Musk’s OpenAI and Warren Clashes to Steer AI Governance’s Future

A dual showdown—Elon Musk versus OpenAI and Musk versus Sen. Elizabeth Warren (D-Mass.)—highlights crucial questions about mixing organizational purposes and balancing public and private power.

Musk is suing OpenAI, which he co-founded, alleging its reorganization from a nonprofit to a for-profit entity betrays its original mission to ensure AI benefits humanity.

Meanwhile, Warren has raised concerns about Musk’s potential overlapping roles as a tech entrepreneur—who happens to own the majority of X.AI Corp., an OpenAI competitor—and a soon-to-be government official. Warren urged President-elect Donald Trump in a Dec. 16 letter to apply conflict-of-interest scrutiny stringently to Musk.

How these two confrontations play out will shape our technological future.

OpenAI’s ‘Franken-Gorgon’

Musk’s lawsuit targets the nonprofit parent, OpenAI Inc., and essentially everyone else involved in creating a capped-profit subsidiary, OpenAI LP. The so-called hybrid model allowed investors in the subsidiary to earn up to 100-times return on investment. Any remaining profits flowed to the parent. Musk argues this shift prioritizes profits over public good, turning OpenAI into what he calls a Frankenstein.

Musk amended his complaint in November to include allegations that OpenAI Inc. was itself reorganizing into a full-blown for-profit corporation. In Musk’s (or his lawyers’) words, OpenAI went “from tax-exempt charity to a $157 billion for-profit, market-paralyzing gorgon—and in just eight years.”

Since there’s no anti-Franken-Gorgon law, Musk’s claims are a mix of alleged violations of antitrust law, charitable trust law, agency law, fraud, and even racketeering. Even though Musk cites Altman’s promises to him, he doesn’t raise a breach-of-contract claim.

OpenAI countered on Dec. 13 that the capped-profit model is an innovative solution, enabling it to compete with other tech companies while staying true to its mission. It also argued that Musk lacks standing to sue.

The OpenAI model raises questions about transparency and governance. Can it serve two masters—its mission and its investors—without compromising one for the other? No one has figured out how to make this sort of stakeholder theory work in practice. One goal often gets consumed by the other, which is why there isn’t a conventional legal way to structure a so-called hybrid entity.

Hybrid Model Confusion

OpenAI’s hybrid model echoes the recent advent of public-benefit corporations, which are designed to pursue both profit and public purpose. Unlike traditional corporations, PBCs are legally required to consider the impact of their decisions on society and the environment, not just shareholders.

This structure provides a potential blueprint for organizations such as OpenAI to align innovation with accountability. “Potential” is the key word here, because PBC law doesn’t contemplate capped returns on investment.

While the capped-profit model is innovative, it underscores the need for clearer legal frameworks to govern hybrid entities. Policymakers should explore adapting PBC principles to address the unique challenges posed by AI and other high-stakes industries. Perhaps capped-profit models can become a standard form someday.

Dual-Role Dilemma

Warren has publicly questioned whether Musk’s dual roles as a private AI entrepreneur and co-chair of the proposed Department of Government Efficiency would create conflicts of interest. She has called for stricter ethics standards, particularly given Musk’s influence over policies that directly affect his ventures. She basically responded to his complaint that OpenAI is unethical by turning the accusation back on him.

But billionaires advising or participating in government isn’t a new phenomenon. From Andrew Carnegie’s philanthropy-driven policy advocacy in the 19th century to Warren Buffett’s role in advising financial policy during the 2008 economic crisis, wealthy business leaders have often shaped public policy. Musk’s involvement is part of a long tradition of leveraging private sector expertise for public governance.

That said, the stakes are uniquely high in the AI era. As both a government adviser and an entrepreneur with vested interests in AI development, Musk must navigate this dual role carefully. Transparency and accountability are essential to maintaining public trust, especially when the boundaries between private influence and public responsibility become blurred.

Because Musk is moving into what amounts to a glass house of media attention, Warren seems to warn, maybe he shouldn’t throw stones.

AI Governance’s Future

The Musk-OpenAI dispute is more than a legal battle—it’s a test case for how we govern mission-driven organizations in the age of AI.

Hybrid models such as OpenAI’s Franken-Gorgon structure challenge existing corporate and nonprofit laws, reinforcing the need for strong, independent boards, regulatory updates, and above-the-board ethical conduct. Hybrid entities need such boards to ensure that mission remains the priority.

OpenAI’s nonprofit parent has faced criticism for failing to provide sufficient oversight of its for-profit subsidiary, highlighting the need for clearer governance structures. To the extent that the company’s board members are financial beneficiaries of for-profit efforts, they’re in a biased position when making decisions about the nonprofit mission.

Policymakers must recognize that current laws weren’t designed for hybrids. Adapting PBC principles or creating dedicated frameworks for hybrid models could provide the clarity and accountability needed in the AI industry.

Trust is key. Transparency is critical. Organizations such as OpenAI must communicate their goals and structures clearly to maintain trust with donors, investors, and the public. Without transparency, hybrids risk eroding the very trust they depend on to operate effectively.

As the AI landscape evolves, the choices we make now will guide not only the future of technology but also the values that underpin its development. OpenAI’s story is a microcosm of these challenges—a reminder that balancing profit and purpose is as much about governance as it is about vision.

The case is Musk v. Altman, N.D. Cal., No. 4:24-cv-04722, response to plaintiffs’ preliminary injunction motion 12/13/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Anat Alon-Beck is associate professor of law at Case Western Reserve University School of Law.

Seth Oranburg is professor at University of New Hampshire School of Law and director of the Program on Organizations, Business, and Markets at New York University’s Classical Liberal Institute.

Write for Us: Author Guidelines