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4 Ways Empathy Will Lead You to More Success

4 Ways Empathy Will Lead You to More Success

By Andrew Thomas

4 Ways Empathy Will Lead You to More Success

Getty Images

Empathy can be a major source of success. Here’s four specific ways you can apply it to your business or career.

If you feel increasingly anxious, disconnected and lonely despite the fact that we’ve never been more “connected” in human history, you’re not alone. The very tools that intended to connect us are actually driving feelings of loneliness and separation. Instagram and Facebook are dominated by influencers trying to monetize the separateness and exclusion they create, or marketers trying to sell another product. It’s challenging to feel a real human connection anymore.

Luckily there is an antidote. We don’t need to rely on the droves of influencers selling the “secrets” to look, live or succeed like them. We all have the power to go inside ourselves and tap into the power of empathy. The antidote is empathy.

Empathy is the ability to cognitively and emotionally understand another person’s experience. Put simply, it’s the ability to put yourself in someone else’s shoes. In a world with disconnection, and narcissism, empathy is the best way to connect with others.

In business, true connection leads to successful business relationships, good company culture and other benefits. Here’s a look at the 4 major ways that empathy can help you succeed in business.

1. Sales and Business Development

When people ask me how I was so successful with business development (I’ve closed over $100M in my career), they’re surprised to hear the answer. They expect me to respond by stating the latest CRM or the highlighting latest sales hack. The answer is easier than that: I sell with empathy.

Leading with empathy allows you to better understand your potential customer. In B2B sales, this is especially important. By asking questions and genuinely listening to the answers, you can better understand the other person’s motivation and constraints. You can understand their world, and that understanding can guide you to connect with them.

Also, when you sell through empathy, you become a collaborator instead of a person who just wants to sell something. Empathy helps you understand that the prospect’s problem is your problem too, and together, you can solve the problem.

There’s always an expert on social media who will be happy to sell you the sales “secrets” you need. At the end of the day, you just need more empathy. If you lead with empathy, everything else takes care of itself.

2. Building an audience on social media

The issue with bad influencers and “gurus” is they derive their power by creating separation from you. They want you to feel that they are better than you, that they have secrets you don’t, and most importantly, that you cannot be the source of your own happiness or success. They want you to engage them (aka: buy their products) in order to get new results.

The opposite of this is empathy. When you communicate through empathy, you connect on a more human level with your audience. Instead of feeling “less than,” your audience will feel seen, heard and understood. Instead of making them feel inadequate, you’ll be giving them permission to accept where (or who) they are and give them hope to make whatever changes are necessary.

Empathy will also help you stay focused on empowering your audience. Since you can connect with the parts of people who feel lost, unsure or behind the learning curve, you can put your focus on creating content that empowers them with the hope, knowledge or worthiness they lack.

When you come from a place of empathy, your audience will connect with you on a deeper level and be nourished by the content you share. Imagine what social media could be if all influencers did this.

3. Marketing

One big mistake marketers will make is speaking “at” their prospective customers. Consumers are constantly bombarded with messages about different products and why they should buy them. Yet if you stopped to look around, you’ll notice that some of the biggest brands do not do much marketing.

What do they have in common? They started movements by connecting with the soul of a customer. They use empathy to truly understand who their customer is on a human level and what drives their behaviors.

Here are a few examples from Ferrari, Apple and Airbnb:

  • A brand like Ferrari doesn’t need to tell you to buy a Ferrari, or that they’re really fast cars. Instead, they put that passion into building a product they know resonates with the feeling a customer wants to experience when they get behind the wheel.
  • For many years, customers would line up to get the latest iPhone from Apple because the product said something about who they are as a person. I don’t remember consumers lining up for Dell laptops.
  • Airbnb didn’t become more valuable than Hilton because it makes a better hotel booking website. They became a $30 Billion-dollar business by tapping into a traveler’s desire to belong anywhere and feel connected to the cultural fabric they’re visiting.

4. Hiring great talent

Talented people are the key to building and sustaining a great business. With so much competition out there, it’s not enough to say that you raised a big round of funding or have a great idea. You need to inspire them to join your mission.

Again, most people instinctively move into the sales process, selling the candidate on the business and the opportunity. Yet a great leader will use empathy: asking the candidate to share more about their life, personality, passions and goals.

In doing so, a leader can connect with the person, not just the resume. In today’s startup world, treating someone as a person, and caring about their interests, is a source of uniqueness and differentiation. The candidate will likely feel seen, heard and accepted. They’ll also notice that you care, and that will go a long way in feeling desired.

Final Word

These four examples show how empathy can help create the connection we’ve lost in our digital society and while also leading to more success in your business or career. Instead of chasing the latest fad, or following the influencer who says they know it all, consider how you can strengthen and hone your ability to be empathetic. It can guide you to a life of success and fulfillment.

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Term: Privately Owned

What Is Privately Owned?

A privately-owned company is a company that is not publicly traded. This means that the company either does not have a share structure through which it raises capital or that shares of the company are being held and traded without using an exchange. Privately-owned companies include family-owned businesses, sole proprietorships, and the vast majority of small and medium-sized companies.

Key Takeaways

  • A privately-owned company does not have a share structure through which it raises capital, or its shares are being held and traded without using an exchange.
  • Privately-owned companies include family-owned businesses, sole proprietorships, and the vast majority of small and medium-sized companies.
  • Unlike a public company, a privately-owned company does not have to answer to public investors.

These companies are often too small to conduct an initial public offering (IPO) and tend to fulfill their financing needs using personal savings, inherited money, and/or loans from banks. Although many small businesses fit the definition of a privately-owned company, the term privately-owned is most often used to refer to companies that are large enough to be publicly traded but are still being held in private hands.

The shares of privately-owned companies are more challenging to sell due to the uncertain nature of their real value and the lack of an exchange that supports transparency and liquidity.

How a Privately-Owned Company Works

Privately-owned companies are far more common than publicly-traded companies. Privately-owned companies may be owned by an individual, a family, a small group, or even hundreds of private investors or venture capitalists.

Companies that were once publicly traded can also be made private again through a leveraged buyout (LBO). In 2016, for example, the ride-sharing company Uber had over seven million common shares outstanding and 11 million preferred shares held by a large number of venture capitalists. The Securities and Exchange Act of 1934 states that the total number of shareholders generally should not exceed 500. Crowdfunding and the trend of technology companies staying for longer in the venture capital phase have raised questions about whether this shareholder limit should be increased.

Privately-owned companies are also referred to as being privately-held.

Privately-Owned vs. Publicly-Traded

A privately-owned business may be contrasted with a publicly-traded company. A publicly-traded company is a corporation owned by multiple public shareholders. The shares of public company stock are traded on an exchange. These companies are considered “public” since shareholders, who become equity owners of the company, can be composed of anybody who purchases stock in the company. Although a small percentage of shares are initially floated to the public, daily trading in the market determines the value of the entire company.

A privately-owned business may “go public” through an initial public offering (IPO). This process means that shares of the company’s stock are issued to the public in a brand new stock issuance. An IPO can be a useful tool to raise capital from public investors. Some companies may have private shareholders prior to going public, in which case the private-share ownership may be converted to public ownership.

Prior to its IPO, the company will select an underwriter and choose an exchange where the shares will be issued and then traded publicly. The underwriters market the proposed share issuance in order to estimate market demand and establish a final offering price. A board of directors that consists of members both internal and external to the organization must be formed prior to the IPO date. The board is a governing body that meets at regular intervals to set policies for corporate management and oversight.

Additionally, the company must meet requirements set forth by the exchange listing and the Securities and Exchange Commission (SEC). This includes filing a Form S-1 registration statement with the SEC. The registration statement includes information on the planned use of capital proceeds, details of the business model and competition, a brief prospectus of the planned security, and the methodology used to calculate the offering price.

Advantages and Disadvantages of Being Privately-Owned

IPOs are an incredible tool for raising a large amount of capital to fund the growth of a business and cash out early investors. That said, there are many reasons why a company may choose to remain privately-owned. First, being a public company comes with an added layer of scrutiny. Public companies are required by the Securities and Exchange Commission (SEC) to issue shareholder reports that comply with Generally Accepted Accounting Principles (GAAP).

Privately-owned companies should still keep their books in shape and regularly report to their shareholders, but there are usually no immediate legal implications of late reporting or not reporting at all. Most privately-owned companies still use GAAP because it is considered the gold standard in accounting practice. In addition, most financial institutions will require annual GAAP compliant financial statements as a part of their debt covenants when issuing business loans. Therefore, although it’s not required, privately held companies tend to use GAAP.

Privately-owned companies can use corporate structures that public companies can’t, setting terms for investors that wouldn’t be allowed in the public market. In some ways, privately-owned companies have more freedom than public companies that must answer to a larger audience.

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Quote: Edmund Hillary

Quote: Edmund Hillary

“People do not decide to become extraordinary. They decide to accomplish extraordinary things.” – Edmund Hillary

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How narcissistic leaders destroy from within

How narcissistic leaders destroy from within

By Lee Simmons

They lack empathy and exploit others without compunction. They ignore expert advice and treat those who differ with contempt. Above all, they demand personal loyalty. (Sound familiar?)

What traits do we look for in our leaders? Ask someone what distinguishes a forceful leader, in business or politics, and they’re likely to mention self-confidence and charisma. Great leaders, we say, are bold and strong-willed. They have a vision for creating something new or remaking a company or a country. They challenge conventional wisdom and are slowed by neither self-doubt nor criticism.

These are the individuals whom corporate boards tend to select as CEOs, especially in times of upheaval, when the status quo is failing. They’re adept at self-promotion and shine in job interviews. Then, once they’re in power, we find out who they really are.

Sometimes they’re as good as their promise. But many turn out to be not just confident but arrogant and entitled. Instead of being bold, they’re merely impulsive. They lack empathy and exploit others without compunction. They ignore expert advice and treat those who differ with contempt and hostility. Above all, they demand personal loyalty. They are, in short, raging narcissists.

Charles A. O’Reilly, the Frank E. Buck Professor of Management at Stanford Graduate School of Business, studies how the personalities of leaders shape the culture of organizations and the behavior of those who work in them. In a paper with Jennifer Chatman of the University of California, Berkeley, he reviews the literature on narcissistic leaders, encompassing more than 150 studies, and draws some somber and urgent conclusions.

“There are leaders who may be abusive jerks but aren’t really narcissists,” O’Reilly says. “The distinction is what motivates them. Are they driven to achieve some larger purpose? Do they really want to make the company or the country better, or accomplish some crazy goal like making electric cars mainstream and maybe colonizing Mars along the way? Or is it really all about their own aggrandizement?”

When their self-admiration has some basis in reality, narcissistic leaders can achieve great things; that was certainly the case with Steve Jobs at Apple. But over the past decade, researchers have grown increasingly concerned by the destructive effects of narcissists on organizations. Cautionary tales abound, from Enron to Uber to Theranos.

True narcissists, O’Reilly says, are self-serving and lack integrity. “They believe they’re superior and thus not subject to the same rules and norms. Studies show they’re more likely to act dishonestly to achieve their ends. They know they’re lying, and it doesn’t bother them. They don’t feel shame.” They are also often reckless in the pursuit of glory—sometimes successfully, but often with dire consequences.

But even worse, narcissists change the companies or countries they lead, much like bad money drives out good, and those changes can outlast their own tenure, O’Reilly says. Divergent voices are silenced, flattery and servility are rewarded, and cynicism and apathy corrode any sense of shared purpose in a culture where everyone’s out for themselves. In the extreme, they can destroy the institution itself.

Why do we empower them?

Anyone who was bullied as a kid is familiar with the consoling notion that bullies don’t really believe they’re better than us—they’re “just compensating” for low self-esteem. They present as confident and assertive to mask some inner pain, and we take solace in their secret suffering, maybe feigning pity for their brokenness.

Unfortunately, that generous assessment is not always true.

“That’s the classic case of vulnerable narcissism recognized in psychiatry,” O’Reilly says. “But in the last decade or so, there’s been an outpouring of research on what’s called grandiose narcissism. These individuals have high self-esteem. They are much more agentic, more extroverted, and really more dangerous. And evidence shows that they’re achieving high positions in organizations, getting promoted, and making more money than normal people.”

Such individuals seek positions of power where they can be admired and can demonstrate their superiority. And they tend to gain those posts because they look like prototypical leaders. “There must be 20 or 30 studies that demonstrate this,” O’Reilly says. “If you gather a group of strangers and give them a task, those who are more narcissistic are much more likely to be selected as leaders.”

O’Reilly thinks we may especially tend to choose narcissistic leaders in times of turmoil. “In the last few decades, big companies like automakers and banks have been threatened by technological disruption. So you could imagine that in anxious times people are looking for a hero, a confident person who says, ‘I have a solution.’” They may be the only ones who are confident in such times.

“By the way,” he adds, “I haven’t researched this, but I think venture capitalists love these people. For their business model, which is to invest in 10 companies hoping that 1 pays off big, it makes sense. If I’m a VC and I see one startup that’s headed by an introverted engineer and another that’s led by someone who says, ‘Yeah, I’m going to change the world, and if you don’t get it, then you’re a bozo’—I’m going to go for the visionary spiel.” In a way, it’s an investment model predicated on grandiosity.

Tallying the damage

Because narcissists are fundamentally driven by their own self-interest, lack empathy, and are less constrained by ethical standards, they can cause tremendous harm once in power and can even put the organizations they lead at risk, O’Reilly says.

Field studies have shown that narcissistic CEOs are more likely to engage in fraud and other types of white-collar crime, manipulate earnings, and pursue aggressive tax avoidance. And a 2013 study of U.S. presidents found that those who scored higher on the narcissism scale were more likely to abuse their authority (not to mention, on a personal level, their marriage vows).

Along with Bernadette Doerr of UC Berkeley, O’Reilly recently published the results of three experiments showing that narcissistic people in general have lower levels of integrity—meaning their words and deeds do not align—and that they are more likely to lie, cheat, and steal in order to prove their special status.

Ascending to a position of power only reinforces these tendencies, O’Reilly says. “Being elected or appointed to office validates their sense of entitlement. At the same time, even without narcissism, power disinhibits—it encourages people to indulge their worst instincts—so now you’ve got the two working together.”

And when narcissists do achieve some success, it reinforces their belief that they know better than others, so that they feel even more justified in ignoring the advice of experts and relying on their own instincts. “Success chips away at their hold on reality,” O’Reilly writes in his review.

Not surprisingly, studies also show that narcissists’ belief in their superiority is based on scant evidence, validated neither by objective measures of intelligence or competence nor by performance reviews from peers or subordinates. One recent paper on corporate decision-making found that grandiosity in leaders was associated with greater risk-taking but not better financial returns.

As a result, narcissists often feel they don’t receive the admiration and credit they deserve, and they can seem pathologically consumed with resentment. That can take the form of petulance, aggression, unhinged public rants, and abuse of underlings. Narcissistic CEOs often involve their firms in costly litigation. In the narcissist’s worldview, other human beings must be either acolytes or enemies.

But the gravest danger posed by such leaders is that their malignant influence guides the behavior and expectations of others—and ultimately shapes the culture of the organization or polity in their own image. Studies of businesses show that self-serving, unethical behavior at the top cascades through the organization and becomes legitimized, or at least normalized.

“Once they’re in power, narcissists consolidate their position by firing everyone who challenges them,” O’Reilly says. In their place rises a plague of toadies, opportunists, and enablers equally guided by self-interest and short on scruples. “So you end up with these individualistic cultures with no teamwork and low integrity. We’ve documented this in a bunch of Silicon Valley tech firms.”

When you join a new company, you figure out how you need to behave to fit in, he says. “If you see that the path upward requires you to scheme, suck up, and withhold information, then you have a choice: You can either do the same or not, in which case you’re going to be excluded and probably eliminated.”

He points to the struggles of Uber CEO Dara Khosrowshahi to turn the company around after its founding CEO, Travis Kalanick, was forced out. “Once you create these cultures, it’s very hard to change them. There are long-term consequences.”

Follow the trail

O’Reilly’s hope is that by pulling together the lessons from what is now a large body of research on narcissistic leadership, we can learn to better distinguish between real transformational leaders and the self-dealing look-alikes who exploit our hopes and fears to gain power.

If you’re evaluating candidates for high office, you really need to look beyond the self-presentation, he says. “Too often, when boards select CEOs, especially outside CEOs, they do it through interviews. But interviews play to the strength of a narcissist. And you can’t just look at performance, because they can fake performance”—blithely taking credit for others’ work and even falsifying results.

“What would really be far more illuminating would be to go talk to the people who’ve worked for them and with them in the past. You have to get data from people who have seen that person operating. But that typically isn’t what happens.”

It’s up to the hiring teams and voters who select leaders, O’Reilly says, to do the proper background checks: “We’re not helpless. The information is out there.”

And as research shows, the stakes are high—because, as O’Reilly says, “These people aren’t going to change.”

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3 Signs to Identify Whether You Have Good Leadership Skills

3 Signs to Identify Whether You Have Good Leadership Skills

By Marcel Schwantes

A crisis presents unique opportunities to transform your leadership.

A global crisis presents unique opportunities for leaders to pivot and meet new demands. Luckily, the best leaders continue to rise up and model the behaviors we clearly need now, and will need in a post-pandemic era.

I’ve featured scores of them in previous articles and podcasts: They model altruistic behaviors to inspire and motivate people, communicate with certainty and confidence, and act with care and compassion to bring people together to produce results.

To continue in that tradition, my latest conversations aim to highlight three excellent ways business leaders can elevate their game.

1. Start with mission

Daniela Perdomo, co-founder and CEO of goTenna, the world’s leading mobile mesh networking company, is a firm believer that success relies on cultivating a culture with a strong mission that’s aligned with your customers’ goals.

This is important for all stakeholders, she says: The leader stays motivated through the inevitable tough ups and downs of running the business, the team has a purpose to rally behind, and the end-users receive the best possible support for their own missions.

For Perdomo, goTenna’s mission statement is what the entire company prioritizes every day. “By revolving our day-to-day around this, we operate as a unit in-step with one another,” says Perdomo.

2. Build a team that knows more than you do

Paul Jarman, CEO of unified cloud customer experience (CX) provider NICE inContact, knows execs don’t have all the answers. But when they’re surrounded by the right experts, they can drive incredible results for their customers.

The counsel of a strong team fosters a balanced and well-informed environment. “Leaders often need to make split-second decisions, with little time to ‘do their homework,'” says Jarman. “But, by installing trusted advisers who are willing and able to step in and help put together the puzzle pieces, you can feel confident that whatever solution you’ve reached has been well thought out.”

3. Leverage empathy to improve communication

Most leaders can agree that business ultimately comes down to one thing — relationships. And one key trait that helps to nurture those relationships is empathy. Will Bartholomew, CEO and founder of D1 Training, an athletic-based fitness franchise, relies heavily on the encouragement of empathy to drive the performance of his employees.

“Your teams spend at least 40 hours every single week together, so there are bound to be occasional disagreements. However, when you encourage an empathetic environment, you’re promoting an understanding of other viewpoints, which will mitigate disagreements and help your team come to resolutions quicker,” shares Bartholomew.

Empathy also leads to over-communicating in the best way, where employees feel comfortable enough to voice feedback and ask for criticism to improve. “I learned this back when I was a running in college,” notes Bartholomew. “I had one coach who just wouldn’t give me the ball and I had built up this mountain of frustration instead of just asking him why that was the case. After venting to my father about it, he told me to ask for feedback to understand what was happening. I did just that and had one of the most productive conversations that helped shape me as both an athlete and a communicator,” added Bartholomew.

Now, he always makes a point to over-communicate and encourages others to as well — it has helped everyone understand one another more clearly.

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Term: Piggyback Registration

What Is a Piggyback Registration?

Piggyback registration refers to a method of selling shares through an initial public offering (IPO). It is typically used by early investors, founders, and other company insiders who negotiated the right to sell their shares as part of any future IPO.

Unlike demand registration, where shareholders are entitled to demand that a company undertakes an IPO, investors relying on piggyback registration to sell their shares do not have the right to force an IPO. Instead, they must wait for the IPO to be demanded by other investors, effectively “piggybacking” on other investors’ demand registration rights.

Key Takeaways

  • Piggyback registration is a method of selling shares through an IPO.
  • Investors relying on piggyback registration cannot force an IPO to happen; they are reliant on the demand registration rights of other investors.
  • The main drawbacks of piggyback registration are its lack of control over the timing of an IPO and the fact that it is often treated as a lower priority by underwriters.

How Piggyback Registrations Work

When a company is moving toward an IPO, some investors may wish to position themselves to sell their shares as soon as the company goes public. To that end, those investors can lobby the company’s IPO underwriter to include their shares along with the broader pool of shares being sold in the IPO. If their request is accepted by the underwriter, then those investors’ shares would be referred to as a “piggyback registration” and would be disclosed as part of the IPO’s prospectus documents.

From the company’s perspective, piggyback registrations are a convenient way to allow a variety of early funders and other insiders to exit their investments and make room for new investors who might be more interested in the long-term prospects of the company. After all, companies will often go through several stages of fundraising in their early years, with each investor bringing their own investment style, objectives, and time horizon. Many of those investors are likely to view an upcoming IPO as a convenient time to cash in on their investment.

Aside from the fact that they do not allow their holder to determine the timing of their exit, the second major drawback of using a piggyback registration is that they are generally given lower priority than demand registrations by underwriters. In practice, this means that if the underwriter believes that there is insufficient market demand to sell all of the shares that investors wish to sell through the IPO, some or all of the piggybacking investors may be unable to participate.

Example of a Piggyback Registration

Michaela is the director of XYZ Capital Partners, a venture capital (VC) firm specializing in companies expected to IPO within five years. As part of her investment strategy, Michaela is careful to only invest in companies that have already received funding from other capital providers that have a demonstrated track record of guiding the companies they invest in through to successful IPOs.

Whereas these other investors generally insist on demand registration rights when negotiating their investments, XYZ specifically opts for piggyback registration rights. Since piggyback registration rights are technically inferior to demand registration rights from a legal perspective, XYZ is often able to negotiate slightly better terms in other areas of the negotiation. Moreover, by only partnering in ventures that are highly likely to IPO, XYZ is generally able to effectively exit their position by piggybacking on the demand rights of the other investors.

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Quote: Hosea Ballou

Quote: Hosea Ballou

“Real happiness is cheap enough, yet how dearly we pay for its counterfeit.” – Hosea Ballou

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Four ways to reflect that help boost performance

By Stephen Newman and Wanda T. Wallace


Photograph by Kelvin Murray

Powerful modes of reflection are crucial for leaders and their teams, especially when dealing with a crisis.

Reflection for seasoned leaders has always been a personal process. Step back. Regroup. Look in the mirror. Push the pause button. There is often an intuitive belief that reflection carries restorative powers and can even be transformational.

In theory, it goes like this: On top of a mountain, a leader retreats to ask him or herself a set of questions about life, stress, and sacrifice, capturing the answers in a beautifully bound notebook. The questions don’t vary much. Where are you going? How are you living your values? What gives you meaning, purpose, or fulfillment? Are all the components of your life managed as you need them to be managed: career, family, friends, finances, health, and spiritual growth?

The power of this reflection comes from digging deep and being in touch with your core. It is very much an affair of the heart. With the insights from this exercise, you come back to your role renewed, focused on what matters to you and clearer about how you will lead this year.

Although this kind of deep reflection (on an imagined mountaintop) is a useful process, it may not be enough to tackle the range of problems a business encounters in the course of a year because it focuses solely on the leader. In our experience working together and independently coaching leaders, we find that they and their teams benefit from four ways of more targeted reflection that help refocus and reframe challenges (see “The four kinds of reflection”).

This is particularly true when the world as we knew it has so dramatically changed and the challenges we face will be of a new kind.

The four kinds of reflection

TypeHow oftenKey questionInvolvingPurposeRelies on
MountaintopOnce a yearWhere am I headed?You (and people close to you)Energy and meaningIntrospection; courage to tell yourself the truth
Leadership
health check
Twice a yearHow am I doing as a leader?Mentors, stakeholders, and criticsEnhanced
performance
Perspectives of others; courage to hear feedback
Looking backAs neededWhy did we get the results we got?Your teamResilience and better understanding of successes and setbacksSkill with challenging conversations; courage to be candid
Scanning the horizonOnce a quarterWhat’s going on outside our company and our industry?Your team and a broad range of other peopleGrasping signals of changeObserving and synthesizing; courage to learn something new

Each type of reflection amplifies the power of the others. They serve different purposes and occur at different frequencies. We’ve talked about the solitary mountaintop experience. Here’s why the other types of reflection are important.

Leadership health check reflection

In our experience, the leadership health check should be done twice a year. Its purpose is to refine how you lead in order to elicit better performance, engagement, or commitment from those around you. Rather than a look at yourself in a mirror, you distill the views of others concerning your words and actions. Informally or formally, you gather the answers to the following questions from people you trust, such as a coach, colleagues, and mentors. And you collect the perspectives of key critics.

  • How am I doing?
  • What adjustments in my style or approach will get a better result?
  • What am I avoiding?
  • What am I ignoring?
  • What should I keep doing?
  • What feedback am I hearing?
  • Where do I need to turn the volume up or down?

Each type of reflection amplifies the power of the others. They serve different purposes and occur at different frequencies.

This is where you get your readout of your vital signs. It is outside in, and its power comes from listening and being open to feedback. It means facing up to the perceptions of people who interact with you. With the insights from the answers to these questions, along with an honest evaluation of what’s important, you can decide which changes will get better results and make the appropriate adjustments.

Twice a year, a CEO we know sits down for a personal scorecard review. His coach interviews board members, executive team members, supporters, and critics to find out what the CEO is doing as a leader that is effective, and what each person wishes he would do differently. The conversation is affirming and at times painful. In one instance, the CEO learned that although he thought his town halls were creating honest dialogue, the people attending saw them as rehearsed, canned, and full of management speak. That perception mattered to the CEO, so he set about changing how he delivers his opening remarks and how he addresses questions. The town halls now feel less like a broadcast and more like a candid conversation.

Looking back on past decisions reflection

The look-back occurs as needed, but we’ve found that the most helpful frequency is at least two or three times in a year. It seeks to demystify outcomes whether they were expected or not, good news or bad. It is based on checking the assumptions behind key decisions before they are superseded by the stream of events.

For example, a business unit head recommended that his company buy a small tech company in Silicon Valley to speed up the firm’s digital transformation. After the deal closed, the key talent of the startup firm walked out the door. What exactly was the unit head and everyone else thinking at the time? What did they fail to see about the needs of people in the acquired company? The acquiring company’s chief competitor took a different approach to digital transformation, one that generated more powerful customer engagement than expected. So why did the unit head and his people think as they did? The reflection process showed that they had no one on the team representing the perspective of a tech startup. The important questions were not asked until too late in the process.

The look-back is a team effort aimed at creating an open playing field for what comes next. It brings out of the shadows wrong thinking and poor decision making, and it shines a light on the real reasons for successes. Its power comes from the disciplined pursuit of truth and cold reality.

  • How are things working?
  • What were we thinking or doing?
  • What weren’t we thinking or doing?
  • Why were we thinking and doing the way we were?
  • What do we know now that we didn’t know last quarter (or six months ago)?
  • What have we learned about ourselves?
  • What would we do differently next time?

With the insights gained from this reflection, make a conscious decision as a team on what you will keep doing, stop doing, and start doing. Write out those decisions, distribute them to the team, and keep referencing them. Tools, such as after action reviews, are useful for engaging in exactly this sort of reflection.

Scanning the horizon reflection

Finally, there is looking out ahead and scanning the horizon. This is the reflection that we’ve found should be the most frequent, about every two to three months. It is the most creative and least connected to the drumbeat of everyday business. It takes about an hour and involves having your team share via any means they choose — words, drawings, videos, speakers, and stories — fresh takes on what is going on outside the walls of your organization and your industry. The effort casts a wide net over what you have been too busy to notice, things that at the end of the day point to the future.

  • What’s interesting?
  • What do you want to know more about?
  • What are people outside your team talking about?
  • What is new in science, entertainment, fashion, or smartphone apps in any field?
  • Who are you interacting with?
  • Who do you never get to meet?
  • What is happening at universities?

When you scan the horizon you don’t consider what you are feeling, how you are doing, or what you were thinking, but simply try to see what is going on that you and your team might overlook unless you look out the window. The power of this type of reflection lies in observation.

We worked with a leader who was curious about what younger staff were thinking, so she asked her children and her newly hired employees what they were watching and reading. They talked about new streamed services, memes, and their favorite news feeds. She challenged her team to ask the same questions of their younger employees and to report back on their discoveries. The team then explored which forms of communication and entertainment appeal to the next generation. They brought in an expert to talk about new ideas. Although this exercise did not immediately lead to a change in communication strategy for the business, it did make for easy connections with the younger employees. Most likely, the insights generated will eventually impact business decisions.

Rarely does scanning the horizon lead to immediate actions — and that is exactly the point. Being curious about what is going on in the world outside your business is often what leads to ideas about new opportunities and changes to consider more thoroughly.

The power of the right type of reflection

Reflection is about stepping back, setting aside the urgent, and considering what is important (which might in itself be urgent). It zeroes in on specific issues, but also casts widely on no particular issues. It taps into the power of the mind beyond the usual modes of debating, planning, and checking. Furthermore, it is an essential skill for coping with uncertainty.

Each of these four kinds of reflection will yield totally different perspectives: long-term, short-term, right now, and the distant future. Each is important for getting a grip on what is going on. You will emerge with greater clarity about the past, improved visibility into your current status, and a surer alignment of what you expect of yourself and your organization.

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3 Ways to Effectively Motivate Your Team

3 Ways to Effectively Motivate Your Team

By Robert Glazer

3 Ways to Effectively Motivate Your Team

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Leaders need to build trust with their employees in order to help them do their best.

Leaders are quickly adjusting to a transformed work-environment. Suddenly, entire teams and organizations are working remotely under immense professional and personal stress due to the spread of coronavirus.

Business leaders need to maximize their motivational ability in order to build trust with their employees and get their best performance. There’s a reason leadership speakers often focus on relationships–they’re foundational to achievement in business, especially during tumultuous times.

It’s useful to remember the remember the motivational adage of carrots and sticks, which dates back to the days of horse-drawn carriages. Drivers had to judge when to use rewards, or carrots, to compel horses to move, and when to punish them with a riding crop, or stick.

All leaders must strike the balance need both effective incentives and thoughtful, constructive feedback to lead their teams. This doesn’t just mean knowing when to use each, but also understanding which types of rewards and sanctions are most effective. Start with these guidelines:

Connect personally

Everyone mutually beneficial professional relationship is built on trust and respect. Employees will be more motivated if they feel you’re invested in them, first as a person and second as an employee.

Make sure to schedule regular, one-on-one time with your direct-reports. Show that you care personally by asking how they are adjusting to the current environment and get their thoughts on which projects they’ve most excited about tackling. If you have any performance concerns to address, you can address them in the context of a personal connection, rather than as an absent boss scolding a fearful employee.

Every employee is currently facing more isolation than usual, and most of them are at least somewhat worried about their future under this economic uncertainty. Personal connections make your team feel more secure.

Use meaningful rewards

Connecting personally with your employees not only will make your employees more engaged, but it will also allow you to reward their performance with incentives that matter to them. Not only does giving personally tailored incentives have a bigger impact with the recipient, but it also will show other employees you’re willing to go the extra mile to reward top performers.

At our company, we run a dream-granting campaign where we ask our employees to submit their most important goals and choose 10 to 20 that we help fulfill, announcing the recipients at our annual AP Summit. In the past, we’ve given employees seeking financial security meetings with a financial planner, helped an employee travel to Greece to visit her grandmother, and even hired an investigator to help and employee find her long lost brother.

There’s no one-size-fits-all incentive that will resonate with everybody in your organization equally. Instead, find what will bring the most impact to the employee you want to reward, and choose that option.

Be clear about performance issues

You’ll certainly have employees for whom potential rewards aren’t enough to motivate them. Whether these employees are disengaged, or trying their best but not performing well, the number one rule is to address problems clearly and proactively.

First, it’s most crucial to address any performance issues immediately as they occur. If your employee makes a significant mistake or misses a crucial deadline, don’t just save those topics for an eventual performance review–bring them up in your next one-on-one meeting before the drop in performance becomes too entrenched to fix.

When the conversation takes place, be clear, empathetic and direct. Explain your expectations, and identify where the worker is falling short. Ask the employee if there is an external factor that is causing their performance to slip–it could be a result of a personal challenge you’re unaware of, or even that the employee is disengaged with their portfolio and wants to do something different.

While you shouldn’t abruptly spring consequences on an employee, be clear about what steps you’ll need to take if performance doesn’t improve. Especially in the current economic environment, when workers are on high alert, they’ll appreciate the transparency and directness.

To work through the challenging time we’re all facing, you need to make sure your employees are engaged, motivated and feel valued. By connecting personally with your team, delivering rewards and incentives that resonate with them, and addressing any issues quickly and clearly, you’ll make sure your team is up to the test.

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Quote: Buddha

Quote: Buddha

“Health is the greatest gift, contentment the greatest wealth, faithfulness the best relationship.” – Buddha

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Own Your Mistakes To Bounce Back From Them

Own Your Mistakes To Bounce Back From Them

By Steve Watkins

It’s natural to run into obstacles. But if you can learn from mistakes and make them yours, you can overcome them.

Studying top leaders over the years, shows you how they used mistakes to finally reach success.

Leaders best at overcoming mistakes are the ones who own those missteps in the first place, says Antigoni Ladd, co-founder of Gettysburg, Pa.-based Tigrett Leadership Academy. The firm provides leadership training using historical lessons.

Learn From Mistakes Like Dwight Eisenhower, Walt Disney

Dwight Eisenhower led a World War II invasion of North Africa that included a disastrous clash with German Gen. Rommel at Kasserine Pass. More than 1,000 American troops were killed and hundreds were taken prisoner.

Eisenhower took responsibility. He learned he needed more teamwork and cohesion among his troops and a single strategy. Eisenhower later allowed every general to share his opinion before making his own call. This move prepared forces from 12 countries to team up in the D-Day invasion of Normandy in 1944.

“He restructured the Allied forces from top to bottom, with the goal of working together more effectively,” Ladd said. “That goal would prove so critical for the Normandy invasion.”

Legendary animator and theme park developer Walt Disney suffered multiple failures. His first cartoon business, launched with his brother Roy, went bankrupt. He moved to Los Angeles and failed at acting but launched an animation studio that was a huge success.

“He failed a number of times but he picked himself up,” Ladd said.

Disney figured failing could help him. “All the adversity I’ve had in my life, all the troubles and obstacles, have strengthened me,” he once said. “You may not realize it when it happens, but a kick in the teeth may be the best thing in the world for you.”

Dissect Your Failure First

To learn from mistakes, it’s vital to start by looking at why they occurred, says Rick McDaniel, founder and senior pastor at Richmond Community Church in Richmond, Va. It could be something unexpected, such as the coronavirus outbreak, or it could be a bad decision or failure to plan. Then look at how you can learn from it.

The way you frame failure is a key to learn from those mistakes.

“You need to be failure-friendly,” McDaniel, an inspirational speaker and author of “Turn Your Setbacks Into Comebacks,” told Investor’s Business Daily. “Understand if you’re going to be innovative you’re going to encounter failure. You have to take failure as feedback.”

McDaniel started four campuses and two schools, so he knows about innovation — and failure.

“You need to fail forward,” he said. “Keep adapting and tweaking. That will allow you to learn how to do it in the future.”

The way leaders look at failure is key. Some see it as making them a failure and avoid it at all costs. Psychologists call it “awfulizing” and it’s the wrong view, McDaniel says.

“There’s an enormous difference between failing and being a failure,” he said.

Learn From Mistakes: Make Failure Your Friend

McDaniel strives to create a culture that’s failure-friendly. He describes failures in spoken and written communications with his staff. He stresses admitting what didn’t work and eyeing what the company learned. And he vows the group will do better next time.

“Then people don’t take it as something to be feared, but something to be owned up to,” he said. “View it as part of the creative process.”

Failure is often just a small part of the larger goal, Ladd says. Emphasize that to your people.

“Paint a picture of future success and show them this is only a bump in the road,” she said.

Winston Churchill, who bounced back from mistakes in World War I to lead Great Britain through World War II, took a valuable view to learn from mistakes.

“Success is not final, failure is not fatal,” Churchill said. “It is the courage to continue that counts.”

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Video – Harvard Business Review – Understanding the Economic Shock of the Covid-19 Crisis

Video – Harvard Business Review – Understanding the Economic Shock of the Covid-19 Crisis

Illustration – Harvard Business Review

Video – https://wp.me/paWI18-cfdm – Harvard Business Review

By Harvard Business Review

Predicting the path ahead has become nearly impossible, but we can speculate about the size and scale of the economic shock.

Economic contagion is now spreading as fast as Covid-19 itself. Social distancing, intended to physically disrupt the spread, has severed the flow of goods and people, stalled economies, and is in the process of delivering a global recession. Predicting the path ahead has become nearly impossible, as multiple dimensions of the crisis are unprecedented and unknowable. Pressing questions include the path of the shock and recovery, whether economies will be able to return to their pre-shock output levels and growth rates, and whether there will be any structural legacy from the coronavirus crisis. This Explainer explores several scenarios to model the size and scale of the economic shock and the path ahead.

Based on the HBR article by Philipp Carlsson-Szlezak, Martin Reeves and Paul Swartz.

Click to view
CNBC International - Martin Sorrell on Covid-19's global impact on business and marketing


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Term: Basis Trading

What is Basis Trading?

In the context of futures trading, the term basis trading refers generally to those trading strategies built around the difference between the spot price of a commodity and the price of a futures contract for that same commodity. This difference, in futures trading, is referred to as the basis. If a trader expects this difference to grow, the trade they will initiate would be termed “long the basis”, and conversely, a trader enters “short the basis” when they speculate that the difference will decrease.

KEY TAKEAWAYS

  • Basis trading attempts to benefit from changes in the basis of futures contract prices.
  • The basis is the difference between the spot price of a commodity and a futures contract that expires two or more months later.
  • The basis, in futures trading, is not to be confused with the terms “basis price” or “cost basis” which are unrelated to the context of basis trading.

Understanding Basis Trading

Basis trading is common across futures commodities markets where producers look to hedge the cost of production against the anticipated sale of the commodity they are producing. The typical trade comes when one is midway through a production cycle and looks to lock in a favorable price for their product.

For example, suppose a corn farmer was two months away from delivering a crop of corn and noticed how favorable the weather conditions had been, that farmer might become concerned about a potential price drop resulting from an oversupply of corn. The farmer might sell enough futures contracts to cover the amount of corn he hoped to sell. If the spot price of the corn were $4.00 per bushel, and the futures contract that expired two months out were trading at $4.25 a bushel, then the farmer could now lock in a price with +.25 cent basis. The farmer, at this point, is making a trade that is short the basis, because he is expecting the price of the futures contract to fall and consequently come closer to the spot price.

The speculator who takes the opposite side of this trade will have purchased futures contracts for 25 cents per bushel higher than the spot price (the basis). If that speculator hedged their bet by selling contracts at the spot price ($4.00 per bushel), they would now have a position that is long the basis. That is because they are protected from price movements in either direction, but they want to see the current month contract become even less expensive relative to the contract that expires two-months later. This speculator may be expecting that despite the good weather and favorable growing conditions, consumer demand for ethanol and feed grain will overwhelm even the best supply predictions.

Basis Trading in Practice

Basis trading is common among agricultural futures because of the nature of these commodities. However, it is not limited to grain contracts. Though grain is a tangible commodity, and the grain market has a number of unique qualities, basis trading is done for precious metals, interest rate products, and indexes as well.

In each case the variables are different, but the strategies remain the same: a trader attempts to benefit from an increase (long) or a decrease (short) in the basis amount. Such changes are not related to actual changes in supply and demand, but rather the anticipation of such changes. Basis trading participates in a sophisticated game of trying to anticipate changes in the expectations of hedgers and speculators.

Basis trading, or the basis, as described here relating to futures contracts, is an entirely different concept than the basis price or cost basis of a given security. The difference between these phrases and a futures trading basis should not be confused.

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Quote: George Santayana

Quote: George Santayana

“To know what people really think, pay regard to what they do, rather than what they say.” – George Santayana

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Five Ways to Motivate Your Team With Empathy and Authority

Five Ways to Motivate Your Team With Empathy and Authority

By Nancy Duarte

A crisis pressure-tests leadership and culture. Many new values are formed under the strain, and employees gain new perspectives on their organization and its leadership. Communication is the key to keeping them motivated and productive in a season of enormous distraction.

The COVID-19 pandemic isn’t my first financial crisis. No matter how well you run a business, external forces will test you, your culture, and your resolve. Leaders are constantly processing the future, and our employees are watching to see how confident we are and how clearly we see the situation. They look to us for emotional fuel and signs that everything will be OK.

Your ability to get through to your team doesn’t just depend on what you say. Your message is heavily influenced by your interactivity, your chosen communication mediums, and how dedicated you are to your larger mission and values.

Techniques to Motivate Through a Crisis

Five communication techniques have helped me build trust with, connect with, and motivate my employees during high-pressure times.

Mix up your delivery channels.

In the early weeks of the coronavirus pandemic, I sent out email memos with subject lines such as “COVID Memo #4.” These had situational information on where I was getting my news, what I was doing about the business, and what short-term things employees could do to help at work. Some were instructional, like “Start to work from home today” or “Let’s rally behind parents with kids.” Some had reflections in them. But all of them were sincere. Every time one went out, I received grateful notes back.

At the end of a particularly scary week of news, I decided to send out a video I recorded privately on Zoom. It was clear and measured. It had hope, but it was honest about what we were all hearing.

Let your employees ask questions.

I soon realized that it wasn’t enough to communicate out. I had to actively listen to what my employees had to say. Even if you think you know what questions are on your employees’ minds, giving them the opportunity to ask makes all the difference in how “heard” they feel.

We started an ANA (Ask Nancy Anything) process. I really mean it, in terms of my commitment to transparency — I’ll answer any question from our staff. We use a polling tool called Slido, where employees can submit questions and vote up the ones they want me to answer. Everyone in the company can see what’s on everyone else’s minds. They also know I’m willing to respond to even the tough questions or admit that I don’t have all the answers. It’s important to not randomly select questions to address, because employees will notice if you’re skirting an issue that’s on all their minds. If you have a high-performing team, the questions will be productive and push the organization forward.

Side note: If you decide to answer employee questions by video, keep your camera on and make sure you look straight into the lens when speaking. Make sure your team sees the sincerity in your eyes so they feel that you’re speaking directly to them.

Tell stories.

One of our company’s values is to let people know they belong here, and stories are a powerful vehicle to make people feel they are part of a shared culture with a past and a future.

Silicon Valley, where we are based, had issued shelter-in-place orders much earlier than anywhere else in the U.S., and it scared people. The first Monday after that government announcement, I carved out 30 minutes from our staff meeting to tell stories. In 32 years, this was the fifth financial crisis hitting our business through external forces. We told a story from each season of crisis and explained what we learned, how each crisis shaped our values, and how we emerged stronger — different, but stronger.

I have to say, in the week that followed that staff meeting, when everyone could have been distracted and unproductive, the team killed it. That first week sheltering in place, the team redesigned four training products to virtual format, which was no easy feat. Many of them stayed up late to get this new format to market to minimize the hit to our revenue.

Stories don’t just help people feel like they belong to something, they motivate people — because they subtly communicate why people’s actions will have meaning and value. I wonder whether that product would have gone to market so quickly without the stories of resilience that Monday. That week was one of our finest hours.

Leverage symbols.

Be on the lookout for new symbols that can take on potent meaning in this season. Here’s one that emerged for us: We hold optional internal employee bonding events on Zoom. At one meeting early in this crisis, an employee shared stories about what she had learned in the past year from her son, who has Down syndrome. She said he had taught her to be brave, and she used the American Sign Language sign for brave. That sign has become the symbol of the season, and we end a lot of meetings with that gesture.

Re-communicate the vision.

A strong and consistent company vision helps your team members feel like they’re building something great and heading toward their purpose. If you’ve been good at establishing a vision and think it will stay the same on the other side of this crisis, make sure to remind people of the longer journey. Hopefully, you are still leading them to the same place, but you are also navigating the adversity of an unexpected detour.

As a leader, when you state and restate your vision, you provide stability and build trust — the two major factors in inspiring and motivating people. At the end of one of my employee videos, I leaned way into the camera and reminded the team that we’re all still going to the same place and that when we get there and look back, we’ll all be proud of what we did in this season.

Leading isn’t for the fearful. How you show up and how you communicate can dissipate anxiety and help your team be more connected to the purpose of your company and to one another. It can also help them be productive while getting there.

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How to Define Your Company’s Values in 4 Steps

How to Define Your Company’s Values in 4 Steps

By Emma Brudner

How to Define Your Company's Values in 4 Steps

Getty Images

These four guidelines can help you design company values that stand the test of time.

It’s never too early — or too late — to define company values. Defining company values is the first step in intentionally designing the culture you want at your company — and ensuring that the core principles endure even at scale.

But how do you actually choose the values that are right for your company (or do you “choose” them at all)?

Here are four guidelines that can help you in this critical exercise.

1. Do some investigation.

Every company has a culture — whether it’s codified or not. With that in mind, start by observing what’s already happening. What are the unspoken norms? What behavior “fits in” on a team, and what doesn’t? What do star performers have in common?

The process by which you do your observation will depend on the size of your company. For example, if you have a small team, you might consider having conversations with each team member about what they think the company’s values are. For larger organizations, a survey and/or focus groups might be in order.

2. Focus on the “how.”

I often think of values as the “how” principles at an organization. The “what” is the basis of job descriptions — the discrete tasks each employee is expected to do — and the “why,” a person’s purpose, is personal to each of us and therefore difficult (and arguably inappropriate) to codify at a company level.

To focus on the “how” instead of the “what” or “why,” think about your values in terms of behaviors. The benefit of behaviors instead of adjectives or nouns is that behaviors are more replicable and less subjective. For example, “judgment” can mean a lot of different things to a lot of different people, but “treating customers fairly” is more objective, and therefore a better north star on how people should do their work — especially in tricky situations.

3. Don’t be afraid to be different.

In competitive markets, the worst thing to do is to blend in with the competition. The same goes for your company’s culture, which is essentially your talent attraction and retention “product.”

It’s worth some extra thinking to put your own unique spin on your values, even if you cast a smaller net as a result.

For example, one of our company values is “Wombattitude.” We wanted to create a value to guide our customer interactions, but we felt that phrases like “customer-first” or “customer-centric” are so overused as to be meaningless.

In a brainstorming session, our director of marketing commented on the fact that our service team does a wonderful job taking care of our customers, and we should all model ourselves after them. That team calls themselves the Wombats (a story for another day) — and voila! “Wombattitude” was born.

Wombattitude is the value that we get the most feedback on — both positive and negative (some employees consider it a bit silly). But even if some reactions are lukewarm, the fact that people comment on it means it stands out, and that is “mission accomplished” in my book.

4. Less is more.

Employees can’t live a company’s values if they can’t remember them. With this in mind, don’t dilute the value of your values by making a laundry list. If at all possible, try to stick to five or fewer.

The other reason that less is more when it comes to values is it forces leaders to be deliberate in their choices and definitions. Values should remain relatively constant even as a company grows, so being deliberate up front will help produce fundamental values that will stand the test of time.

The process of defining company values isn’t easy, but it’s one of the most important things you can do to attract and retain great people.

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Term: Put Bond

What Is a Put Bond?

A put bond is a debt instrument that allows the bondholder to force the issuer to repurchase the security at specified dates before maturity. The repurchase price is set at the time of issue and is usually at par value (the face value of the bond).

KEY TAKEAWAYS

  • A put bond is a debt instrument with an embedded option that gives bondholders the right to demand early repayment of the principal from the issuer.
  • The embedded put option acts an incentive for investors to buy a bond that has a lower return.
  • The put option on the bond can be exercised upon the occurrence of specified events or conditions or at a certain time or times.

How a Put Bond Works

A bond is a debt instrument that makes periodic interest payments, known as coupons, to investors. When the bond matures, the investors or lenders receive their principal investment valued at par. It is cost-effective for bond issuers to issue bonds with lower yields as this reduces their cost of borrowing. However, to encourage investors to accept a lower yield on a bond, an issuer might embed options that are advantageous to bond investors. One type of bond that is favorable to investors is the put, or puttable, bond.

A put bond is a bond with an embedded put option, giving bondholders the right, but not the obligation, to demand early repayment of the principal from the issuer or a third party acting as an agent for the issuer. The put option on the bond can be exercised upon the occurrence of specified events or conditions or at a certain time or times prior to maturity. In effect, bondholders have the option of “putting” bonds back to the issuer either once during the lifetime of the bond (known as a one-time put bond) or on several different dates.

Bondholders can exercise their options if interest rate levels in the markets increase. As there is an inverse relationship between interest rates and bond prices, when interest rates increase, the value of a bond decreases to reflect the fact that there are bonds in the market with higher coupon rates than what the investor is holding. In other words, the future value of coupon rates becomes less valuable in a rising interest rate environment. Issuers are forced to repurchase the bonds at par, and investors use the proceeds to buy a similar bond offering a higher yield, a process known as bond swap.

Of course, the special advantages of put bonds mean that some yield must be sacrificed. Investors are wiling to accept a lower yield on a put bond than the yield on a straight bond because of the value added by the put option. Likewise, the price of a put bond is always higher than the price of a straight bond. While a put bond allows the investor to redeem a long-term bond before maturity, the yield generally equals the one on short-term rather than long-term securities.

A put bond can also be called a puttable bond or a retraction bond.

Special Considerations for Put Bonds

The terms governing a bond and the terms governing the embedded put option, such as the dates the option can be exercised, are specified in the bond indenture at time of issuance. The bond may have put protection associated with it, which details the period of time during which the bond cannot be “put” to the issuer.

Some types of put bonds include the multi maturity bond, option tender bond, and variable rate demand obligation (VRDO).

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Quote: Napoleon Bonaparte

Quote: Napoleon Bonaparte

“There are only two forces that unite men – fear and interest.” – Napoleon Bonaparte

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Samuel Taylor Coleridge

Samuel Taylor Coleridge

“Advice is like snow – the softer it falls, the longer it dwells upon, and the deeper it sinks into the mind.” – Samuel Taylor Coleridge

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Term: Agency Bond

What is Agency Bond?

An agency bond is a security issued by a government-sponsored enterprise or by a federal government department other than the U.S. Treasury. Some are not fully guaranteed in the same way that U.S. Treasury and municipal bonds are.
An agency bond is also known as agency debt.

Understanding the Agency Bond

There are two types of agency bonds, including federal government agency bonds and government-sponsored enterprise (GSE) bonds.

Federal Government Agency Bonds

Federal government agency bonds are issued by the Federal Housing Administration (FHA), Small Business Administration (SBA), and the Government National Mortgage Association (GNMA). GNMAs are commonly issued as mortgage pass-through securities.

KEY TAKEAWAYS

  • Federal government agency bonds and government-sponsored enterprise bonds pay slightly higher interest than U.S. Treasury bonds.
  • Most, but not all, are exempt from state and local taxes.
  • Like any bonds, they have interest rate risks.

Like Treasury securities, federal government agency bonds are backed by the full faith and credit of the U.S. government. An investor receives regular interest payments while holding this agency bond. At its maturity date, the full face value of the agency bond is returned to the bondholder.

Federal agency bonds offer a slightly higher interest rate than Treasury bonds because they are less liquid. In addition, agency bonds may be callable, which means that the agency that issued them may decide to redeem them before their scheduled maturity date.

Government-Sponsored Enterprise Bonds

A GSE is issued by entities such as the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage (Freddie Mac), Federal Farm Credit Banks Funding Corporation, and the Federal Home Loan Bank.

These are not government agencies. They are private companies that serve a public purpose, and thus may be supported by the government and subject to government oversight.

GSE agency bonds do not have the same degree of backing by the U.S. government as Treasury bonds and government agency bonds. Therefore, there is some credit risk and default risk, and the yield offered on them typically higher.

How Agency Bonds Work

Most agency bonds pay a semi-annual fixed coupon. They are sold in a variety of increments, generally with a minimum investment level of $10,000 for the first increment and $5,000 for additional increments. GNMA securities, however, come in $25,000 increments.

Some agency bonds have fixed coupon rates while others have floating rates. The interest rates on floating rate agency bonds are periodically adjusted according to the movement of a benchmark rate such as LIBOR.

Government-sponsored enterprise bonds do not have the same degree of backing by the U.S. government as Treasury bonds and other agency bonds.

To meet short-term financing needs, some agencies issue no-coupon discount notes, or “discos,” at a discount to par. Discos have maturities ranging from a day to a year and, if sold before maturity, may result in a loss for the agency bond investor.

Tax Considerations

The interest from most, but not all, agency bonds is exempt from local and state taxes. Farmer Mac, Freddie Mac, and Fannie Mae agency bonds are fully taxable.

Agency bonds, when bought at a discount, may subject investors to capital gains taxes when they are sold or redeemed. Capital gains or losses when selling agency bonds are taxed at the same rates as stocks.

Tennessee Valley Authority (TVA), Federal Home Loan Banks, and Federal Farm Credit Banks agency bonds are exempt from local and state taxes.

Bond Risks

Like all bonds, agency bonds have interest rate risks. That is, a bond investor may buy bonds only to find that interest rates rise. The real spending power of the bond is less than it was. The investor could have made more money by waiting for a higher interest rate to kick in.

Naturally, this risk is greater for long-term bond prices.

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Covid-19 – Johns Hopkins University

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