one with less power over what products OpenAI builds and for whom.
Aguilar is co-steering a coalition of advocacy groups that met with San Francisco–based OpenAI in March and is pushing the California attorney general’s office, which regulates the state’s nonprofits, to ensure that the startup’s restructuring adheres to the law. Their activism has already contributed to OpenAI forming a small advisory commission that includes legendary labor activist Dolores Huerta.
“Tech companies, they like to disrupt,” Aguilar says. “We can’t let them disrupt our charitable system and get away with it. We have a tool already—a nonprofit OpenAI with a stated mission to do good things. It would be a shame if that was lost in the race of developing AI.”
OpenAI spokesperson Lindsey Held says the organization’s restructuring “would ensure that as the public benefit corporation succeeds and grows, so too does the nonprofit, enabling us to achieve the mission” of AI broadly benefiting the public.
A group of tech industry heavyweights, including Elon Musk and Sam Altman, cofounded OpenAI as a nonprofit in 2015 with the goal of countering existing AI projects run by big, profit-driven companies. OpenAI planned to share its research with the public while focusing on developing AI systems that are highly capable and broadly helpful.
But as development grew more expensive and ChatGPT became an overnight sensation upon its debut in 2022, OpenAI has increasingly shifted toward withholding some of the key details about its research for security and competitive reasons. It’s also now trying to generate significant revenue from its services.
Musk, who went on to start an OpenAI competitor, sued the ChatGPT maker and its CEO Altman for allegedly abandoning its original foundational principles. Musk lost a preliminary bid in federal court last month to block OpenAI from transitioning to a public-benefit corporation that can legally pursue both profits and societal benefits. (Another OpenAI competitor, Meta, has expressed support for Musk’s efforts to block the restructuring.)
OpenAI’s investors, including Microsoft and several venture capital firms, poured tens of billions of dollars into the startup, making a bet that they could find a way to capitalize on the so-called capped-profit venture that sits under its nonprofit parent. After the restructuring, those investors could see their returns materialize as soon as 2027, when OpenAI hopes to hold an initial public offering of the public-benefit corporation, according to a person briefed on internal discussions at the company who asked to remain anonymous to protect industry relationships.
Post-restructing, OpenAI plans to have an affiliated nonprofit. But what remains unclear is how much of its current value and potential future profits will be split between its nonprofit and the for-profit arm, as well as what sort of control either entity will have over the other. OpenAI’s current nonprofit division reported about $21.1 million in net assets as of December 31, 2023, according to its most recent publicly available federal tax filing.
Aguilar contends that valuing OpenAI’s nonprofit entity even a penny short of its fair market worth would be unlawful, and anything but total independence from OpenAI would allow commercial imperatives to corrupt the charity. “Let’s fairly value this and get it independent,” he says.
Irrevocable State
Aguilar’s first call last October was to Fred Blackwell, executive director of the San Francisco Foundation, an organization that gives grants to social justice groups, and its chief impact officer, Judith Bell. In the 1990s, the two of them had learned about dozens of nonprofit hospitals and health insurance giants across the country that were converting into for-profit companies, aiming to better compete in an era of emerging treatments and new technologies.
As part of some of the conversions, health care executives had found ways to boost payouts for themselves while hollowing out funding for affiliated philanthropic entities. Bell and her then-colleagues at the advocacy group Consumers Union zeroed in on California law stipulating that any money held by nonprofits belongs to the people of the state forever and can only ever be used for charitable purposes. In exchange, nonprofits and their donors are entitled to tax breaks.
The law also states that California’s attorney general has to approve conversions and the handling of imperiled charitable funds. A former California official who was involved in conversion reviews but is not authorized to speak about them publicly says it’s typically a cordial process meant to help organizations lawfully transition to their desired structure—but outside input is welcome.
Bell eventually helped form a broad coalition of labor and community groups to lobby the AG’s office over the health care conversions. That advocacy helped nonprofits retain significant shares in newly established companies, a set of arrangements that Bell estimates saved $15 billion in charitable money from being stolen by businesses and their investors. Three of the state’s biggest independent foundations by assets—the California Endowment, California Wellness Foundation, and the California Health Care Foundation—emerged from that advocacy. And the for-profit companies also have done just fine, Bell believes. “You can protect the charitable assets and allow these companies to go forth in the for-profit world,” she says.
Late last year, Bell, Blackwell, and Aguilar decided to dust off the old playbook. They commissioned a legal memo that reiterated the power of the attorney general over the irrevocable status of charitable funds and called up their contacts to form a coalition of what is now over 50 community organizations working together to try to influence the future of one of the hottest tech companies in the world.
Blackwell says some members of the group are concerned that OpenAI’s plans could threaten the integrity of the nonprofit sector as a whole. Donors, they argue, may be reluctant to continue contributing if they feel that money earmarked for the public good could be peeled off into for-profit pursuits.
The coalition urged California attorney general Rob Bonta to carefully review the OpenAI conversion and launched a campaign in January to attract public attention to the issue. The effort has garnered widespread support, including from some former OpenAI employees and AI researchers, who have also urged Bonta’s counterpart in Delaware—where OpenAI is chartered—to ensure its mission isn’t undermined by the restructuring. (Both attorney general’s offices have said they are investigating the matter but provided few details.)
By March, OpenAI wanted to meet with Aguilar’s advocacy coalition. At the San Francisco Foundation’s offices, Blackwell, Aguilar, and another coalition leader sat down with two of OpenAI’s global affairs staffers, including Debbie Mesloh, a former senior adviser to then-California attorney general Kamala Harris.
OpenAI’s Held says the meeting raised a “number of misconceptions about our corporate structure—many of which seemed to echo those voiced by Musk.” Aguilar says OpenAI wanted feedback on evolving its nonprofit mission. But left unaddressed were core questions about the amount of funding and independence OpenAI would afford to the charitable arm.
‘Big Damn Deal’
Another attendee at the meeting was Daniel Zingale, a retired former adviser to several California governors who is now consulting for OpenAI. Mesloh and other company leaders who had known Zingale from California politics wanted his help convening a group of luminaries from the philanthropic world to give advice about how OpenAI should spend its charitable funds and distribute its technology to other nonprofits. In 2023, OpenAI’s current nonprofit arm gave out over $2.6 million in grants, including to education institutions, AI safety groups, and economics researchers.
Zingale says the advocacy by Aguilar’s outside coalition helped play a role in the founding of OpenAI’s advisory commission, which began meeting April 21 and whose recommendations are due by July 20. (OpenAI spokesperson Held says the commission was born out of a long-held “desire to engage in more ways with the wider nonprofit community.”) Whether the commission ultimately tackles the concerns raised by the activists remains unclear.
Its members include veteran political adviser Jack Oliver, former media executive Monica Lozano, and 95-year-old labor activist Huerta. They did not respond to requests for comment.
Zingale also helped recruit Robert Ross, who previously spent about a quarter century as CEO of the California Endowment, one of the nonprofits that emerged from the health care conversions of the ’90s. Ross says his former organization is widely recognized as a nonprofit-to-profit conversion success, and he wants the same to be true of OpenAI.
“This is a big damn deal in civic and political circles that will have enormous consequences for civic society and marginalized and underserved communities,” Ross says. “Our task is more on the spending side—how should the assets be deployed. However, it’s incomplete if we don’t speak to issues of governance. I suspect you’ll see a report that will speak to both issues.”
Aguilar says he is skeptical of the advisory panel’s efforts. Though the commission is supposed to come up with recommendations for how OpenAI can help ensure everyone has the opportunity to benefit from AI tools, Zingale and Ross both say they have little experience using AI themselves.
“This is a fascinating endeavor for me, because what I know about AI could fit into a thimble,” says Ross, adding he is eager to learn from others who are more knowledgeable.
