Background:

• Corporate governance refers to the framework of rules, practices, and processes by which companies are directed and controlled. 
• Companies Act, 2013 is the main law to govern corporations in India.
• The modern corporate governance regimes in capitalistic and neo-capitalistic economies mostly favour the theory of shareholder primacy. 
• The objectives of profit generation and wealth creation for the shareholders and investors takes importance over other objectives of the business including the objective of public good. 
• In recent years, a new approach with focus on the good of all stakeholders is becoming common. 
• Here, the corporations are increasingly getting involved in products, technologies and services that cannot be driven solely on the objectives of profit making and have a greater social objective. 
• Generative Artificial Intelligence (Gen AI) is one such instance, where corporations are seeking alternative governance structures to balance the objectives of generating profit with that of greater social responsibility.
• Gen AI has a hybrid governance model with a subsidiary for generating profits to support its cost intensive research. The main company continues to function under a non-profit Board.

Issues faced in Alternate Governance Models:

• Conflict Between Purpose and Profit: These companies often struggle to balance their social objectives with the need to generate profits. 
  • For example, OpenAI faced a governance crisis when the non profit board prioritised safety over rapid commercialization, leading to a temporary dismissal of its CEO Sam Altman.
• Investor Pressure: Alternative governance models may face significant pressure from shareholders and investors to prioritise profit. 
  • This was seen in OpenAI’s case, where Microsoft(leading shareholder) and employees with stock options supported commercial goals over public good objectives.
• Viability of Public Benefit Models: Public benefit corporate structures can become unsustainable in industries like AI, where large capital infusions are necessary for research and innovation. 
  • Current accountability mechanisms such as independent boards, are often insufficient to prevent profit-driven decisions from shadowing  social responsibility goals.
• Limited Managerial Incentives: In alternative governance models, there are often insufficient incentives for managers to prioritise public good objectives over financial returns.
• Ambiguity in Governance: The hybrid governance model of companies like OpenAI, which mix nonprofit and profit-capped subsidiaries, can create internal conflicts and governance instability, as demonstrated by the OpenAI crisis. The division between mission-driven and profit-driven goals can create confusion and governance challenges.

Way forward:

• New governance models with a social responsibility can be made to work with the use of following strategies,
  • Enhancing long-term profit gains of corporations from adopting a public benefit purpose; 
  • Incentivising managerial compliance of such purposes, and 
  • Reducing compliance costs of adopting such purposes. 
• With the increasing involvement of AI in multiple spheres of life, it is imminent that governance models which have a focus on social responsibility become necessary. Such kinds of models can serve as a good platform to train the upcoming AI models.