Microsoft Relinquishes Observer Role On OpenAI's Board, Says It Is 'Confident' In Company's Direction Eight Months After Controversial 'Palace Coup'

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Amid mounting regulatory scrutiny, Microsoft Corp. MSFT has decided to relinquish its board observer position at OpenAI.

What Happened: Microsoft gave up its non-voting observer role on OpenAI’s board, a position it acquired in November 2023, following the controversial coup that saw the AI startup’s co-founder Sam Altman being fired and then brought back within days.

This move comes as OpenAI’s governance has reportedly improved, according to a Reuters report on Wednesday.

The observer seat allowed Microsoft to attend board meetings and access confidential information but did not grant voting rights on crucial matters, including the election of directors.

Microsoft’s decision to step down from the observer seat follows the company’s more than $10 billion investment in OpenAI, a move that has raised concerns among antitrust regulators in the U.S., Britain, and Europe over Microsoft’s level of control over OpenAI.

“Over the past eight months, we have witnessed significant progress by the newly formed board and are confident in the company’s direction. Given all of this we no longer believe our limited role as an observer is necessary,” Microsoft reportedly said in a letter to OpenAI dated Jul. 9.

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Why It Matters: The decision by Microsoft to step down from its observer role on OpenAI’s board comes amid a series of significant developments in the AI sector. In early July, Apple Inc. AAPL reportedly secured an observer seat on OpenAI’s board, appointing former marketing chief Phil Schiller to the position. However, Apple will not take the seat, according to the Financial Times report, which cited a person with direct knowledge of the matter.

Microsoft, OpenAI, and Apple did not immediately respond to Benzinga’s request for a statement.

Despite Microsoft’s significant $13 billion investment in OpenAI, the AI company launched its ChatGPT app for Apple’s macOS ahead of Microsoft’s Windows, indicating a complex relationship between the two tech giants.

In March, Microsoft hired Mustafa Suleyman, co-founder of the U.K. AI lab DeepMind, which was acquired by Google‘s parent company Alphabet Inc. GOOGL, GOOG in 2014.

Suleyman is leading a new consumer-facing AI unit called Microsoft AI, which will integrate products such as Copilot, Bing, and Edge. His appointment as head of Microsoft AI is expected to have little or no impact on Microsoft's partnership with OpenAI.

Price Action: Microsoft shares closed at $459.54 on Tuesday, down 1.44% for the day. In after-hours trading, the stock rose 0.12%. Year to date, Microsoft's stock has gained 23.91%, according to data from Benzinga Pro.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote

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