Sunday, March 27, 2016

Honest Co. in Trouble?

photo courtesy of pinguino k -
wikimedia commons
Jessica Alba's Honest Co. has run into difficulties in the recent past.  Founded in 2011 to provide pure and natural products, beginning with diapers, wipes, detergent and other household products, Honest Co. has been accused recently of promoting products that are not "pure" or "natural" and that contain ingredients that the company advertises as avoiding because it is harmful to health.  To make matters worse, the company had begun exploring going public and would want positive PR vibes if it were going to offer shares to the investing public.

According to Institutional Investor, the natural sunscreen promoted by Honest Co. has been leaving children sunburned and one of its detergent products is alleged to contain synthetic material that the company specifically claims is not part of its ingredient list.  This type of controversy is particularly harmful for a company investigating a potential IPO.  As remarked by a student in my Business Organizations course:  "[In this case], the purchasers of the stock will have the registration statement to look to, which contains all material information about the business, so it is essential that it doesn't contain fraudulent, material misrepresentations or omissions about the natural and safe products and ingredients.  Investors could potentially get into Alba's (and others who sign the statement) pocket book if there was not reasonable investigation and due diligence in making sure the contents of the registration statement are accurate."  Indeed.

hat tip: Katie Kepler, Indiana Tech Law School 2L

1 comment:

  1. This should be a huge concern for both the company and potential investors. If the company is considering the option of going public, the negative publicity itself is a huge concern. If the company investigates the product and finds it contained synthetic material, then the reputation of the company would be jeopardized. If the company investigates the product and finds it did not contain the synthetic material, the company will still have to do damage control. As well, when the company goes public, it will put pressure on the company to increase growth, impose various restrictions on management, and force disclosure to the public. With the negative attention the company is feeling right now, it may be a better choice to hold off on the initial public offering.