Today in Edworking News we want to talk about leaked OpenAI documents revealing aggressive tactics toward former employees
Has Sam Altman told the truth about OpenAI’s NDA scandal?
by Kelsey Piper
Sam Altman, CEO of OpenAI, during an interview at Bloomberg House on the opening day of the World Economic Forum (WEF) in Switzerland, on January 16, 2024. On Friday, Vox reported that employees at tech giant OpenAI who wanted to leave the company were confronted with expansive and highly restrictive exit documents. If they refused to sign in relatively short order, they were reportedly threatened with the loss of their vested equity in the company — a severe provision that's fairly uncommon in Silicon Valley.
The policy had the effect of forcing ex-employees to choose between giving up what could be millions of dollars they had already earned or agreeing not to criticize the company, with no end date. According to sources inside the company, the news caused a firestorm within OpenAI, currently valued at some $80 billion. As with many Silicon Valley startups, employees at OpenAI often get the majority of their compensation in the form of equity. They tend to assume that once it has "vested," according to their contract schedule, it is theirs and cannot be taken back, similar to a paid salary.
Apology from the Top
A day after the Vox piece, CEO Sam Altman posted an apology, admitting that while there was a provision for potential equity cancellation in previous exit documents, it should not have existed. Altman emphasized that OpenAI had never actually clawed back vested equity and assured that they will not do so in the future. This was echoed in internal communications by other executive members, including Chief Strategy Officer Jason Kwon.
However, Vox obtained company documents with signatures from Altman and Kwon that complicated their claims. A separation letter in termination documents clearly stated that employees needed to sign a release of claims agreement within 60 days to retain their vested units. This letter was signed by Kwon and OpenAI VP of People Diane Yoon. Indicating that refusing to sign the NDA would result in employees losing their equity.
High-Pressure Tactics
Documents showed that OpenAI used high-pressure tactics to get departing employees to sign restrictive nondisparagement and nondisclosure agreements. In two mentioned cases, termination documents expired after seven days, giving former employees an extremely tight timeline to decide whether to sign, effectively muzzling them or risking their equity.
When ex-employees asked for more time to seek legal aid, OpenAI pushed back, making clear that not signing could impact their vested equity. Ex-employees folded under this pressure or faced further legal threats. For instance, when one employee refused to sign the first termination agreement, OpenAI changed tactics, indicating he would be prevented from selling his equity in future liquidity events.
How OpenAI Played Hardball
To understand why OpenAI’s apology seems hollow, it’s crucial to grasp what equity at OpenAI means. In publicly traded companies like Google, equity means shares of stock, freely tradable on the stock market. In a private company like OpenAI, equity requires selling opportunities, which are not frequent. OpenAI hosts tender offers occasionally, but the details are tightly kept secrets.
By announcing that refusing to sign the agreement locks them out of future tender offers, OpenAI effectively made the equity conditional on signing the agreement, while still truthfully saying no one’s vested equity has been clawed back. Vox queried OpenAI about this tactic, and the company insisted that former employees have historically been eligible to sell at the same price, regardless of their current employment status.
Representation of equity strategy.
Additionally, clauses in incorporation documents, signed by Altman, gave the company broad discretion to claw back equity from terminated employees or prevent them from participating in tender offers. These documents also allowed the company the discretion to reduce vested equity holdings to zero.
Why It Matters
OpenAI has positioned itself as a company held to a higher standard due to its unique corporate structure, designed to benefit all humanity, not just shareholders. Despite this, OpenAI has faced scandals, most recently when Altman was temporarily fired by the board for allegedly not being consistently candid. This firing was quickly reversed, but it raised questions about OpenAI's transparency and leadership.
OpenAI has taken steps to rectify the situation, reaching out to former employees to assure them that their vested equity is secure and lifting nondisparagement obligations. However, work remains to be done to regain trust fully. OpenAI must prove its commitment by fundamentally changing how it handles employment agreements and equity.
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Remember These 3 Key Ideas for Your Startup:
Transparency is Crucial: Ensure that all policies, especially those affecting employee benefits like equity, are transparent and fair. Hidden clauses can damage trust and cause severe reputational harm, as seen with OpenAI.
Legal and Ethical Practices: Follow ethical guidelines and standard industry practices in employment agreements. Avoid high-pressure tactics and ensure employees have ample time to seek legal counsel if needed.
Proactive Problem Solving: When issues arise, address them head-on. OpenAI’s approach to reach out to affected employees and correct mistakes is a model to emulate, though always strive to prevent such issues initially.
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Leaked OpenAI documents highlight aggressive tactics toward former employees. The scenario underscores the crucial need for transparency, ethical practices, and proactive problem-solving in startups and SMEs aiming to build a trustworthy work environment.
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