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Microsoft abandons observer seat on OpenAI board

The decision comes as Microsoft faces increasing regulatory scrutiny into its relationship with OpenAI in the US and UK

By Greg Noone

Microsoft has announced its abandonment of an observer seat on OpenAI’s board. Originally granted last year by OpenAI in the wake of the abrupt firing and re-hiring of its founder and chief executive, Sam Altman, the big tech firm said in a letter to OpenAI that it no longer needed to keep the seat as governance at the startup had substantially improved since then. 

“This position provided insights into the board’s activities without compromising its independence,” wrote Microsoft’s deputy chief counsel Keith Dolliver. However, eight months on after the attempted coup against Altman at OpenAI, “we have witnessed significant progress from the newly formed board and are confident in the company’s direction.” The seat is now vacant, with the Financial Times reporting that Apple – after announcing its own partnership with OpenAI last month – refusing to assume Microsoft’s old position. 

The Microsoft logo on a smartphone backrounded by the OpenAI logo.
Microsoft has abandoned its observer seat on the board of OpenAI. (Photo: Shutterstock)

Microsoft and OpenAI relationship too close for some regulators

The gift of an observer board seat to Microsoft was, in part, a testament to the close relationship between OpenAI’s chief executive Sam Altman and the Redmond-based firm’s chief, Satya Nadella, with the latter going as far as to offer Altman a role at Microsoft during his brief hiatus from his startup. The partnership, which has seen Microsoft invest billions into OpenAI, has resulted in several market-leading AI innovations such as the former’s Copilot service. 

Since then, however, multiple regulators have become increasingly critical about how that partnership may serve to inhibit competition within the overall marketplace for generative AI products. In June, the US Federal Trade Commission launched a probe into whether Microsoft and OpenAI’s relationship broke antitrust laws. In December 2023, meanwhile, the UK’s Competition and Markets Authority (CMA) mounted its own inquiry. Five months later, the watchdog’s chief executive Sarah Cardell said that both Microsoft and Nvidia were two of six large firms that dominated the AI value chain through an “interconnected web” of 90 investments and partnerships. 

These companies, argued Cardell, “already hold positions of market power in many of today’s most important digital markets [and] could profoundly shape these new markets to the detriment of fair, open and effective competition, ultimately harming businesses and consumers.” The CMA’s probe into Microsoft and OpenAI is ongoing, with some speculating that a Phase I investigation is likely to commence later this year

New liaison arrangement for OpenAI and key investors

This is not the first time Microsoft has seemingly attempted to stave off regulators’ ire over its partnership with OpenAI. In December, after Microsoft announced its investment of $13bn into the firm, it did so as part of a deal that would see it receive limited profits from an OpenAI subsidiary. Redmond stressed, however, that it did not “own any portion of OpenAI” as part of this arrangement. 

Though Microsoft has decided to give up its observer seat on its board, OpenAI stressed that its relationship with the big tech firm would remain close. A spokesperson told the FT that OpenAI would instead consult with Microsoft and other major investors through regular meetings, as part of a “new approach to informing and engaging key strategic partners.”

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