Ram Charan: The Real Lessons of OpenAI Are About Talent

Observing Sam Altman and the Microsoft-OpenAI debacle, no one knows on the outside what the whole truth was and likely never will. When I have been in these kinds of discussions behind closed doors, most people—even those close to the action—don’t know the whole truth because many of the conversations take place behind the scenes, directly, indirectly through third parties, fourth parties. Those things never come out. They probably won’t come out here, either.

But what we do know—and what every CEO and board member in every industry should be thinking about—is that we’ve witnessed something new in the ongoing relationship between labor and capital. For the first time I can ever recall a pool of employees, with rare expertise, SuperTalent, really, claimed power for themselves over the board of directors of multi-billion-dollar organization. And won.

It would seem, at first glance, to be a one-off. OpenAI is a special situation, an organization built by a set of uber-talented employees with highly-specialized skills that helped the firm attract a $13 billion investment from Microsoft and generate a latest-round valuation reportedly set to hit some $80 billion. There is no physical plant, no network of retail stores, not even outsourced manufacturing. It is all about the employees—employees, it turns out, who could disappear at will and demolish OpenAI while also starting a new competitor. That’s a lot of leverage.

But what happed here is likely to happen elsewhere, perhaps not with the same amount of public attention, but with equally serious consequences for other kinds of businesses. That should come as no surprise given the way the labor market keeps shifting in favor of employees in the information age.

Companies are increasingly vulnerable as fewer highly-trained experts—and leaders—generate an ever-larger share of value inside companies. Non-competes are a useful band-aid, but they are not a corporate strategy. The failure here was a failure of governance, of imagination, of humility, and it offers plenty of new things to consider. Here are five lessons to take away from what happened:

• Lesson 1: Brilliance doesn’t make you immune from error. Even the brightest people can make glaring mistakes. In the case of OpenAI’s board, exceptionally brilliant tech minds exercised flawed judgment, underscoring that intellect alone doesn’t guarantee infallible decisions.
• Lesson 2: The power of board composition. Crafting the right board is paramount. A board’s unchecked ego or misguided decisions can single-handedly jeopardize an entire industry’s future. The lesson here is clear: curate a board not just for expertise, but for humility and forward-thinking vision.
• Lesson 3: Oversight is essential. No matter the individual brilliance or collective expertise, the absence of proper oversight can lead to catastrophic outcomes. It’s a stark reminder that even the most accomplished minds require checks and balances. Establishing robust oversight mechanisms within a board structure is fundamental to prevent grave errors that could otherwise jeopardize an entire industry.
• Lesson 4: Extinguish fires early. The board (and the CEO) must do all they can to head off any kind of impasse with key talent (or the CEO) long before it becomes a combustible issue. Reason, listen, don’t let it boil over. No one wants to have what happened at OpenAI happen to them, even within a key department or division.
• Lesson 5: Don’t embarrass or surprise anyone. The board’s sudden public firing of Altman is a case study in how not to treat a CEO with a powerful followership at a company. But it’s also an example of how not to treat anyone in your company. If you have to terminate someone, do it with dignity and avoid any kind of public spectacle.

Talent now is going to have a voice and it will challenge the power of capitalism when it is feels it is not being used wisely, creating new challenges for boards and management teams. Be prepared.