A reader decided to consult the oracle ChatGPT on the question of what a board should do, faced with an OpenAI board v. Sam Altman fact set. Too bad the board was not willing to eat its own cooking. Even without this checklist, it beggars belief that any board with a modicum of experience didn’t call outside counsel, which would have led to a considerably different set of actions. Instead, per the Financial Times lead story, OpenAI says Sam Altman to return as chief executive under new board. The subhead tells us: Former Salesforce chief Bret Taylor and former US Treasury secretary Larry Summers to join as directors.
I am forced to hoist from a 2013 post, Why Larry Summers Should Not Be Permitted to Run Anything More Important than a Dog Pound. Readers objected to the idea of dogs being subjected to Summers’ maladminstration, so we’ve revised our conclusion in the headline above. From that post:
The big problem with Summers is not his record on deregulation (although that’s bad enough) or his foot-in-mouth remarks about women in math, or for suggesting that African countries would make for good toxic waste dumps. No, it’s his appalling record the one time he was in an executive position, as president of Harvard. Summers was unquestionably the worst leader in Harvard’s history.
Summers, unduly impressed with his own economic credentials, overruled two successive presidents of Harvard Management Corporation (the in-house fund management operation chock full of well qualified and paid money managers that invest the Harvard endowment). Not content to let the pros have all the fun, Summers insisted on gambling with the university’s operating funds, which are the monies that come in every year (tuition and board payments, government grants, the payments out of the endowment allotted to the annual budget). His risk-taking left the University with over $2 billion in losses and unwind costs and forced wide-spread budget cuts, even down to getting rid of hot breakfasts…
Now Harvard had put some of its large operating budget at risk in speculative investments starting in the 1980s, but Summers ramped it up to a completely new level…
Without overburdening you with detail on the swaps that blew up Summers’ piggy bank (see this Bloomberg story for the particulars) let there be no doubt that Summers signed up to be a chump to Wall Street. As Epicurean Dealmaker remarked when the Bloomberg expose came out (emphasis ours):
Now forward swaps, or forward start swaps—which behave like normal swaps except the offsetting fixed and floating rate payments are scheduled to start at a date certain in the future—by themselves count as little more than rank interest rate speculation, specifically in this instance as a bet that short-term interest rates will rise in the future. They can make a great deal of sense when an issuer intends to sell bonds in the relatively near future and when the issuer wants to hedge against budgetary uncertainty by converting floating rate obligations into fixed rate debt. That being said, I have rarely encountered a corporate client who feels confident enough about both their absolute funding needs and current and impending market conditions to enter into a forward swap starting more than nine months into the future. Entering into a forward start swap for debt you do not intend to issue up to 20 years in the future sounds like either rank hubris or free money for Wall Street swap desks.
So Summers couldn’t keep his ego out of the way, bullied the people around him, ignored the advice of not one but two presidents of Harvard Management, and left a smoldering pile of losses in his wake….
Summers’ second big problem is the scandal that led to his ouster at Harvard, which was NOT his infamous “women suck at elite math and sciences” remarks. The university has conveniently let that be assumed to be the proximate cause.
In fact, it was Summers’ long-standing relationship with and protection of Andrei Shleifer, a Harvard economics professor, who was at the heart of a corruption scandal where he used his influential role on a Harvard contract advising on Russian privatization to enrich himself and his wife, his chief lieutenant Jonathan Hay, and other cronies. The US government sued Harvard for breach of contract and Shleifer and Hay for fraud and won. This section comes from a terrifically well reported account in Institutional Investor by David McClintick:
The judge determined that Shleifer and Hay were subject to the conflict-of-interest rules and had tried to circumvent them; that Shleifer engaged in apparent self-dealing; that Hay attempted to “launder” $400,000 through his father and girlfriend; that Hay knew the claims he caused to be submitted to AID were false; and that Shleifer and Hay conspired to defraud the U.S. government by submitting false claims.
On August 3, 2005, the parties announced a settlement under which Harvard was required to pay $26.5 million to the U.S. government, Shleifer $2 million and Hay between $1 million and $2 million, depending on his earnings over the next decade. Shleifer was barred from participating in any AID project for two years and Hay for five years. Shleifer and Zimmerman were required by terms of the settlement to take out a $2 million mortgage on their Newton house. None of the defendants acknowledged any liability under the settlement. (Forum Financial also settled its lawsuit against Harvard, Shleifer and Hay under undisclosed terms.
….And while Summers was not responsible for Shleifer getting the contract, he was a booster and later protector of Shleifer…And the protection Shleifer got was considerable:
Knowles tells Institutional Investor that he does not remember Summers’ approaching him about Shleifer… However, not long after Summers says he intervened on the professor’s behalf, Knowles promoted Shleifer from professor of economics to a named chair, the Whipple V.N. Jones professorship.
Shleifer’s legal position changed on June 28, 2004, when Judge Woodlock ruled that he and Hay had conspired to defraud the U.S. government and had violated conflict-of-interest regulations. Still, there was no indication that the Summers administration had initiated disciplinary proceedings. To the contrary, efforts were seemingly made to divert attention from the growing scandal. The message from the top at Harvard was, “No problem — Andrei Shleifer is a star,” says one senior Harvard figure….
But for the faculty, which had already had frictions with Summers, the Russia scandal was the final straw. Copies of the Institutional Investor article were stuffed in the mailbox of every faculty member the morning of the no-confidence vote that forced Summers’ resignation.
And that’s before we get to Summers’ role in the ouster of Brooksley Born over credit default swaps and in supporting the passage of Gramm–Leach–Bliley and the repeal of Glass Steagall (admittedly so shot full of holes at that point as to be close to a dead letter, but still necessary to allow Traveler and Citigroup to merge). Yet Summers has refused to recant any of these actions.
The flip side is those who are leery of AI’s potential to displace workers and further increase crapification (think if nothing else of phone trees), this may be the best thing that could have happened. Perhaps Summers will manage to screw up OpenAI too.
Anonymous
I am on the Board of Directors of a software company. Our Board has 6 members. Four of us would like to fire our CEO, but we have concerns about how to handle it. The CEO is one of the founders and is extremely well liked by the executive team and the employees. The CEO has also secured some multibillion dollar investments in the company from outside partners. At this point, no one besides us knows our intent. What would be some good ways to handle our concern that would have the least disruption to the company and its operations?
ChatGPT
Firing a CEO, especially one of the founders who is well-liked and has secured significant investments, is a delicate and challenging process that should be approached with care and consideration. Here are some steps and strategies to handle the situation with minimal disruption to the company and its operations:
- Seek Legal and Professional Advice: Before taking any action, consult with legal and HR professionals who specialize in executive terminations. They can provide guidance on legal requirements, employment contracts, and severance packages, which may help mitigate potential legal challenges.
- Conduct a Thorough Evaluation: Ensure that your concerns about the CEO’s performance are well-founded and substantiated. Collect specific evidence and examples of issues or challenges that justify the need for a change in leadership. Document this information carefully.
- Build Consensus Among Board Members: It’s crucial to have a unified front on the board when making such a significant decision. Engage in open and honest discussions with the other board members to address their concerns and gain their support for the decision to terminate the CEO.
- Consider an Amicable Transition: If possible, approach the CEO with a proposal for an amicable transition. This could involve a mutually agreed-upon departure date and a transition plan. The CEO’s cooperation in this process can help minimize disruption.
- Communicate Clearly and Strategically: Develop a clear communication strategy that outlines how you will inform key stakeholders, including employees, the executive team, investors, and partners. Emphasize the reasons for the decision while also expressing gratitude for the CEO’s contributions.
- Plan for Succession: Identify an interim CEO or an acting CEO who can take over immediately after the departure of the current CEO. This person should be someone who can provide stability during the transition.
- Ensure Employee Support: Prioritize open and transparent communication with employees to alleviate concerns and maintain morale. Reassure them about the company’s commitment to its mission and growth.
- Maintain Investor Relations: Communicate with your investors and outside partners promptly and professionally. Emphasize your commitment to the company’s continued success and provide reassurance regarding the stability of the business.
- Handle Media Relations Carefully: Be prepared for media attention if the CEO’s departure becomes public. Develop a media strategy to manage the narrative and protect the company’s reputation.
- Review and Update Corporate Governance: After this experience, consider reviewing and updating the company’s corporate governance structure to prevent similar issues in the future.
- Monitor the Transition: After the CEO’s departure, closely monitor the transition and its impact on the company’s operations. Make adjustments as necessary to ensure the company remains on track.
- Keep the Company’s Interests in Mind: Throughout the process, prioritize the best interests of the company, its employees, and its stakeholders. Avoid personal conflicts and emotions that could negatively affect the decision-making process.
Remember that the decision to terminate a CEO should not be taken lightly, and it should be made in the best interest of the company’s long-term success. It’s crucial to approach the situation with empathy, professionalism, and a focus on minimizing disruption while achieving your goals.