Treasurers shape up as new leaders

The glob­al finan­cial cri­sis of 2008 rad­i­cal­ly altered how busi­ness­es ran their finance teams. As a greater onus was placed on cash man­age­ment, bal­ance sheet mon­i­tor­ing and liq­uid­i­ty, the role of the cor­po­rate trea­sury team became more sig­nif­i­cant than ever.

Since the cri­sis, glob­al reg­u­la­tors have intro­duced swathes of new reg­u­la­tions which stretch across busi­ness sec­tors and this has led to trea­sury teams becom­ing more influ­en­tial in organ­i­sa­tions around the world.

Most recent­ly, the Euro­pean Com­mis­sion out­lined a new set of cor­po­ra­tion tax trans­paren­cy mea­sures, tar­get­ing those com­pa­nies attempt­ing to avoid cor­po­ra­tion tax through trans­fer pric­ing tech­niques.

This fol­lows exten­sive work by the Organ­i­sa­tion for Eco­nom­ic Co-oper­a­tion and Devel­op­ment (OECD) on trans­fer pric­ing and cor­po­rate base ero­sion to counter organ­i­sa­tions seek­ing to restruc­ture and there­by lim­it or avoid tax.

These recent exam­ples are just two pol­i­cy sets where glob­al busi­ness­es have relied on their cor­po­rate trea­sur­ers to assess the impact and man­age the risk. And, with the increas­ing speed of glob­al­i­sa­tion, their remit has arguably nev­er been more impor­tant.

David Steb­bings, direc­tor of trea­sury advi­so­ry at con­sul­tan­cy group PwC, explains: “The role and the respon­si­bil­i­ties of trea­sury beyond the ‘depart­men­tal wall’ have trans­formed beyond all recog­ni­tion since the finan­cial cri­sis.

“In the years fol­low­ing the cri­sis, trea­sury teams have expand­ed their influ­ence more wide­ly across the organ­i­sa­tion, get­ting clos­er to busi­ness oper­a­tions and allow­ing them to bring more insight into the risks fac­ing the busi­ness as it grows and com­petes in ever­more glob­al mar­kets.”

Glob­al­i­sa­tion is a key rea­son why lead­er­ship teams con­sult cor­po­rate trea­sur­ers more than before. As busi­ness­es expand into new areas, cor­po­rate trea­sury teams can often be well equipped to offer advice on chal­lenges aris­ing from reg­u­la­tion, cur­ren­cies and the need to work with new bank­ing part­ners.

But glob­al­i­sa­tion of busi­ness is only part of the sto­ry. The finan­cial cri­sis caused busi­ness­es to begin chal­leng­ing the cred­it wor­thi­ness of their bank­ing part­ners and the cost of the ser­vices they offer, and led to sus­tained volatil­i­ty in the mon­ey mar­kets.

“This has led to an increas­ing need for agili­ty in man­ag­ing bank­ing part­ners, the man­age­ment of excess cash, and the devel­op­ment of alter­na­tive sources of finance and cash ser­vices,” says Mr Steb­bings.

He says the increas­ing focus on val­ue for mon­ey and cash man­age­ment has meant many busi­ness­es, not just those with high gear­ing, are focus­ing on cash as a key per­for­mance mea­sure.

“Cash is king. There­fore access to cash and abil­i­ty to move and man­age cash effec­tive­ly has become more impor­tant,” he says.

It’s cer­tain­ly true that recent exchange rate move­ments of the Russ­ian rou­ble, Swiss franc and euro have meant busi­ness­es require vig­i­lant cor­po­rate trea­sur­ers.

Bob Stark, vice pres­i­dent of strat­e­gy at trea­sury man­age­ment group Kyri­ba, explains: “Expand­ing the busi­ness glob­al­ly intro­duces sig­nif­i­cant risk to an organisation’s cash flow and finan­cial assets.

“Trea­sur­ers must pro­tect against changes in cur­ren­cy rates, liq­uid­i­ty risk in each geog­ra­phy, reg­u­la­to­ry risk height­ened by the mul­ti­tude of regions the organ­i­sa­tion oper­ates in, and of course oper­a­tional errors and fraud that com­mon­ly increase as firms decen­tralise their process­es and con­trol inter­na­tion­al­ly.”

In addi­tion, cor­po­rate trea­sury teams have found them­selves hav­ing to deal with increas­ing vol­umes of reg­u­la­tion, par­tic­u­lar­ly since the 2008 crash. What had pre­dom­i­nant­ly been affect­ing finan­cial ser­vices com­pa­nies only, soon spread to most oth­er sec­tors.

Account­ing stan­dards, Euro­pean Mar­ket infra­struc­ture reg­u­la­tion, Dodd Frank and BEPS (base ero­sion and trans­fer pric­ing rules) are just some exam­ples of reg­u­la­to­ry changes which have been a fix­ture on cor­po­rate trea­sur­ers’ to-do lists in recent months.

In recent years, cor­po­rate trea­sury teams have tran­si­tioned from a stand­alone func­tion to the role of strate­gic part­ner

Cor­po­rate trea­sur­ers’ under­stand­ing of these chang­ing rules and reg­u­la­tions are a major rea­son why their ser­vices are being called upon by board mem­bers. Niclas Neglen, chief finan­cial offi­cer at GE Cap­i­tal UK, says: “In a volatile world, with chang­ing exter­nal reg­u­la­tions… the board­room should take an active inter­est in today’s cor­po­rate trea­sury func­tion.

“As a busi­ness unit, it pro­vides strate­gic input into the key risks fac­ing a busi­ness, includ­ing fund­ing avail­abil­i­ty. It is an essen­tial func­tion that sup­ports the growth agen­da, help­ing pri­ori­tise cap­i­tal across a busi­ness and max­imis­ing the poten­tial of the bal­ance sheet through the iden­ti­fi­ca­tion of mul­ti­ple fund­ing alter­na­tives.

“In recent years, cor­po­rate trea­sury teams have tran­si­tioned from a stand­alone func­tion to the role of strate­gic part­ner. For this rea­son, it is crit­i­cal that the cor­po­rate trea­sury team under­stand the short-term tac­ti­cal and long-term strate­gic goals.”

While the tran­si­tion peri­od since the cred­it cri­sis may have been painful for many com­pa­nies, it is like­ly that the cor­po­rate trea­sury teams of tomor­row will have a much more holis­tic view of com­pa­nies’ risk posi­tions.

The lev­el of detail that trea­sur­ers will be able to pro­vide will be more com­pre­hen­sive and far beyond the tra­di­tion­al bound­aries of sim­ple cash posi­tions, accord­ing to ana­lysts at con­sul­tan­cy Deloitte.

Kar­lien Porre, co-leader at Deloitte’s Lon­don-based trea­sury advi­so­ry ser­vice, says: “Key per­for­mance indi­ca­tors will focus more on the effec­tive­ness of risk man­age­ment strat­e­gy and trea­sury depart­ments will become more proac­tive in man­ag­ing reg­u­la­to­ry changes.

“The trea­sury depart­ment of the future will rely heav­i­ly on trea­sury tech­nol­o­gy to oper­ate as effi­cient­ly as pos­si­ble and empow­er them to take on a more impor­tant role in the organ­i­sa­tion.”

Ms Porre says the emerg­ing trend now is that real-time data man­age­ment is like­ly to become com­mon­place in all busi­ness­es and not just in those with the largest bud­gets.

She says: “The increas­ing use of instru­ment port­fo­lios and unin­tend­ed con­se­quences of reg­u­la­tion will play a part in dri­ving tomorrow’s trea­sury depart­ment to be far more focused on coun­ter­par­ty, liq­uid­i­ty and oper­a­tional risk man­age­ment.”