Between Tesla and OpenAI, two governance flashpoints hold lessons for India

Earlier this month Tesla’s shareholders approved a $1 trillion compensation for Elon Musk.

 

The trillion-dollar man

 

Tesla’s proposed $1 trillion stock package for Mr Musk is more than a headline-grabbing compensation deal — it raises a series of questions that boards and investors need to ask.

 

The award is not a salary but an aggressive, performance-linked stock package that vests only if Tesla meets its stretched targets — from multi-trillion-dollar market-cap targets to breakthroughs in robotaxis, artificial intelligence (AI), and humanoid robotics.   

 

As expected, investors are divided on this. Those in support hail it as an alignment of Mr Musk’s incentives with Tesla’s ambitions, arguing that only such an extreme performance-linked mechanism can secure his relentless commitment and focus (and also audacity).

 

With 15 per cent ownership, Mr Musk is Tesla’s largest shareholder. Consequently, the argument regarding alignment runs weak.

 

There are a few other governance implications. First, should any company risk concentrating so much upside in one individual, no matter how visionary? Second, Tesla’s board faces criticism for its apparent closeness to Mr Musk, sparking concerns about objective oversight — an issue that was raised when the Delaware Court of Chancery struck down his what was then considered a gravity-defying $55.8 billion pay-package.  Third, precedent matters: This award sets new benchmarks in the pay of chief executive officer, undermining proportionality and equity across the workforce.

 

Ultimately, the package forces boards and investors to confront how far “pay for performance” can stretch before it becomes a governance risk in itself.

 

OpenAI’s full tilt to for profit

 

As the fog begins to lift around Tata Trusts, India’s most consequential and scrutinised set of charities, another influential not-for-profit, OpenAI, which set the ball rolling for the AI era, has just restructured itself as a “for profit” enterprise.

 

OpenAI was launched in December 2015 as a non‐profit research organisation. Its stated mission was “to advance digital intelligence in the way that is most likely to benefit humanity as a whole, unconstrained by a need to generate financial return”. Its founders were reacting to the growing concentration of AI power within a few tech giants such as Google and Facebook. AI research was advancing rapidly, but its benefits were fated to flow primarily to these companies, a handful, that could afford the astronomical computing costs. OpenAI’s founders, who included Sam Altman and Mr Musk, pledged large commitments, with an initial funding pledge of $1 billion from a mix of tech-entrepreneurs and institutions. Although actual funds contributed early were lower, these were sufficient to start the entity rolling.

 

In its first few years, OpenAI’s motto was openly altruistic: Find or build “artificial general intelligence” (AGI) in a manner beneficial to all rather than primarily for profit. The non‐profit setup implied limited external investor returns, greater openness (in principle), and accountability to the mission.

 

By 2019, OpenAI was facing two major pressures: Capital and retention of talent. By then the company had realised that the costs of training large AI models required far more capital than non-profits could raise without promising investors any returns. They addressed the competing needs of their altruistic mission with the realities of attracting capital by setting up a for-profit subsidiary. Under this structure, investors like Microsoft, which came in with $1 billion, didn’t own equity but had the ability to participate in the profits of the for-profit subsidiary, with profits capped at 100 times their investment. Any profits over that were to go to the non-profit. The capped-profit also enabled the company to issue stock-options to employees.

 

As the expectation was that the non-profit will exercise governance control, the subsidiary was set up based on a “capped profit” model: A for-profit arm but with limits on investor/employee returns.

 

The hybrid model, nonetheless, heightened tensions between OpenAI’s mission-focused board and the capped-profit entity’s commercially driven leadership. Disputes over transparency, control, and the balance between public-benefit goals and commercialisation gradually caused a mission drift and culminated in Mr Altman’s brief ouster in 2023. The board of directors initially cited that they had lost confidence in Mr Altman because he was “not consistently candid” in his communications, but he was rehired, five days later, after significant pressure from employees and investors. 

 

Thereafter, OpenAI proposed further restructuring aimed at converting its capped-profit arm into a for-profit entity, enabling larger fundraising and possibly an eventual public listing.

 

Last month OpenAI completed the restructuring, with the OpenAI Foundation holding about 26 per cent in the for-profit entity and appoint a majority of its board. Microsoft now holds about 27 per cent, with the balance 47 per cent being held by employees and other investors. The for-profit arm is required to pursue both commercial objectives and the public-benefit mission of its parent.

 

As India pushes into frontier the nascent India AI mission, AI research, startups, and government initiatives will face the same question OpenAI confronted: How to sustain open innovation in the face of rising financial and computational demands. In this context, India’s digital transformation — built on the public infrastructure of Unified Payments Interface, DigiLocker, and Aadhaar — offers a counter-model: Open, interoperable systems that scale up nationally and even globally, without corporate concentration.

 

The author is with Institutional Investor Advisory Services India Ltd, a proxy advisory firm. The views here are personal. X: @AmitTandon_In