Microsoft drops observer seat on OpenAI board amid regulator scrutiny

Microsoft has withdrawn its observer seat on the OpenAI board and Apple will no longer be able to appoint an executive to a similar role, amid regulatory scrutiny of big tech’s relationship with artificial intelligence startups.

Microsoft, the largest financial backer of the ChatGPT developer, announced the move in a letter to the startup, as first reported by the Financial Times. It said the resignation of the observer role, which does not carry a vote in board decisions, was “effective immediately”.

Microsoft said it had seen significant progress by OpenAI’s new board, which was formed after the dramatic sacking and reinstatement of the chief executive, Sam Altman, last year. It said OpenAI was going in the right direction, including a commitment to safety and building a “great culture”.

“Given all of this we no longer believe our limited role as an observer is necessary,” said Microsoft, which has invested $13bn (£10.2bn) in OpenAI.

However, it is understood that Microsoft believed the observer role was causing concern among competition regulators. In the UK, the Competition and Markets Authority is reviewing whether the partnership has resulted in “an acquisition of control”, while in the US the Federal Trade Commission is also looking at the partnership.

The European Commission has decided not to conduct a formal merger review into Microsoft’s investment in OpenAI but is scrutinising exclusivity clauses in the agreement between the companies.

An OpenAI spokesperson said that the San Francisco-based startup was establishing a new approach to “informing and engaging key strategic partners” such as Microsoft and Apple as well as other financial investors.

“Moving forward, we will host regular stakeholder meetings to share progress on our mission and ensure stronger collaboration across safety and security. We look forward to continuing to receive feedback and advice from these key stakeholders,” the spokesperson said.

OpenAI will no longer have board observers under the new approach, which rules out Apple taking up such a role. It was reported this month that Apple was set to place the head of its app store, Phil Schiller, on the board as part of an agreement announced in June. Apple has been approached for comment.

Investments in AI startups are coming under scrutiny from regulators. As well as looking at Open AI and Microsoft, the FTC has said it is examining tie-ups between Anthropic, the company behind the Claude chatbot, and two tech powerhouses: Google and Amazon. In the UK, the CMA is also looking at Amazon and Anthropic as well as Microsoft’s partnerships with Mistral and Inflection AI.

Alex Haffner, a partner at the UK law firm Fladgate, said it was “hard not to conclude” that Microsoft’s decision had been influenced by the regulatory environment.

“It is clear that regulators are very much focused on the complex web of inter-relationships that big tech has created with AI providers, hence the need for Microsoft and others to carefully consider how they structure these arrangements going forward,” he said.