Photo of Ana Guyatt, HSBC, Barbara Harrison, Citi, Niall Savage, Bank of America Merrill Lynch, George Zinn and Tara Johnson, Microsoft.
Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realise their full potential.
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Microsoft runs a centralised treasury for more than 450 subsidiaries in 118 countries. The company has more than 1,300 bank accounts with more than 85 banking relationships worldwide. Each dollar held in local subsidiary bank accounts is subject to increased counterparty risk, sovereign risk, foreign exchange fluctuations, fraud and environmental risks.
Monthly, Microsoft treasury wires well over a billion dollars to support the operations of its global subsidiaries. With recent events in Turkey, Venezuela, Argentina, Nigeria, Angola, Greece, Libya, Egypt and Puerto Rico, corporations have been faced with frozen funds, strict FX controls, and limited banking hours. Mitigating risks on funds held outside Microsoft portfolios and ensuring local Microsoft employees and its partners get paid have become high priorities.
To address such risk factors longer term, Microsoft’s treasury has expanded its role in the organisation to develop strategies ensuring partners in accounts payable, payroll, collections services and its local finance staff have a strategic contingency plan in the face of political, economic and environmental crises.
Several technical solutions have been implemented over recent years that have led to a reduction of more than US$1bn in average daily balances. These include the first cross-border, multi-company, zero balance account structure with automated accounting. Worldwide cash balances have been reduced by more than US$600m by implementing just in time subsidiary funding and concentrating cash collections daily.
Microsoft also expanded its pay on behalf programme where payables are made to vendors from a non-resident entity on behalf of its local subsidiaries, reducing balances by US$350m. Multibank target balance sweeps in high risk countries and banks have been set up to transfer funds daily to safer counterparties. This has reduced balances by an additional US$100m.
More broadly, banking relationships have been rationalised. In the past five years over 1,200 bank accounts have been closed, significantly reducing overall counterparty exposure.
Foreign currency and capital controls prevented several of the technical solutions being actioned. Microsoft treasury played a pivotal role in designing a highly structured framework for key organisations detailing the proper actions to ensure business continuity.
Recently, this structure was tested when financial markets in Egypt, Cyprus, Greece, and more recently Puerto Rico (Hurricane Maria) were suspended. In each situation the teams sprang into action to ensure balances were minimised, employees were paid, and revenue collected. They had a clear game plan and operations were not hindered.
Microsoft’s treasury has implemented a long-term comprehensive contingency framework focusing on both operational and technical excellence to ensure business continuity. Many technical solutions were implemented which have reduced cash balances by more than US$1bn, significantly reducing counterparty, sovereign, foreign exchange and fraud risks.
Operationally, the contingency plan framework to mitigate business risks for current and future events has been executed and validated most recently in Puerto Rico. The dedication and efforts shown by the various teams have been exemplary and have enabled the company to be more capable of dealing with potential challenges in the years ahead.
Corporations are often only prepared for the last crisis. Microsoft’s goal was to challenge this and implement long-term solutions to mitigate risk. Microsoft treasury did this by being proactive and developing both operational and technical solutions that were scalable and automated.
Microsoft’s treasury partnered with its accounts payable, payroll, collection services, and the local finance staff to develop an action plan to ensure that if a country faced political, economic, and environmental crises, its key operations would continue. Treasury proactively implemented a variety of technical and operational solutions which have improved operations and mitigated risks for current and future events.