You recently published a study paper, “When Companies Forget Who They Are: The Work of Refounding.” What is refounding and how did you develop the idea?
Refounding is the effort a company undertakes when it looks deeply to rediscover what initially made it a great and distinctive enterprise and then interprets and activates those truths for today’s realities.
The insight emerged from interviews with more than 200 CEOs as part of our work at Y-SIM, the Program on Stakeholder Innovation and Management, which I co-lead with Ravi Dhar and Ted Snyder. We’re interested in understanding how CEOs think about and manage the connection between shareholder value creation and their companies’ relationships with customers, employees, communities, and other stakeholders.
They’re not going backwards out of nostalgia and they’re not throwing out everything and starting over. It’s finding the essential and enduring character of a company.
Almost every CEO we spoke with is driving change in some way, which invariably affects stakeholders. Some CEOs are dealing with the aftermath of a crisis. Some are leading turnarounds or responding to big market shifts. Among these were CEOs who did something rather surprising.
What was surprising?
Many of the CEOs were looking into their companies’ history, studying their origins. Now, looking back is something few CEOs do or encourage—and for a sound reason. Companies falter when they fail to adapt. Sometimes they cling to past successes. So most CEOs want everyone to focus forward. Let’s embrace what customers want now. Let’s look where markets, competitors, and technologies are going next.
But we heard CEOs saying, “I talked to my predecessors. I sought out the founder. I went into the archives.” When we asked why, they said, “This company became successful for a reason. Then we lost that. I’m looking for clues to how to get it back.”
With a typical transformation, CEOs say, “I looked at our cost structure, our processes, our portfolio of businesses. I bought things. I sold things.” Those do drive transformations. And the CEOs we were talking to often did those things too, but they also made efforts to recapture the core identity of their company as a way to guide the transformation: How do we evolve our organization? What should we buy and sell?
I call this refounding, because they’re not going backwards out of nostalgia and they’re not throwing out everything and starting over. It’s interpretive work. It’s finding the essential and enduring character of a company. That’s not defined by a product, no matter how successful. It’s defined by a set of distinctive capabilities that address an enduring need.
Would you expand on when refounding is needed?
One is when a company has drifted from its character. They’ve lost their way. Think of Starbucks, Nike, Boeing, Intel, Target. The problem isn’t just declining revenues or market share; those are symptoms. The underlying problem is that these companies have, in a real sense, forgotten who they are. They are drifting.
Drift is the accumulation of decisions, each seemingly rational, even necessary, in the moment. Cost cutting often leads to drift. Let’s cut to make earnings. Cut R&D a little. Defer employee pay. Put off store renovations. Or, let’s grow revenue by getting into businesses that maybe people don’t associate with us. You turn around one day and people say, “I don’t recognize this place.”
Sometimes, a company falters when the founder leaves, and it turns out that the character of the firm hasn’t been codified in the culture and systems. Other times there’s a crisis and to get at and fix the root cause, a refounding is needed. An example of this is the mining company Rio Tinto. In 2020, to expand an iron ore mine in Western Australia, they destroyed caves that had been sacred through 46,000 years of human use. They had the permits to do it, but as soon as they blew up the caves, there was enormous backlash from every stakeholder you can imagine—investors, government, employees, everyone.
The CEO was let go. Jakob Stausholm was elevated. His thinking was, “Rio Tinto has been around a long time. We weren’t always a company that would do something like this. What happened?”
After more than a decade of focusing on cost cutting, former strengths—responsible mining practices and community partnership—had eroded. To refound Rio Tinto, Stausholm rallied the company around a new purpose, new cultural values, and implemented a holistic management approach. It included operational standards that required traditional owners to be partners in land-use design and tied compensation to meeting non-financial metrics.
You mentioned that refounding can be done proactively. What’s an example of that?
Mars is a family-owned company established in 1911. It’s a significant enterprise, larger than Coca-Cola. For most of its history, family members worked for and led Mars. They knew what made Mars special because they were involved.
Over time, fewer family members worked at the company, and it’s likely that eventually no family members will work for Mars, let alone lead it. The family’s concern was, what happens when family members only have an economic relationship with the company? Will their demands and expectations cause Mars to, in my words, drift?
So they undertook a multiyear effort to debate, discuss, and codify their purpose as a company and to articulate shareholder objectives. And that purpose and those objectives included, very importantly, non-financial objectives: “We want to make a difference in the world; we care about our associates; we want mutually beneficial relationships with our suppliers and other stakeholders.”
The result was a management tool called Mars Compass. It’s wired into the management system of the company, with financial and non-financial objectives, measurements and KPIs, all aligned with resource allocation and incentives. And it all started when the family members said, “If we don’t clarify and codify what’s exceptional about the company, Mars could change in the future in ways that we may not like.” In other words, they did what they could to ensure Mars doesn’t forget who it is.
A private company has a great deal of flexibility. How do public companies justify focusing not just on shareholders but a range of stakeholders?
To be clear, the vast majority of CEOs we interviewed believe their responsibility is to grow shareholder value. The question is, what is the most effective way to do that? Many would argue, in the long term, shareholders benefit from a holistic approach to the firm’s key stakeholders.
Doug McMillon is an example. He’s just retiring after a very successful tenure as CEO of Walmart. When he took over, the company was profitable. It was growing. But there were a lot of stakeholder issues. Walmart was not known as a good employer. Communities did not welcome stores because Walmart was seen as destroying Main Street America. Suppliers felt squeezed by a one-way relationship. And the threat of Amazon and e-commerce was looming, troubling some investors.
I consider what Doug did a refounding because he looked to Sam Walton’s purpose—help people save money so they can live better—and interpreted it for a changing world. Doug and his team saw that they had to address the issues with employees, communities, customers, and suppliers—not in a fragmented way but through a holistic multi-stakeholder approach.
So what did they do? They invested billions in employee compensation and education. They cleaned up their dark and dingy stores—their term, not mine. Why? Growing the grocery business was key to their omnichannel strategy. Who wants to buy food in a dark and dingy store from unhappy employees? They invested in community relationships and with suppliers to reach ambitious sustainability goals.
Investment in stores and employees brought customers into superstores once a week for groceries—and while they were there, they bought other goods too. The changes appealed to higher-income customers who had avoided Walmart because of its reputation. What McMillon did wasn’t altruism; it was the path to a virtuous value-creation cycle.
Walmart found that listening to employees, getting them engaged, listening and responding to communities—it produced results for the shareholder. Walmart’s market value recently reached $1 trillion.
In the paper you write, “The most effective strategic evolution flows from foundational purpose rather than chasing market opportunities.” Would you expand on that?
Purpose statements are, at their worst, taglines. But, if crafted thoughtfully and taken seriously by management, they can be a useful guide inside a company. They concisely articulate why the company exists and what it uniquely does.
Spotify has a very long purpose statement. You’re never going to see it in Spotify advertising. It describes their purpose as essentially bringing together fans and artists through the act of discovery.
It doesn’t fly so high as to say something like we bring joy to the world, which is so broad as to be useless. But it also doesn’t mention music, which is surprising and counterintuitive for a music streaming company. Instead, the purpose statement identifies an enduring need: artists need fans, and fans want to find artists. That need will be good for a thousand years. And then, how does Spotify address that need in a distinctive way? It doesn’t say streaming or latency or value. It says discovery, which, for them, is delivered by leveraging all the data they collect.
I love that purpose statement because when they hammered it out, they were only in the music streaming business. Today, they are in podcasts and audiobooks where they bring together fans and artists.
An effective purpose statement does that—it guides evolution and growth with coherence. If tomorrow Spotify bought Netflix, it would be consistent with their purpose. If they decided to grow by opening coffee shops, the incompatibility with the purpose would be evident.
Refounding has a backward-looking component. Is there a place for refounding in a moment of great disruption, like the one companies are facing now with AI?
Before AI, there was the internet. Companies embraced the internet as a tremendous productivity lever. Think of the cost of a banking transaction in a branch compared to an ATM or a website.
While incumbent firms digitized their existing processes, along came the disruptors: Airbnb, Uber, Netflix, Spotify, PayPal. These are not technology companies; they are hospitality, transportation, entertainment, and payments companies.
Why didn’t Mariott create Airbnb? Why didn’t the automobile companies create Uber? Sony Music, why didn’t you create Spotify? Often the answer is, in part, how they defined themselves. We’re in the hotel business; we don’t help people rent other people’s rooms. We make cars; we don’t give people a reason not to buy cars.
It’ll happen again with AI. Existing companies are enthusiastically leveraging AI for productivity. They’re optimizing how they currently work. Then AI-native companies will come. And I don’t mean OpenAI and Anthropic; I mean AI-native banks, AI-native retailers, etc. They will use AI to reconceptualize value chains.
Unless the incumbents think differently this time. Understanding a business’s true purpose isn’t about wordsmithing to make everyone feel good. It’s fundamental to business strategy. It’s fundamental to staying relevant. What business are we in? What enduring need will we always satisfy? Are we in the automobile business? Or, in fact, are we in the mobility business—and there are many ways to fulfill that need. That’s refounding.
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