#37: What Happened to Governance? – Microsoft and OpenAI
Hi, I'm Jeppe, and welcome to my weekly newsletter on Corporate Venturing. My goal is to provide a comprehensive view of the latest developments in the field, drawing insights from top management, venture capitalists, founders, LPs, and family offices. This newsletter aims to offer valuable information and thought-provoking content to understand the importance of Corporate Venturing in business strategy.
The corporate venturing world has been abuzz with the recent events at OpenAI. The surprising developments, including Sam Altman's temporary exit and return as CEO, have sparked critical discussions about governance in such innovative joint ventures.
One key issue debated is the rapid evolution of ChatGPT. The board's concerns likened its potential implications to "the technological equivalent of a nuclear bomb." Adding complexity, the board accused Altman of not being sufficiently transparent, raising questions about effective communication and accountability in governance.
Additionally, OpenAI's shift from a philanthropic to a more business-centric model underscores the complexities businesses face in balancing ethical considerations with commercial objectives. This transition from its original vision into a significant revenue-generating entity highlights the challenging dynamics of maintaining foundational principles while pursuing financial success.
Learning from OpenAI: Corporate Venturing Governance
The OpenAI case serves as a pivotal learning point for Corporate Venture Capital (CVC) professionals. It highlights the necessity of robust governance structures, especially when significant investments and brand reputations are at stake. Reflecting on my earlier newsletter #8: Ethics and Governance in CVC, which addressed ethics and governance in CVC, this edition builds upon those principles, outlining essential governance practices:Control Over Major Decisions: When it comes to substantial investments, the importance of securing governance rights cannot be overstated. Having a seat at the board or similar levels of influence is not just a token of control but a necessary tool for guiding major decisions. This level of control ensures that investments are protected and steered in a direction that aligns with both the investors' and the company's long-term goals. It also enables investors to have a direct say in strategic decisions, ranging from financial management to corporate policy, ensuring that the venture stays on track with its intended purpose.
Alignment with Corporate Goals: Each investment should reflect and support the overarching strategic objectives of the parent corporation. This alignment is critical for ensuring that CVC activities not only generate financial returns but also complement and reinforce the parent company's strategic direction. For example, if a corporation is focused on sustainable energy, its CVC arm should prioritize investments in startups that are innovating in renewable energy technologies. This strategic alignment helps in creating synergy between the core business and the venture investments, leading to mutual growth and value creation.
Transparent Decision-Making: Transparency in goals, intentions, and decision-making processes is paramount in maintaining the integrity and trustworthiness of CVC operations. Clear and open communication about investment strategies, criteria, and decision-making processes helps in mitigating potential conflicts of interest. This transparency is not only important internally within the organization but also crucial in dealings with portfolio companies and other external stakeholders. By being transparent, CVCs can build stronger, trust-based relationships with their investees, leading to more effective collaboration and shared success.
Balanced Governance Structures: The governance structures of CVC units should strike a delicate balance between autonomy and accountability. While it is important for CVCs to have the independence to make investment decisions based on the merits of each opportunity, they also need to remain accountable to the larger organization. This balance ensures that CVC activities are aligned with the parent company’s interests without stifling the agility and innovative spirit that is characteristic of successful venture capital investing. The challenge lies in creating a structure that allows for quick, agile decision-making while still maintaining oversight and strategic alignment with the parent corporation.
Long-Term Impact Awareness: In the pursuit of financial returns, it's crucial not to lose sight of the broader market impact and the health of the innovation ecosystem. CVC investments should be made with an eye towards fostering long-term innovation and market evolution, rather than merely focusing on short-term gains. This involves considering how investments will affect market dynamics, competition, and technological progress. By focusing on long-term impact, CVCs can contribute to sustainable industry growth, support the development of groundbreaking technologies, and generate lasting value for both the startups they invest in and the broader economy.
The Microsoft-OpenAI situation offers rich insights into CVC governance. As we navigate the evolving landscape of corporate venturing, reflecting on these lessons and integrating them into our strategies is crucial for promoting responsible, effective, and sustainable investment practices.
I hope you enjoyed this week's newsletter. In the upcoming edition, I will be exploring the topic of "Impact of CVC on innovation within corporations".
If you have any suggestions or contributions that you would like to share with me, please do not hesitate to reach out. I would be delighted to hear from you.
/Jeppe