Leadership Summit 2026: Honest Company CEO Carla Vernón on Leading with Focus in Turbulent Times

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0:28Carla Vernón:Welcome to the HBR IdeaCast. I'm Adi Ignatius.

0:39Carla Vernón:What would you do if you were tasked with taking over a company facing shrinking margins, limited cash, and increasing pressure from Wall Street to generate profits? The Honest Company was founded by Jessica Alba with a mission, and it's been a big disruptor in the household and personal products industry. But when Carla Vernon was brought in as CEO in 2023, three, she faced an uphill battle to turn the brand, two years after its IPO, into a profitable long-term business. Vernon, our guest today, drew on her decades of consumer products experience at places like Amazon and General Mills. She set out to build trust, create a shared language for change, and help employees embrace new ways of working.

1:22Carla Vernón:She spoke with me at our recent HBR Leadership Summit. Here's that conversation. You know, when somebody comes in from the outside to execute a turnaround, there's always a lot of urgency. There's always a lot of uncertainty. When you came into the Honest Company, how did you decide strategically what your initial priorities would be? Well, let me step back and just tell people a little bit more about the Honest products and why the brand is so special and why the turnaround had to be so nuanced. So we are a household personal care company, as you mentioned. We make a lot of products for families with babies, including diapers and wipes.

2:00We also make personal care products that people now use in more areas of their house and for a wider audience. But all of our products are held to a really high standard of clean. There are 3 ,500 ingredients we do not allow in our products because we want to make sure that they are great for people with sensitive skin and great for people who are really trying to remove some of those things from their lifestyle. So that's a really specific type of company and brand to run. And as you said, it's very purpose-driven and mission-driven. And so when I came in, the company was just exiting that really early founder, that stage of exiting the founder-building stage and into the public offering phase.

2:41And we were very low on cash. We had less than a quarter of cash in the bank. Gross margins had been declining over time. And the business overall sales had been relatively flat. With all of that ahead of me, what I first turned my attention to was profitability. Because we are a publicly traded company, we'd have very inconsistent results with Wall Street. And one of the things that Wall Street started thinking about for recent IPOs just through the pandemic and after was top line growth is not sufficient. They needed to be healthy businesses both on the bottom and the top. And so I looked at the circumstances and figured out where could we address some of that improvement in the profitability structure immediately to gain that credibility with our investors.

3:25Carla Vernón:Yeah, so that sounds like a very good place to start. But as you say, it's nuanced. I mean, you have employees, you have customers who really bought into the mission, who probably were skeptical of somebody who said, I'm here to fix the bottom line. So, you know, how did you navigate that? I'm so thankful that in my career, as you know, I came up through General Mills. I also worked at Amazon. And in those experiences, I got the chance to get to know founder-built brands very well. at General Mills, I ran a number of the founder-built brands, things like Annie's and Lara Bar and Cascadian Farm and Epic Bars, and got to know the importance of caring for a business that was built for purpose and that the employee base comes to because they believe in the mission and they believe in the unique products.

4:17That's one of the reasons I think why I was a very natural fit to come to Honest and say, we can do both of these things at the same time. but I think one of the things you asked about was this notion of trust and one of the things that I've learned is trust is earned through repeatedly doing what you say and sticking to your word and becoming predictable we know that from Wall Street investors it's really the same for employees so I tried to lead through transparency our brand is called Honest so it's a really good North Star for us all the time. And I was always trying to be very clear with our employees every step of the way that this was not to take out any of the heartbeat of the brand.

5:00This was to make the brand strong enough to be built, to last for a long time.

5:05Carla Vernón:Look, I know from experience, you can come in and say all the right things to mean all the right things and still, as you say, you have to earn it or it just, you know, change is always harder than you anticipate. What's an example, maybe the biggest hurdle that you have faced during this transformation and how have you tried to respond to it? Well, we do something that I think is a little bit unconventional in companies. You've talked about change. And one of the things I learned coming up in old school corporate America is there are all these change management tools, right? If you Google change management and you go to search for images, you'll see that age old valley of despair graphic that's talking about trying to get people through change.

5:47And it's just, it's like, it's not inspiring. It's not giving, as they say. So we actually turned to something more out of pop culture that I think was relatable to the kind of employee base we have at Honest. We turned to a Pixar movie, the movie Inside Out, which is all about human emotions and honoring the fact that people feel very real things and certain emotions are more intense and more at the front of our mindset at different times than others. So if you haven't seen that movie, first of all, please go see it. It has the stars of the movie are the emotions. So you have fear, you have joy, you have envy, you have anxiety.

6:26You've got a lot of these things. We started using the Pixar movie Inside Out and those relatable, we call them our emojis, but those characters to let people know as we go through this change as a company, you will feel things. They're very real to feel. They're very natural. And you shouldn't even try to question or change your colleagues' feelings because they're just natural. But I want to allow you to have those feelings while you still understand changes that we're going to make. And so, for example, one of the changes we made was we added a lot more discipline. The company didn't used to have KPIs and measurable goals that were tracked on a short-term basis to see the progress so that employees can be rewarded by understanding that the things we set out to do, we're watching ourselves in real time accomplish them.

7:19One example there was day's supply inventory on hand. Our inventory had been building and our cash had been dwindling. So one of the opportunities was just to reverse that. Let's do something, right, the law of supply and demand. Let's sell more than we buy for a while. And right, and sort of change that balance in our financial structure. And then people could watch that because we were measuring it.

7:44Carla Vernón:So strategies about focus, if it were easy, we'd all do it really well. It's not. You have to shut down some things that people love, you know, legacy ways of doing things, long-held assumptions, you know, product lines that are maybe profitable, but not part of where you end up strategically. Are there examples of that, you know, things that you had to stop to kind of keep your eye on the ball? today is a perfect day to ask me this i come to you i flew in here through this jacket on and came to you right after visiting one of our amazon fulfillment centers in our community here in minnesota my board is in town i wanted to take them to a tour of the amazon fulfillment center so they can see the state-of-the-art latest way that online and e-commerce is happening and so it was a really good compare and contrast for us because as you may know, Honest did begin as a direct-to-consumer digital company and digital is, and e-commerce is a very important part of our ongoing sort of DNA as a company.

8:47But we recently shifted our own website, Honest.com, from being a direct fulfillment and shipping website to really what I call a pass-through and information and marketing website. People can come, they can still learn about all of our products, they can get their questions answered about our formulations, and then the website will direct them to where they can go buy those items. But it was a cultural change to think of our identity as shifting from a company where we were fulfilling those orders and shipping them ourselves to putting that in other people's hands. But it was really a matter of that age-old lesson that what got you here won't get you there.

9:26it was no longer the way that consumers are participating in commerce. They aren't really coming to brand websites as much anymore to get those individual items. Another big change that we've done that's also really, I think, still underway for us is everyone thinks of us as our through our baby heritage. We obviously became a brand that people knew through our beautiful diapers and wipes. I have increasingly been surprising people by sharing the fact that more than half of our customer base has no kids at all. And so with that knowledge, if we think about that and fold that into our strategy, that unlocks a lot of different avenues, but it does take repeating in order for it to make sense for people because it's not obvious or intuitive.

10:16Carla Vernón:So this all has to make sense internally. It also has to make sense externally. You know, I guess I mentioned, how do you measure progress and more than that, how do you communicate progress? You know, investors are not always as patient as you might prefer. So you're going through significant change. How do you measure and communicate that progress in ways that, you know, keep investors along for the ride? I think becoming a mom built new skills in me, one of which is repeating myself. So I am comfortable with repeating myself. We know that idea that sometimes you might have to say something three, four, five, seven times, and you know you've said it enough when it's starting to come back to you, right?

11:01So that's the case with bank analysts, with investors, with my own employees. I don't mind repeating myself, But I also have established a practice at the company where the most important things that we do are things we will look at all the time. So we articulated our plan on a page or a placemat. That's what some organizations call it. We call it our manifest. It has everything important on one page about who we are and what we will do. We show that in every meeting at the beginning of every meeting. We will talk about the progress in our town hall meetings with our employees and remind them, remember, we set out to do this.

11:44This is the first quarter. Let's tell you how far along we are in that. And so we just really do try to make that available. We're also using social media. We've always been a social media active brand and company. And as an individual, I've always been very pro social media. I'm always out there with my at everywhere I am at Carla inspired on all of the channels. And so we use all the forms of media to share really cool things about the products, what we've launched, but also our quarterly results in ways that I hope are just really like snackable.

12:19Carla Vernón:Building on that, you know, I know you adopted the acronym FIFA, F-E-E-F-A, which stands for focused, executionally excellent, fast and aligned. It's a fantastic company mantra. It's one thing to tell people that this is what you should do. It's another to, you know, how do you ensure that people actually live, accept, are not cynical about and live into those values? FIFA came to me in the shower one morning when I was getting ready for work in LA. And that's when my best thinking comes. My team watches out in the morning. They're like, oh, here comes the slacks. But I was trying to think of a way early on in the transformation to take an employee base that didn't know me.

13:05We also didn't have a shared language, right? The company is relatively new. Sometimes our employees have come from all different sorts of companies. How can we start to create a shared language that we can always sort of tack ourselves to and refer to all the time? And that's when I came up with, as you said, it's not FIFA like the International Soccer Organization. It's FIFA F-E-E-F-A. And what we do is we've put that on that one pager, but we also try to really recognize and reward in real time when someone has done something FIFA. Like, for example, our accounting team. This is so exciting.

13:44Let's celebrate accounting. Accounting has been closing the quarters down faster and faster, as has been a goal that we've set in our KPIs as we mature as a public company. And that's due in large part to their executional excellence. They are getting better at being efficient and finding systems that allow them to be more aligned across as an organization. And so we actually will celebrate that in a town hall and say, this is an example of FIFA in practice. We'll highlight it and we'll put people's names. You know, people want to feel seen. And that sometimes is part of the reward people are looking for.

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15:13Carla Vernón:How is Honest being affected by, you know, U.S. policies on everything from consumer product sustainability to tariffs to, you know, military operations that affect supply chains, that affect fuel costs? How do you think about that? How do you plan for that? How do you insulate the company from these kinds of external unplanned pressures? As a consumer packaged goods company, Honest is a little bit unique. We are a publicly traded company, so we have a decent amount of scale, right? And we're available in almost every retailer that you could think of that you could shop at. We're at all of the big players and hopefully all your regional stores, but we don't own our own manufacturing.

15:53We're co-manufactured or third-party manufactured for all of our materials. That's very different than the model I grew up with as I was training and coming up in my career at General Mills. And some of those old legacy CPGs where they own more of their own manufacturing capacity. As a result, Adi, that does mean we have to be really collaborative with our partners end-to-end. and our forecasting has to be very well connected and really think in advance of what we need to do in case there were to be some disruptions in how we are able to run a steady state business. What I would say is our teams have done a great job.

16:32When tariffs became the new kind of topic of the day a couple of years ago, that wasn't new for us. We actually, through the pandemic, have been managing through different tariff policies, the U.S. government. Our diapers are made in Mexico. Some of our other products are made in Asia. And so when the tariffs became much more on the forefront of every corporation's kind of everyday executive dialogue, we established a team we called Tariff Tacklers. And it got representatives from all the functions that need to work on whatever might be those key issues. I'm really proud because throughout all these things that you're talking about, all these sort the global challenges, the dynamism of the economy, we have actually strengthened our business model.

17:19So throughout it all, and even in a time of tariffs, we have added significant margin growth. Our gross margin last quarter reached our all-time high of 43.5%. That's up just under 2 ,000 basis points from when I arrived. So the interesting thing is with this FIFA a discipline that we have, we're able to navigate the dynamism times by being such an aligned team and knowing the model we're trying to run that we've been able to really kind of, I think, ride it out.

17:55Carla Vernón:I do want to get to some audience questions. And this is Sakshi. How do you stay focused without becoming resistant to new opportunities? In other words, how do you stay grounded and decisive when navigating constant ambiguity, constant opportunity for, you know, for new choices and new products? And how do you balance that? I believe it's always important to begin with well-articulated decision principles or frameworks. One of the things that serves us well is to sometimes for my team, I say, let's not jump into the middle of the pool without having a plan. And so we have, I told you about our plan on a page, but sometimes when we get into conversations about product innovation or talent strategies, whatever it might be, we back up and say, let's try to be objective here.

18:43Let's not get into the actual tactic of the thing before we decide what is important to us. How does it set up with our strategy? So I'll give you an example. In our innovation decision principles, one of our first principles is do the biggest, easiest thing first. There are so many things we can do. And our brand, as you can see over here, Our brand is relevant on so many categories that we can easily get tempted to add one more thing. But sometimes that next thing you might do might not actually be as big or drive as much traction as something else that it's going to steal a resource, be that time, money, or people.

19:26So we love to start with these decision principles. it actually then helps you by the time you get to making your choices of what your enterprise is going to do or what any individual team is. You actually get there in a much more unified way because if you can agree on the principles you'll use to make the decision, then when you make the decision, everyone can see why you got there.

19:50Carla Vernón:So Cara, who is a senior director of communications at Donaher, says she loves hearing a leader so fluidly articulate the need to clearly message your strategy and then repeat, repeat, repeat across channels. Question is, how is your team leveraging AI to support and enable this storytelling? Cara, how aren't we using AI? What is going on these days, right? We decided that because our origin as a digitally native company is always a piece of our DNA, that we're going to always think about technology as a tool that we embrace, as something that is, you know, we are tech philic, not tech phobic.

20:37as the AI conversations were beginning to sort of heat up and gather steam and momentum. One of the things we said was we don't want to be a, we don't want AI to be a distraction. We're a very lean company. We're a lean team. We are spread, our products are spread across 10 categories. It is always important for us to use our time to be clear, right? To be focused so that we can be fast. But one of the things that's been very fun is we started an AI council at Honest. And what we did was we designed it so that every member of my direct report leadership team, which of course spans all the functions of the company, every member of my team is on the council.

21:18But they were also to pick a lead person, a representative from their function that was excited to start captaining AI for the function. And that council now meets regularly. And what we did was we did a little bit of a shark tank type of idea. And we said, to get the ball rolling, we're going to ask every function to think of one of the internal AI tools that we've allowed inside of our governance to use the tool to develop something that solves a need or a challenge function specific. So we're not just out here gallivanting wildly, making memes of cats wearing hats, you know, thinking of something and then come back and share it with the council.

21:59And then everybody can compare and contrast and can kind of borrow and shop from all of the different ideas. At the same time, I personally spent my spring break diving headfirst into a couple of the AI tools. We've been piloting with Gemini and Claude. We've also got some very industry and subject-specific AI tools. And I think it's important to lead by example. I don't know if everybody loves it, but I am all in. I have built a number of agentic solutions for myself. And I'm sharing those challenges with my board and with my employees and just really sparking the inspiration. One of the things that I do now is for my meetings with my board chair, which are every other week, I have AI prepare a summary of our recent performance results, the outlook as we're looking ahead, and some key themes that my board chair and I want to pick up every time we talk.

22:57Now I don't have to write that report. AI gives me the first draft. All right.

23:03Carla Vernón:So we've got an AI follow-up, Carla. So this is Elena, who is president at EFZ associates, who talks about, you know, the honest company, you know, the brand is really about authenticity, about, you know, very important values, even about sort of diverse values. So the question is, how do you guard against AI tools inadvertently homogenizing or even erasing the kind of human and cultural differences that are essential in the brand, essential to earning trust with communities, with multicultural communities. You know, it's AI is AI and humans are humans. How do you, you know, do you think about this?

23:45Elena, what a beautiful question. Thank you for that. And thank you for caring that people are still at the center. Listen, we're a company that was founded to care for people's most delicate humans in their lives, babies, right? And now we've expanded to caring for all the delicate parts in life. and so we want to be heart-centered all the time. One example of a thing we've done is we have an internal policy and it says to the best of our ability we will not use AI generated human faces human bodies in the work we bring forward or we we present to the world. Now sometimes maybe somebody's generated something AI from a third party a partner that we have and it was in a presentation and I don't, I won't know if it was AI generated, but in our own teams, we really hold ourselves to that, which means we still have a photo studio on our premises.

24:41We bring babies and moms, real babies and real moms to our ad shoots. Our own employees are in some of our ad shoots. But this is one of the things we've said, our brand meaning is so important. It's the brand is called honest. And so that guides everything that we do, including our, our culture, our talent, strategy, how we work, how we talk to investors, everything. So it's, I'm sure it's going to continue changing and the landscape will continue to change. But we have no desire to become generic. You know, design and beautiful design is also a key piece of what we do. We try to make products where it's the fragrances in them, the patterns on the diapers, the patterns on our flushable wipes packaging should bring you a little joy in your day because we're humans.

25:35There's a lot stressful going on in the world. We need that joy. And so we just keep all of that humanity center in the work we do at Honest.