Insight & Analysis

The evolving mission of treasury

Published: May 2020

With over a decade of experience in the treasury profession, Zarine Swamy has seen first-hand how the role has shifted from ‘business support’ to ‘strategic player’. She tells Treasury Today about the drivers of change.

Wooden chess board with clock

Traditionally, a corporate treasurer’s functions were bucketed into fund management, investing/funding of cash flows, and managing risks inherent in the process. These duties have undergone an overhaul in recent times. The changes have been a confluence of a shift in business dynamics, evolving regulations, and a recognition of measures other than profits to evaluate the merits of a business.

Ideally, the modern CEO will not be detached from the workings of treasury; on the contrary, they should be adept with the mechanics of the function, or if not, then endeavouring to be so. Likewise, today’s treasurer should have a ringside view of their organisation’s businesses. They certainly ought to be partnering in the innovation and delivery of products and technologies that facilitate cost reductions and speedier receipts. Being intertwined with their organisation’s core businesses means they can, for example, be called upon to re-engineer corporate cash flows when days sales outstanding (DSO), one of the most salient metrics of corporate efficiency and profitability, is being refined.

With this heightened presence in mind, I believe that the modern treasurer has become a strategic decision-making partner to the CEO and CFO. To evidence this, let’s consider the following notable dynamic shifts in the function.

Tighter regulations: The creation of the European Union in 1993 (and the subsequent adoption of the euro in 1999), the financial scandals of the early 2000s, and the global crisis of 2008, all resulted in an overhaul of traditional banking. International financial organisations and regulations that were established in various countries during that period – particularly the second and third Basel Capital Accords, the Sarbanes Oxley Act, SEPA for the eurozone, EMIR, MiFID, and the Insolvency and Bankruptcy Code in India – were the direct fallout of this transformation in the global financial markets.

Indeed, in India, 1999’s Foreign Exchange Management Act (FEMA) demanded increased transparency in foreign exchange dealings, forcing a dramatic increase in associated reporting. It has turned a hawk-like regulatory eye on particular foreign exchange dealings, noticeably tightening the screw on foreign exchange hedging and associated regulations, while at the same time relaxing the law for others; the Liberalised Remittance Scheme revamp, and easing of External Commercial Borrowing laws being cases in point.

Currency depreciations: Still with India, the slide of the rupee against the dollar that started in 2011, and which worsened in 2013, created an almost 60% depreciation in the domestic currency. The causes were many, including dollar demand for imports – notably oil, capital outflows, dwindling foreign exchange reserve, and the country’s account deficit.

As a necessary response to the post-2008 banking regulatory environment, the corporate treasurer has taken on currency risk management tasks that were functions solely of the bank. Today, banks in most countries – including India – are now keen to share risk mitigation responsibilities and costs with corporate treasuries. This necessitates the treasurer’s creative involvement in their own organisation’s business processes, not least in helping to formulate cost-reduction strategies.

Increased information availability: In the digital world, information and international markets are immediately accessible. Both international trade and organisations’ foreign exchange exposures are on the rise. Global markets are great equalisers; information availability on foreign exchange rates, their mark ups and margins, are at-the-ready for the contemporary treasurer. Data that was once a prerogative of market makers is, in the present day, available also to market takers. Today, foreign exchange deals take place in a competitive marketplace. It means corporate treasurers must learn to play hardball, their negotiation skills playing a compelling role in managing their organisation’s foreign exchange exposures and costs.

Tightening access to credit: Credit availability is increasingly restricted, and lending norms at banks are unyielding in the face of several global crises. This means expensive credit for companies in certain lines of business, companies that are not dominant players, and those that fail to meet the uncompromising profit/capital adequacy standards of risk-averse bankers. The upshot is that adequate cash flow generation is now a necessity as a means of raising both operational cash and cheaper capital.

For corporates, tightening credit and aiming at a lower DSO, while managing customer engagement, is the way forward. Treasurers will have to be business partners, calling upon unconventional financing tools to bridge any working capital gap, and being innovative in achieving collections efficiency.

Everyone is a brand ambassador: There is now a persistent business scenario in which all personnel are called upon to act as marketing or brand ambassadors. This means treasurers, with their wide networks spread across the finance universe, can become emissaries of their organisation. Banks, asset management companies and brokerages are all accessible to the treasurer with the right negotiating and selling skills. The treasurer who can preside over new business deals for their organisation will become highly sought-after.

The march of technology: Automation is replacing several manual treasury tasks. Plotting cash flows on Excel sheets, printing transfer requests, drawing payment cheques, and manually reconciling are tasks that are no longer deemed part of the treasurer’s core competencies. Now it’s all about innovation, strategising and partnering with the business. The advent of the fintech industry, and the emphasis on ‘Knowledge Discovery in Databases’, when played out in VUCA world (an increasingly apt military acronym that stands for ‘volatility, uncertainty, complexity and ambiguity’), demand that the role of treasurer continues to evolve. And so it shall.

Zarine Swamy is the co-founder of Beyond Abilities, which aims at integration of the differently abled in the job market. She has over a decade of Corporate Treasury experience and has served as Head Treasury in various organisations. She is an Association for Financial Professionals Certified Treasury Professional. She also has a Masters in Finance from Mumbai University, and a Post Graduate Diploma in Computer Science & Applications from that city’s SNDT University.

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