CEO Daily: Only in California

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November 22, 2023

Good morning, Peter Vanham here in Geneva.

Wherever you stand in the Shakespearean drama unfolding at OpenAI—the latest twist is the return of Sam Altman as CEO—there is something we can probably all agree on: it could only happen in Silicon Valley.

In one way, of course, the Valley’s luminaries are just like the rest of us: they are driven by mundane, human desires such as fame and wealth, despite allegedly pursuing work that “benefits all of humanity.” But in another, much less cynical way, this week’s unfolding events is proof of Silicon Valley’s unique ability to move faster and recover better from setbacks than any other place in the world.

For that trait, the industry can thank—of all things—California’s legal code.

Sampsa Samila, an AI professor at IESE who has studied the effect of California’s laws on its tech sector since the 2000s, reminded me of its role this week.

In most other global tech centers, including those in other U.S. states, the entirety of Europe, and China, employees with access to confidential business information can be forced into a non-compete clause. It bars them from taking their knowledge elsewhere at a moment’s notice, leading to a more orderly business ecosystem but also more static competition.

Not so in California.

The state’s Attorney General Rob Bonta reminded employers and workers last year that “noncompete agreements have no place in California.” In the U.S., only Minnesota, North Dakota, and Oklahoma have similar strict bans, and those states are hardly tech hubs.   

The legal peculiarity has enormous consequences, on display this week. It meant that Microsoft, OpenAI’s biggest investor, could easily hire the startup’s top management overnight. It meant that employees could threaten to quit OpenAI en masse and follow their fired CEO elsewhere.

Just imagine a similar drama unfolding at Mistral, France’s most-hyped AI startup, or DJI, one of China’s top AI firms. Any attempts at a similar employee revolt or brain drain would be dead in the water. In China, a noncompete clause can prohibit employees from working for a competitor for up to two years. The situation is not much different in France.

There are many more consequences of California’s libertarian bent, which was etched in law long before technology dominated its economy. Not all are positive. Just think of California’s persistent and growing inequality and bifurcated labor market, for example, or the cutthroat competition in the tech sector and the excesses that come with it. 

But this week, California’s legal libertarianism played a positive role. It helped Silicon Valley continue to thrive even—or especially—when the leadership of one of its most promising companies fumbled.

A reminder that we’ll be off tomorrow and Friday. Happy Thanksgiving to all who celebrate!

More news below.

Peter Vanham
peter.vanham@fortune.com
@petervanham

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