The treasurer’s new mindset

Photo credit: Antonio Ledermann

The job of the treasurer is very different from what it used to be. The scope of responsibilities has grown considerably in the past decade and many treasurers are finding the C-suite more receptive to their ideas and priorities than ever before. But to meet the growing requirements the job now places on them treasurers can no longer afford to work in isolation. In this article, Denis Ecknauer, APAC Regional Treasurer for ABB tells Treasury Today Asia why, early on in his career, he resolved to acquire a deeper understanding of the business and how this made him a better treasurer.

Global companies need treasurers who understand, not only the constraints and opportunities within the countries or regions that they oversee, but also the business sector they operate in and their own company’s strategies and objectives within that. Although this has always been true to an extent, one could argue it is especially important today, given all the talk about the modern treasurer’s expanding – and increasingly strategic – role.

The remit of the treasury function has indeed grown in recent years. Daily cash management duties are still the main preoccupation of the majority in the profession, of course. But by most accounts, the treasury function is now more than a mere transactional processing unit. It’s become something of much more strategic value across the organisation.

Indeed, so significantly has the role changed over the past decade one wonders what someone who moved into the treasury profession in the early 1990s makes of it all today. “I made the step from financial markets to corporate treasury about 15 years back,” says Denis Ecknauer, Regional Treasurer Swiss technology multinational ABB’s APAC entities. “Today I would probably not be able to make that transition again because the requirements on the corporate side have developed so much.”

Ecknauer explains that nowadays corporate treasurers require not just different skill-sets, but also radically different mindsets than in days past. “The mindset change we need is to better understand what the business needs and only by doing that can we bring all the different parts together to create more value for the business and receive the recognition in a corporate organisation.”

A desire to feel a closer proximity between his work in finance and the business fundamentals driving moves in the market was in fact what initially attracted Ecknauer to treasury. After he spent the first years of his career working as a trader in a bank he made the decision, after a decade, to leave financial services and take up a role in corporate treasury. Although he never anticipated back then just how close he would one day need to be to the business to execute the role faithfully, it was, even then, a massive change.

The mindset change we need is to better understand what the business needs and only by doing that can we bring all the different parts together to create more value for the business and receive the recognition in a corporate organisation.

When you’re on a trading desk at a large bank you become almost singularly focused “like a sniper” on getting those last remaining basis points. Corporate treasurers require a wider and deeper understanding of the underlying nature of these transactions, however. At a fundamental level they are acting as real business partners to link the global economy and risks/opportunities with the products or services a company is generating its core revenues from.

Loading the ‘lorry’

The extent to which the business model shapes nearly everything in treasury – from the trades being made to the applications they are being made with – is something which Ecknauer believes is often underestimated by people both within and without the profession. Take the case of treasury technology, for example. To understand how Ecknauer thinks of treasury software one needs to consider how the company he works for is structured and how they generate their main income. There must be a top-down and bottom-up dialogue to create the understanding and awareness of internal and external risks but also opportunities that software shall be able to monitor. Key transactions shall be replicated and standardised from an end-to-end perspective with a high degree of automation to finally achieve a balanced and cost-efficient approach for the operations. “A shift of efforts from collecting data to a more pro-active and decision making focus,” Ecknauer says.

Despite the fact that ABB Group already operates across more than 100 different countries globally, from time to time the company still finds itself entering into new markets. But when companies attempt to establish treasury operations within a new jurisdiction rarely ever is it sensible from a cost perspective to invest in a full suite ERP solution from the beginning. So a balance must be struck. “If you try to centralise it all it will come at a huge cost to a company like ABB dealing in so many countries,” he says. “Therefore, in some circumstances, there is no choice but to do work manually with Excel spreadsheets.”

That said, for a company the size of ABB, sophisticated tools are required to manage treasury at the group level. Ecknauer draws an analogy with motor vehicles. “Where I’m sitting, in the country organisations, we have what I call a ‘lorry’, a place where we collect and load the underlying data and ship it to our colleagues at the group treasury level,” he explains. “There they have a high performance TMS, which is more like a Ferrari. Once they have aggregated and netted the data we sent them, they then execute transactions accordingly.”

The fog of currency war

Having confidence in the department’s technology and being able to quickly get an overview of changes in the risks the company is exposed to will always be of critical importance to the treasurers of large multinationals. Yet in today’s increasingly globalised markets, where multidimensional rather than vertical or horizontal supply chains are becoming the name of the game, and market volatility on the rise, this is especially true. “This is important because the world has become so fast that at any point in time something serious can happen in the market and you want to have as fast as possible the overview of your exposure,” explains Ecknauer.

Market volatility is, in fact, something Ecknauer expects will get much worse before it gets better, given the policies currently being pursued by central banks in order to provide stimulus to the flagging economies they oversee. Looking exclusively at the US right now one might argue that in that respect quantitative easing has been reasonably successful. But consider all the implications outside of the narrow prism of one country’s economic interests and the picture is less clear. With other central banks around the world now firing up their printing presses in retaliation it’s difficult to see this ending well, says Eckanauer. Nowhere, in fact, are the risks of this experiment in monetary policy more apparent than in the Asian emerging markets that Ecknauer oversees. “The US are trapped,” he says. “They cannot raise the interest rate like everybody anticipated they would because it would negatively affect the economies of some emerging market countries which are closely related to the US dollar. So that is one thing that really concerns me at the moment, the controlled reduction of these quantitative easing (QE) initiatives and how that might impact the markets we operate in.”

There’s one other recent economic trend that Ecknauer is keeping a close eye on: the falling oil price. He believes that, netted out across the different industries in which ABB operates, the impact on the business of the past year’s dramatic fall in energy commodities has been more or less balanced. “There are many oil importing countries that are benefiting from it, and many countries that are being put at a large disadvantage. The same is true at ABB. On the one side we are winners and on the other losers, and that is reflected in our broad business portfolio and global footprint,” he says.

Of course, you don’t need to be an engineer to become a treasurer, but a real corporate treasurer is not far from a financial engineer.

ABB has what Ecknauer describes as quite a conservative approach to FX risk management: treasury policy dictates that every signed contract must be fully hedged. On the one hand, there is nothing too much out of the ordinary in what Ecknauer sees as being key to managing the risks associated with events like the tapering of QE or the falling oil price. It is simply a matter of having clearly-defined policies and strategies in place and, as far as possible, systems that allow one a quick overview of the company’s exposures.

There is an additional aspect, however, which relates more to Ecknauer’s belief that treasurers need to develop a better understanding of the business strategy. He recalls an anecdote from one of the corporates he worked for as treasurer earlier in his career. This particular company had outsourced much of its treasury operations to a third party, a strategy which Ecknauer believes is fundamentally wrong. Many of the trades he saw being made under this set-up were poorly judged, purely because those responsible for executing them did not understand the business model. Ecknauer made the decision to bring it all back in-house. “By understanding it and putting it back with the business model I could create a couple of million without taking any additional risk. I could also mitigate other risks that nobody had even been aware of,” he says. “Of course, you don’t need to be an engineer to become a treasurer, but a real corporate treasurer is not far from a financial engineer.”

Vital work

All the recent market turmoil and uncertainty only serves to emphasise for Ecknauer the importance of the work he does. The CFO, board and other stakeholders need experienced treasurers, such as Ecknauer, to be on top of things when the market turns in a way that’s unfavourable. “They want to be able to sleep well, safe in the knowledge that somebody has anticipated those risks and is able of reacting quickly when things are changing,” he says. “I would say that in a MNC the treasury is equally important to those who generate the income in the core business since treasury’ responsibility has a commonality across all company stakeholders, the end result is cash which treasury is mainly managing.”

Of course the pressure to react quickly to events means that for the treasury team at ABB sticking to a rigid plan of activities each day is all but impossible these days. Today, a great deal more flexibility is required of treasurers. “You can hardly plan a day anymore. Before you are even in the office you are looking at your tablet device and seeing that this or that has happened and everything you had planned to do will go out of the window. It’s not a straightforward role anymore – one cannot simply work from left to right. You have to be very pragmatic with how you deal with the things that land on your table, almost 24/7.”

Breaking down silos

Given that reality, Ecknauer says it is difficult to predict what sort of external events he has to prepare for that he will be required to focus on most in the years ahead. However, he does have a clear strategy of what is likely to feature near the top of his list of priorities. Nearly two years ago when Ecknauer arrived in Asia, he was asked to define within three months a next level strategy for the treasury in the APAC region, no small challenge with Asia’s unique markets and regulations. The strategy that was finally agreed was put up in three key layers. With the first, he will continue to focus upon strengthening the treasury organisation while investing in people and know-how to sustain the talents already within the organisation and encouraging a change of mindset eg business partnership, which will remain a key success factor for the entire implementation of the strategy. The second is to optimise existing but still largely individual enhanced ERP set-ups for a higher degree of data aggregation and automate processes as much as possible, while the third is to define a balanced and cost effective consolidation of responsibilities between local and centralised activities.

A good cash manager is gold for a company. If you have a wise cash manager, who understands what we do and what we can expect from the business side, that can help to quantify more of the uncertainty in the forecasting.

Ecknauer speaks particularly passionately about the first point, tying it back into his belief that today’s treasury professionals need to develop a more collaborative mindset. “A good cash manager is gold for a company,” he says. The reason, he elucidates, is that personal experience is vital when it comes to a task like cash forecasting. Data, after all, always needs to be interpreted and that is where the value of an accomplished cash manager is revealed. “If you have a wise cash manager, who understands what we do and what we can expect from the business side, that can help to quantify more of the uncertainty in the forecasting,” he says.

In fact, Ecknauer believes so strongly in the importance of understanding the business that he hopes to find a way of integrating it into performance assessment. “Let’s say that at least once a year treasury employees have to get out to the factory and smell the oil,” he says. “The people in the factories need to understand why you do what you do, but also you need to understand the role they play and what causes them headaches and so on. That is one of the KPIs I am strongly in favour of. We need to find ways to create more value to the business and therefore we need to understand the business more closely.”