The new meaning of patriotism in business

CARLA VERNÓN: Do business leaders need to show up and be voicing the change, advocating their shareholder or their employee base? Most certainly. It’s not just our politicians. It’s not just our business leaders. Hey, man, the power is with the people.

Now, as a leader, I get a chance to put my voice where my values are. I get to create an employee climate, enable the people, give them an opportunity to support their families and their communities. Let’s be together, whether it’s your PTA. Every corner of life, it takes all of us because this is the United States. United States.

BOB SAFIAN: That’s Carla Vernón, CEO of The Honest Company. More than a decade after actress Jessica Alba co-founded The Honest Company, promising cleaner, healthier products for young families, the business finds itself at a crossroads. In a challenging retail landscape with a marketplace of divided consumers, Carla Vernón has tapped into her experience at Amazon and at General Mills to spark Honest to life. She offers lessons about the value of diversity in business, what true patriotism means right now, and more. I’m Bob Safian and this is Rapid Response.

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I’m Bob Safian, and I’m here with Carla Vernón, the CEO of Honest Company. Carla, great to see you. Great to be with you.

VERNÓN: Thank you, Bob. I’m glad to be here. It’s going to be fun.

Copy LinkAdapting to changing economic conditions

SAFIAN: I’ll say that I notice a lot of uneasiness and uncertainty by business leaders about the environment that’s changing so fast. I’m curious whether you have a philosophy at all about how you approach the pace of change that’s around us right now.

VERNÓN: Well, one of the things that keeps me centered is that real classic line, “This too shall pass.” So, I’ve been in business long enough. As you know, I worked for 23 years at General Mills. I worked for two years at Amazon. And now, I’m a little over two years at The Honest Company. And I’ve seen enough business cycles to know that none of them are permanent. I’ve seen enough political cycles to know that none of them are permanent.

So, that helps me because I know that even on the best days, that will change; even on the worst days, that will change. What I have to do these days is try to figure out how to lead other people through change and what things we react to quickly, what we react to slowly. And it’s a very interesting situation because I think there’s some of both that’s needed. Specifically, around the economy, I think that’s what you’re asking me, the volatility and dynamism of the economy.

We are trying to stay tuned to the principles of the change. I think if you know what you would need to do in either circumstance on either side of a change, then that’s what agility really is. We have the scenarios that help us manage when it’s time to act.

SAFIAN: I guess the challenges, or part of them, right now is the Trump administration seems to go from one side to the other side on tariffs and other things, like, almost on a daily basis. And so, it makes it harder to know what to hold on to.

VERNÓN: Preparation is the answer for that. And so, for example, at The Honest Company, we’re not new to dealing with tariffs. We’ve been dealing with tariffs for the last few administrations. They might have been tariffs of a different nature, but there was always uncertainty with whether a tariff will renew or it won’t. So, we really did work to set up a process.

We’ve got this team inside that we call the tariff tacklers. And that team was already assembled in place. So, they know the levers and the strength at which you have to react. In years that are smooth and easy, maybe you don’t need as much flexibility. But the truth is, having been in as many business cycles as I have, there are always surprises in them. There are hills.

Copy LinkWhy Carla Vernón joined The Honest Company

SAFIAN: The one thing that’s for sure is that you’re going to be surprised. When Jessica Alba co-founded The Honest Company, she was a pioneer in this, celebrities moving into entrepreneurship. Since then, The Honest Company has had struggles sometimes about controversy, about how clean its products are, some bumps in some of the direct-to-consumer brand. When you came on two years ago, the company had gone public, but the stock had been drifting downward from that point.

VERNÓN: Yes. That’s nice. That’s a gracious way to say it.

SAFIAN: What appealed to you about the opportunity in that moment?

VERNÓN: Well, Bob, I don’t know how many calls you’ve gotten to be a CEO of a public company, but I haven’t gotten that many, so that’ll get your attention. I knew about Honest through a few moments in my life. My kids have a godmother who’s on the younger side, and she was having a baby shower. This was about 2017. And at that baby shower, I saw the decorations for the shower included products from this brand.

We are famous for these diaper cakes, which you take little diapers and you roll them up into little tubes and make layers of them so that they stack and look like a cake. And I’d never seen somebody believe the diaper was stylish enough to be part of the party decorations. And I’m a long-time brand builder. I have built many brands. I have tried to help resuscitate some brands.

I was like, “Oh, this generation, they’re going somewhere different. They are picking a new brand.” I was a Pampers household, and that struck me. Then I forgot all about that. Eventually, I worked at Amazon where I ran what I like to call the center store categories, the everyday essentials. So, food, candy, beauty, baby products, household paper products, all of the cold medicines, all that health and wellness stuff.

And I joined Amazon in the pandemic. We weren’t having meetings. But when we decided to get back to returning to meetings in person, The Honest Company was the first vendor we met with, and they left these free samples. At the time, I used to get free samples. Remember I was running the entire beauty collection for Amazon.

SAFIAN: Yeah. You must have had a full drawer, a full closet.

VERNÓN: I mean, Macy’s, Bloomingdale’s, they had nothing on my collection of beauty products. And so, I’d put them to the test, and I have very sensitive skin. When I use these products, they worked for me like nothing ever before. And so, when I did eventually get that knock on the door and someone asked me if I would consider interviewing for CEO, here’s what I did know.

I knew this is a brand for the next generation. I knew the products were amazing. And I could also see with my own eyes that the brand was not available. It was under distributed. A lot of people my age hadn’t heard of it. Those are the kinds of things that let me see, this is a gem that no one has just put the right magic dust on.

Copy LinkSteering The Honest Company out of its slump

SAFIAN: So, all right. So, you’re compelled by this opportunity, you go there, but you know things are not going exactly the way one would want from the beginning. So, what do you do? First, how do you redirect things, because things have moved in a very different direction since you’ve been there.

VERNÓN: I know that you are observant of this real pivot and turnaround we’ve had to make. So, first let me say, our revenues are up double digits. We grew 10% last fiscal year, and we are growing in every way. We’re improving our margin structure. We’ve become profitable to a degree and at a pace that most investors I talk to have never seen anything like that. But that’s not how the story began as you said. I would say anybody who would like to be a new public company CEO, especially if you join from outside of the enterprise, do all your homework.

SAFIAN: From much bigger places, too, right?

VERNÓN: Yes. So, The Honest Company is a small cap. We aren’t even a billion dollars in sales. So, we’re 13 years old. We’ve only been public for three years. I came from one of the oldest companies probably on the stock market, General Mills. And one of the newest but biggest, Amazon. They were huge. But the good thing is inside of General Mills, I used to run the acquired businesses. So, they call that entrepreneurialism.

And so, I used to run Annie’s Organic, I ran the Larabar business after we acquired it. I ran EPIC Provisions, the meat snacks. So, I did have experience with these small-sized brands. And I can recognize the tools you have to put in place. And one of the most important things is actually a very clear and specific strategy. Here’s what we will do. Here’s what we’ll stop doing.

Copy LinkDeciding what’s urgent and important

SAFIAN: Is deciding what not to do, what’s to stop, is that because that’s often the hardest thing. I mean, it’s easier when you’re new, I guess.

VERNÓN: Ooh. It’s not easier when you’re new, Bob.

SAFIAN: No. It’s not.

VERNÓN: No. And when you’re the outsider, and listen, when you are the unknown quantity, I don’t come in a typical package that most public company CEOs look like. I’m a woman, I’m Black, I’m Latina, I am not from within the company. That does not necessarily get the welcome mat rolled out when you arrive.

But what’s important in deciding what to do and what not to do was: I took a different framework approach than the standard ‘important and urgent.’ You’ve seen that quadrant — what’s important, what’s urgent, and then the matrix. I realized that there are so many things that are urgent when you arrive in a company that is truly in a quick decline. Matrix was actually just a three-tiered system. Is it urgent and must happen right away? Is it urgent, but it can wait? And then the last one, which is, is it actually not urgent, but everyone thinks it?

SAFIAN: Can you give me an example of something you did in each of those categories?

VERNÓN: Yes. Well, one of the reasons the company was struggling so much is that we had really built up our inventory levels, and our cash position was dwindling. So, the first thing I did was I said, “Let’s sell more than we buy. We can work through that inventory and convert it to cash.”

SAFIAN: Which helps those margins, too.

VERNÓN: Which does.

SAFIAN: Yes.

VERNÓN: And it really reminds the team that the whole P&L has to connect. That would be an example of something that was urgent. And because we’re shareholder-driven, it needed to happen right away.

Copy LinkWhere the retail industry is right now

SAFIAN: The retail industry has been on a bit of a rollercoaster at the same time as you are riding and redirecting this ship at The Honest Company. You’ve worked through a variety of crises and conditions through your career at General Mills and at Amazon. Do you have a theory of the game about where the retail industry is right now? I know you haven’t leaned into necessarily having your own retail stores. Is that something you consider?

VERNÓN: Retailers are really at a wonderful inflection point because, again, there’s no one who’s closer to a consumer than the stores we walk in and shop in. It’s a very personal experience. And so, the retailers who are the best of the best, I got to work for one of them. I was a retailer when I worked at Amazon. The other big retailers, they take that service so seriously, and they know the consumer is moving online.

So, what I love is that in the conversations we have with retail partners, and we have very close and intimate relationships with our retail partners, we have conversations all the way up to the C-suite level at all of the big retailers. We’re in about 85% of all brick-and-mortar stores. Their next frontier is this execution digitally and how to make the business model work and how to make their user experience, that interface that you feel when you’re on the website or on the app, how to make that a winning experience.

And so, they look to us because we started our website 13 years ago, and because our shopper is a digital shopper. The Honest Company launched as a dot-com. Before we ever sold in brick-and-mortar, we were selling our diapers directly to consumers online way ahead of these e-commerce stores and the subscription models. So, we’re very comfortable in the digital space, and in many ways, many of the retailers fulfill the online orders right from the store shelves.

And so, if you think of that as the fulfillment model, then that means that instead of being focused on the backroom supply, you also have to be focused on the on-shelf supply so that you can be one of the brands that really sells online. So, that’s why it’s important for us that we have a foot in both places.

SAFIAN: Well, it is complicated. It’s not getting any simpler, is it?

VERNÓN: It’s exciting. I love it. I think retail is so exciting. As a little girl, I would go out on Saturdays and run errands with my father, and we might go to the hardware store or the department store, and I just, even as a little girl, I love the dynamism of the retail environment. So, I think it’s in my DNA.

SAFIAN: Carla’s got a lot of in-the-trenches experience from Amazon, from General Mills that’s certainly helping The Honest Company find new traction. But she’s also got strong passion about retail and about how a business should be run. We’ll talk about that after the break. Stay with us.

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Before the break, Carla Vernón, CEO of The Honest Company, talked about what it takes to re-spark a retail brand. Now, we dig into some of the most challenging parts of being a public company CEO, the backlash against diversity, the role of patriotism in a Trump-led America, and balancing personal conviction with business reality. Let’s jump back in.

Copy LinkThe impact of diversity in business

So, I first heard that you were going to Honest, from one of the Honest board members, James D. White, the former CEO of Jamba Juice. He is also co-author with his daughter of a book called Anti-Racist Leadership. And I’ve been thinking about him and that book with Trump’s crusade against DEI. The idea of anti-racist leadership might seem uncomfortable. It is uncomfortable for some people right now, but might even make a brand a target. And I’m curious what you think about that issue, and where you think DEI and efforts for diversity should be?

VERNÓN: Bob, all my life, I have been different in the settings where I lived, worked, went to school. I’m Black, I’m Latina, I’m the daughter of an immigrant. The good news is for women and people of color, our scale in the population, it’s undeniable. The demographics are destiny. We do know that the number of diverse people in the United States as a percentage is about to tip over. And the United States is soon projected to be a majority-minority country.

Now, I personally don’t like the word minority because I’m not minor. I’m not minor of anything I do. And what I long for, Bob, is this. It’s really, very clear what a company like Honest stands for and will do. We were founded by diverse founders who were millennial. So, they are of the generation that is looking at the landscape of friendships and neighbors and community totally differently than the previous generations. And I think that’s exciting.

But the folks that are currently in business leadership that have not lived the experience of the change that’s about to wash up on our shores, I want them to be reflecting and contemplating on what should be done and what can be done. Because at Honest, as you know, our board is already majority people of color. We are more than 50% female as a board.

So, it’s clear what we will do as a consumer-centered company to reflect the landscape of shoppers that are changing. If we want to be shareholder-oriented, we need to win with who’s out there and who’s shopping. That’s just math. That’s not a value system. That’s good business. But also, we want access to the best talent. And so, we need to avail ourselves of the changing face of who’s going to college, who’s going to business school, who’s innovative and entrepreneurial, and can see the changing market and help us win in that.

We all own this country. This is our America for all of us. This conversation needs to be owned by all of us, because the women and the people of color did not start the conversation. And this is an important time to reflect on for other leaders. Do you have the people and the strategies and the ideas flowing to you that will let you win in a changing landscape? And if not, take a look inside and see if anything should change.

SAFIAN: I mean, when a partner and a retailer like Target pulls back on its DEI efforts, are there conversations that you have privately about the repercussions of what they’re doing?

VERNÓN: My responsibility in my CEO chair is to have conversations with all of the folks that can help us really drive the strategy more effectively and efficiently. And so, I like to go out to my manufacturing locations, walk the floor with the people who are fulfilling our orders, talk about what they need to do to optimize the business. And certainly, we have meetings with people who are at the top of the house at the best retailers because they want to grow, and I want to grow.

As I’m in those conversations I am not in charge of their strategies or how they communicate their strategies on a front-facing basis. But I definitely always bring my candid self, and I let them know that I am here to offer them any perspective I can on how to win with consumers and how to think about the workforce. And maybe I can be a sounding board.

I also, by the way, lean on them because I’m new at being a public company CEO. So, I will say, “Hey, there’s some things I think I know a lot about. I’d love to help you give you thoughts, and I’m going to, in exchange, ask for some thoughts from you because I want to be a great leader who delivers performance that’s remarkable.”

Copy LinkBalancing brand values with business realities

SAFIAN: There are things about The Honest Company brand that could be associated with progressiveness that might bring negative attention from some of the more aggressive MAGA community. I mean, I was talking about this with another CEO yesterday who isn’t trying to be political about anything, but finds himself drawn into these issues and debates that he doesn’t want to be a part of. How much do you worry about that? Does that happen at all? The word honest means a lot of things to a lot of people these days.

VERNÓN: I feel that the word honest is still universally appreciated. There’s nothing that’s in question about a brand that is as transparent as possible and doing the best thing it can for any family that says, “I want products that are cleaner and that work for me and my kids or my household or my pet,” that’s not political, that’s not cultural. And that’s what Honest is focused on.

And what I try to tell people is: the voice I have is a business voice, and I have a responsibility to shareholders. And I don’t run my business by fairytale. I don’t run it by what I wish was true. I run it by what the market shows is true. And the market shows that if we focus on solving that need better than any other brand, for those families that are trying to avoid chemicals that are concerning to them or products that irritate sensitive skin, then that allows us to be in the conversation at the table showing that leaders like us, teams like us, boards like us, deliver great results. That’s where I’m at, Bob.

If you are in the consumer space and you want to win with consumers, you should want to win with everybody. I don’t think progress is something that can be avoided. So, if progress is at the root of progressive, then sign me up, because I’m going forward. The consumer is going forward. And whether you like it or not, the world is going forward.

SAFIAN: One of the questions that comes up to me sometimes in this current climate is whether business can or should be part of the checks and balances that are in the American political and cultural system. And I wonder if you have any thoughts about that because obviously as a CEO, your job is to deliver for shareholders and whatever will work at the marketplace to make your quarter and all those numbers. That doesn’t necessarily connect to higher, longer-term values that might be part of what these checks and balances are. And I don’t know if you’ve thought about this at all?

VERNÓN: Bob, you won’t find a more patriotic person than me. My children, when they used to get in trouble, one of the things I would do as a “punishment” is say, “Well, I have this little portable version of the Constitution. We’re going to have to sit outside and we’re going to read a portion together, and we’re going to discuss what it means.” That’s how nerdy I am about patriotism.

And so, I will say, I believe the answer now, as in all times where great change was called for, is in community. And so, whether you ask me, “Do business leaders need to show up and be voicing the change, advocating their shareholder or their employee base?” Most certainly. A lot of times our employee base is just a makeup of the community we’re in, the region we’re in.

But I also believe it’s not anyone. It’s not just our politicians. It’s not just our business leaders. Hey, man, the power is with the people. This is the United States of America. My mom took me to Washington, DC to march on the mall for the Equal Rights Amendment when I was seven. We drove from Buffalo, New York in a station wagon because we thought we’re going to put our feet where our values are.

Now, as a leader, I get a chance to put my voice where my values are. I get to create an employee climate. At The Honest Company, we made every single full-time employee a shareholder. That’s what I can do that’s putting people in the economy, that’s putting people who never would get in the system like that in the system. But that’s also good for shareholders because you better believe that they’re more committed to making a great company because now they’re part owner of it.

And I believe that is also patriotic, enable the people, give them an opportunity to support their families and their communities. Let’s be together, whether it’s your PTA, every corner of life, I mean, it takes all of us because this is the United States. United States.

Copy LinkFuture growth strategies for Honest Company

SAFIAN: So, you’ve had this change in trajectory at Honest, which is great. I’m sure it’s very gratifying. But I’m sure you’re also saying like, “Well, I’m only beginning.” So, what is next? Where do you see Honest to be in the next phase?

VERNÓN: Honest has come through two really monumental phases. That’s why it’s so cool that our founders were so frustrated with what was in the market. The first thing was Jessica and the team went to Washington, DC to try to lobby for different policy so that ingredients could be different in products. And when they didn’t see that happening, they said, “Then you know what? We’ll just create them for ourselves.” So, they did that. That was the private phase.

Then the public phase was the world needs this and needs a lot more of it, so we want to invite other people to be part of the party. Well, some of that didn’t go so well in the beginning, but I think we have really found the formula and the principles that will carry us forward. So, one of the things that I did after getting us through, really, the urgent beginning phase was the team and I took a step back, and we said, “What are some evergreen growth frameworks that we can think about that will serve us well for a long time?”

And sometimes I do my best thinking in the morning as I’m getting ready, brushing my teeth, taking a shower. And so, this framework came to me that we use as our three-pillar framework. The top is called brand maximization, which I hope someday we’ll see that in business books somewhere. But it is something I invented in the bathroom one morning.

Brand maximization covers everything from top line revenue growth. We have a huge focus there. So, I was telling you that we’re in about 85% of retail stores. But that’s actually, if you bundle all of the Honest products as if they were one big product family, on any given product line that we have, the distribution is very, very low. For example, our top-selling moisturizer, this great facial cream that we have called Hydrogel, it’s not available in even 50% of all the stores in the United States.

So, we’ve got a huge job to do to first spread our wings. And one of the changes I made was I organized my staff and structure in order to put more bodies against the most important parts to grow. We have already made that pivot. You saw, I told you the cash reserves had really dwindled down. Super proud to say we’ve got a really healthy amount of cash now in the bank. This allows us to chase that dream.

I’ve been telling people that Amazon is a place where I learned about this concept of escape velocity. This brand has reached escape velocity. There’s no holding it back anymore. We’re growing more than our categories, but we haven’t crossed all the financial milestones to say we’re fully finished with the first job, which was the turnaround. We have reached positive adjusted EBITDA. That was a very important inflection point for investors, because it’s an indicator that they believe we’re close to true bottom-line profitability, net income profitability. That is a big focus for us.

SAFIAN: When you look at the long term, you used to work at General Mills, you ran these smaller brands that are within General Mills. When you look at Honest Company in the long run, is part of the possibility that you become a part of some bigger entity like a General Mills, or are you hoping you’ll be the General Mills and you’ll have other folks…

VERNÓN: This is like when politicians go on talk shows and someone says, “Would you like to announce a presidential?” And they’re like, “At this time, I appreciate it.” So, here’s the deal. My job, I always say I am in this seat at the behest of the shareholder. It’s their money. They’re the investors. What I would say right now is that we love what we’re doing. We see that we are winning. We are clearly growing in our categories. We have more categories to grow in. We’ve been launching and updating a lot of our packaging and stuff like that.

And what I would say is shareholders want us currently to make Honest as available because we meet a need for consumers. That is my job. I came here to build a brand that I believed was under deployed. I think that there’s a lot more work to do there. We have not nearly achieved that vision that I know is possible for Honest. I have run a number of companies that were acquired by strategics, so I do know a lot about what makes that fit, what makes that work.

And I also have seen that some do it well and some that turns out not to be the longest, best lifespan for the brand. So, if and when we come to that inflection point, I know a lot about that. We’ve got a board that knows a lot about that, and we will do what’s best for the shareholder. And so, I’m in this seat because I know there is a big great future for The Honest Company. And I believe that the team I’m putting in place is going to be able to deliver it.

SAFIAN: Well, thank you so much for doing this. I really appreciate it.

VERNÓN: Bob, thank you so much. It was fun being here with you.

SAFIAN: Carla uses this line that I have to repeat. “I don’t run my business by fairytale. I don’t run it by what I wish was true. I run it by what the market shows is true.” Whatever she may want for The Honest Company, whatever she personally believes, she has to accommodate that to the environment that she’s operating in. That doesn’t mean her values change. She’s not going to back away from diversity. But she also frames it in a way that supports the business. Something many other CEOs seem to have forgotten or at least have gone quiet about. There’s no one way to lead a business, but all leadership requires courage, resilience, and just enough optimism to get you through the rough patches. I’m Bob Safian. Thanks for listening.