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termination of sam altman from openai

Can Malaysian Companies Remove Their CEO Overnight Like OpenAI Did To Sam Altman?

On 17 November 2023, leading artificial intelligence company OpenAI announced the termination of their CEO and founding member Sam Altman.  

As one of OpenAI’s core founding members and its public face for many years, Sam’s dismissal came as a huge shock, most of all due to the sheer speed and abruptness with which it happened. 

According to news reports, Sam was invited to an impromptu virtual meeting by one of his co-founders on 16 November.

Less than 24 hours later OpenAI publically announced news of the termination – a C-suite version of breaking up with your girlfriend via text message.

And what did this C-suite breakup message state?

The board no longer has confidence in his ability to continue leading OpenAI.

The sudden move has since set into motion a series of events, including multiple senior OpenAI members resigning in protest, OpenAI’s board attempting to persuade Sam to return, and Microsoft announcing Sam joining them and leading a newly created AI research team.

If we didn’t know this was real, we’d have thought it was a plot written by ChatGPT. 

Could it happen to a Malaysian CEO?

We’re sure CEOs all over the world – including Malaysia – wondered whether they too could wake up one day discover they’d been suddenly sacked.

Perhaps while Mr Keong was asleep, his board secretly got on a Zoom call and decided that they ‘no longer had confidence in his ability to continue leading Crunchy Chocolate Biscuits Sdn Bhd’.

a company director of a biscuit company sacked

It’s a valid concern, and for those who enjoy highly technical reading, our legal partners have published a thorough answer substantiated with case law.

For those who prefer their facts without too much legal jargon mixed in, read on.

The short answer is: Maybe!

Removing company directors in Malaysia

For private companies, a director’s removal falls under either Section 206 of the Companies Act 2016 or the company constitution if it has one.

Section 206 of Companies Act

Under Section 206, a director’s removal requires several conditions to be met:

  • this decision must be in the form of an ordinary resolution during the company’s general meeting
  • it must receive agreement from a majority of the shareholders
  • the director and board must be notified 28 days in advance
  • the director is given a chance to defend themselves against the removal

Furthermore, this need for a resolution during a general meeting cannot be bypassed by a circular written resolution (where shareholders sign a document indicating their agreement without meeting).

This means the director cannot be blindsided – they will know beforehand and can mount a defence.

In other words, Mr Keong can sleep soundly for at least 27 days before having to worry about finding a new job.

Company constitution

A company constitution is a fomal contract that further defines the roles and responsibilities of key company stakeholders, including how to appoint, re-elect, and remove directors.

As every company’s constitution is tailored to its needs, this can mean allowing for the removal of a director without a general meeting and within a notice period shorter than 28 days – perhaps even immediately.

Where a company has a constitution, it takes precedence over the Companies Act. 

Can the board remove a director without reason?

If the company constitution allows for it, then yes, they can.

However, just because they can, doesn’t mean they should and will.

an alarm to show how directors are only terminated in case of an amergency

Just like any company employee, a director who has been unjustly terminated can take the matter to court.

In fact, many directors have successfully argued their case and been awarded compensation (see our partner’s article for cases of directors winning wrongful termination suits).

Furthermore, removing a director over malicious reasons or no reason at all is just bad for business. The company risks damaging its performance and reputation without gaining anything in return.

Overwhelmingly, when a director is removed, there is a valid reason. 

At the very least, it is valid in the eyes of the shareholders.

And frankly speaking, as owners of a company, shareholders should have the autonomy to remove a director if they believe it would benefit the firm – which brings us to our takeaway.

Companies shouldn’t be defined by CEOs

Let’s take two well known companies: Rolex and Tesla.

This first thing that comes to everyone’s mind when thinking of Rolex is its logo.

rolex logo as an example of a company with its own identity

Meanwhile, the first thing that many people think of with Tesla is its CEO.

elon musk as and example of a company with cult of personality

Which company do you think is more capable of surviving a change in leadership?

A Sdn Bhd should be seen as its own entity, distinct from individuals appointed to run it. 

This ensures the company identity is immune to personnel changes, generating trust among stakeholders and potential investors over years and decades.

It’s extremely risky when an individual exerts such strong influence that the market sees them and the company as one and the same.

At that point, they’ve basically turned a company into their sole proprietorship – something OpenAI found out the hard way.

internal team threatening to resign because of Sam Altman's termination

We’re not saying OpenAI made a good decision when abruptly firing Sam. 

In fact, the aftermath indicates it’s quite the opposite.

However, it’s important that the board had the capability to make such a decision.

We firmly believe that it’s important to have mechanisms that safeguard a company’s interests over those of individuals (whether director or shareholder). 

All in all, we wish Sam well, and to our readers, don’t skip drafting a company constitution when incorporating a Sdn Bhd!

HOBD Adrian

MISHU’s team can assist you with incorporating your new Sdn Bhd, as well as various other needs such as appointment of a Company Secretary, opening a corporate bank account, and more. We would love to sit down over a virtual cup of coffee and understand your needs – so let us know if you’d like help!

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