Windows of opportunity

George Zinn started his working life on the floor of the Chicago Mercantile Exchange. A few well-timed professional moves later he found himself at the doors of the mighty Microsoft Corporation where he was initially taken on as Financial Analyst. Having ascended the ranks and taken on the mantle of Corporate Vice President and Treasurer, Zinn entered the history books in 2009 by leading Microsoft’s AAA-rated $3.75 billion inaugural debt issuance. He talks to Treasury Today about keeping the world’s biggest software business in rude financial health – and reveals how one early career dream was an aspiration too far.

“I was confused at a young age into thinking that I might become a professional ice hockey player,” admits George Zinn, Corporate Vice President and Treasurer, Microsoft Corporation. “That delusion was clarified quickly by my genetic makeup.” Whilst Zinn may feel he does not have the extra bulk required to make it big in the world’s fastest team game, he clearly has serious stature in the rather more intellectually demanding (and hopefully gentler) world of corporate treasury, and with one of the world’s biggest names in software at that. Indeed, the degree of professionalism with which he undertakes his responsibility for investing and managing Microsoft’s corporate assets is not lost on the wider financial community, Zinn having in recent times been listed in Treasury & Risk Management magazine’s Top 40 Finance Professionals and later making it onto that magazine’s 100 Most Influential People in Finance list.

Today, Zinn leads a broad-based team which he describes as being organised “slightly differently” than most treasuries in that it stretches in many directions. The team he leads manages the company’s worldwide financial and corporate risk, investment portfolio, strategic portfolio, foreign exchange, corporate and structured project finance, dilution management, cash and liquidity, customer financing and collection activities. “We have a framework that works well to unite us across seemingly disparate functions,” he comments.

With the completion early in 2014 of the deal to buy Nokia’s phone businesses and design team, Microsoft’s treasury now reaches across a dozen locations globally, spanning multiple time-zones. The Nokia deal provided a European treasury centre, in Geneva, joining prior established collections centres in Singapore, Rio de Janeiro, Fort Lauderdale and Dublin. To this has been added teams of “forward deployed people” in emerging territories (for Microsoft) such as China, Brazil and Dubai. In total, its treasury employs around 100 people.

By reaching out across the world as far as it does, cash management, planning and operations teams work with almost 200 banking relationships, over 1,000 bank accounts and multiple currencies. The overall framework is managed along the lines of what is referred to internally as “the lifecycle of the dollar”. In this structure, the main hand-offs from collections are to the capital markets and corporate finance teams, the latter providing services around longer-term forecasting and liquidity management.

In reality, the lifecycle approach is about working capital management. It means that the first point of contact for a dollar (or any other currency unit) will be the globally distributed credit and collections teams. The lifecycle process then works not just to aggregate but to ultimately concentrate the company’s funds and collections accounts in 20 cash centres.

Together in adversity

As part of this centralised treasury and risk management infrastructure, and given that with a global presence it is ever subject to the vagaries of financial and political upheaval, Microsoft seeks wherever possible to reduce cash balance risk. It does this through a cross-border, multi-company zero-balance account structure, a multi-bank automated balance sweeping programme, and a single payments-on-behalf-of (POBO) centre. Where the POBO structure cannot be used, essential functions such as payroll and accounts payable can operate a ‘just-in-time’ funding system to keep these elements running without risking excess liquidity in local accounts.

When this structure is allied with information reported via regular risk and multi-function finance team monitoring and discussions of global events, the financial leadership group is in a strong position to act. For example, when financial events took over in Greece and Cyprus recently, and when Egypt’s Arab Spring gripped the country, Microsoft’s cash exposure was almost zero but it was able, even when the markets were closed, to make payroll and supplier payments where many other businesses could not.

It is clear that overarching the entire operation is the risk management function. In part, the business risk response can be “translated into insurance”, says Zinn. “But a subset of our business risk is the financial risk created from our investing activities, and the risk team manages and monitors according to our investment policies too.” These policies, he explains, track various limits such as counterparty and collateral posting limits, the types of securities that may be invested in and limits on different concentrations.

Zinn acknowledges that although this broad-based company structure allows for discrete operation of functions, treasury does not, and indeed cannot, operate in isolation. “Like any function, we are dependent on other functions within the company,” he states. “I don’t really think of us as being under one roof; I think of us as mutually dependent across the company.” Zinn’s expanded treasury team has, for example, to think of liquidity from an onshore and offshore perspective and is critically dependent upon the tax group; the central planning function that aggregates forecasts from all business units, also checks back with his collections team to see how much has been collected, based on those forecasts. “We’re joined at the hip with that team as well, but we’re not under our roof.”

Share it

The key to all sources of information being accurate and timely may be found in the use of Microsoft’s own SharePoint platform. As the name suggests, it can be used to store, organise, share and access information and it does so by integrating intranet, content and document management functions into a single web-based platform. “We found it really helpful for collaboration on implementation projects,” comments Zinn. In a recent project with a custodian, he explains that the software was used to enable teams to share securely between two separate corporate domains; in other words, it even works securely across firewalls.

It comes as no surprise that Zinn’s team has spent a lot of time thinking about the right technology for its operations. He marks a distinction between broad-based offerings that perform many functions but not everything well, and point solutions that do just one thing well. This, he says “is the fundamental technology trade off” that requires a philosophical choice to be made. “We have a fabric of systems, as opposed to one large workstation, and use our BizTalk server middleware to align everything.”

Alignment of technology is of course essential as Microsoft’s treasury group aspires to straight through processing where only exceptions require human intervention. BizTalk was used for Microsoft’s SWIFT implementation, for example. With multiple banks sending multiple MT940s (statements), Zinn says there was a strong driver to be able to automatically upload them. “The more you can take out manual processes, the more time you have to focus on value-added activities,” he muses.

Working for a high-tech firm naturally influences receptiveness to new ideas. Treasury is no exception. “It’s just logical. Anything our team can do with our technology to make our lives better we embrace,” states Zinn. He explains how he welcomed the arrival of an app on his Windows phone that uses a Microsoft Exchange Active Directory layer to allow secure approval of large-value wire payments. The system uses strong security and authentication processes – “no less than doing it from a desktop” – and ‘safe limits’ for users with different levels of approval with a workflow that ends with Zinn. “It saves us from running between buildings. We basically eliminated the run around. And if someone is on the road we’re no longer hung up – they can use their mobile device.”

Working together

The human connection between the Microsoft Treasury team and the various businesses across the group is one he also describes as being in “rude health”. This has been based in part on a willingness to go the extra mile; this facility is what helped Microsoft make payroll in Iceland when the systems were ‘frozen’ and in Egypt during its Arab Spring. “We have worked hard to become a value-added member and as a result other teams include us in their thinking; when you’re included earlier on it is easier to react and be helpful in joint solutions.”

Whilst treasury is something of a functional linchpin within the group, Zinn does not see that it is necessarily appropriate to be consulted on everything at board level. The fine detail of product strategy, for example, he feels would not benefit from his input. However, treasury has a valuable contribution when considering the funding of project development. “The team can help other functions understand what the constraints could be in certain locations where currency controls are in operation,” he suggests. “This is less about whether a project can be funded and more about figuring out how we efficiently get money in or out in a timely fashion and from which entities.”

It is obvious that the wherewithal to make the best of a given situation was tested fully for most treasurers as the financial crisis hit. The most inventive players managed to extract long-term operational benefits from the worst of times and Zinn and his team easily slot into this category. “Some tremendous good came out of it for us in that we were viewed as being proactive and highly valued.” As an example of pro-activity, treasury enabled sales credit limits to be maintained “by going quickly and early” and offering essentially a pre-paid discount to customers. By ensuring customers were no longer up against credit limits, the sales team were able to keep selling and even driving revenue upwards. Presence and proactivity during the crisis is now being remembered by its commercial partners as economies come out of the worst of it; this is further strengthening ties.

But a lot of regulation was pushed forward as a result of the financial crisis too, with the impact of banking regulations, particularly Basel III, likely to have an indirect impact on corporates. “We’re really looking at this and trying to work out how behaviours will change, and being proactive as a result,” says Zinn. “Where Dodd-Frank will require centralised clearing and collateral posting, it is clear to me that you can’t have that regulation without costs rising,” he continues. “It’s also well known that banks are not 501(c)(3)s [tax-exempt non-profit organisations] and so those costs ultimately have to be passed on to their customers. If the costs make the activities prohibitively expensive we have to be smart about not just doing something one way because we’ve always done it that way. It may require us to reconsider processes we have had in place for a long time.”

Flexibility is an important quality for a global treasurer. Having led Microsoft’s $3.75 billion inaugural debt issuance back in 2009, Zinn views Microsoft’s current funding approach as “fairly straightforward”. But the differences in taxation between various jurisdictions can, he notes, represent “a very large delta”. This is why many companies with overseas cash, including Microsoft, still have domestic borrowing requirements. “If the delta is in double digits, in certain situations you will end up borrowing in the US to fund operations there, but having to figure out ways to be tax efficient.” In his role as a fiduciary, he stresses the necessity to pay no more tax than is due, “otherwise you are not performing your duty to your shareholders”.

On the investment side, Microsoft’s cash-rich status enables it to exploit a diversified portfolio. “Our greatest single financial risk is probably interest rate risk, so diversifying investments where possible makes perfect sense.” This has led the Treasury team to be opportunistic in times of strife, where others have had been forced to sell for liquidity reasons during the worst of the financial crisis.

Hard work but worth it

Over the last year, Microsoft’s integration of Nokia has occupied a lot of time for Zinn and his colleagues. He stresses the fact that Microsoft did not buy the entire Nokia business and as such this had an impact on treasury. “As a seller, when you try to understand what life looks like after the close date, you will want to maintain your ability to operate. With Nokia, a lot of centralised or shared service functions did not come with the deal, and as a result of that we didn’t acquire the treasury group,” he explains. “Without interrupting business activity, we have had to figure out how to transition the running of what was formerly a very large part of their business. That has been a lot of work.” This is why Microsoft now has a team in Geneva effectively co-locating with the current Nokia team, trying to on-board treasury services as soon as possible.

Zinn is proud to relate that what he really loved about coming to work at Microsoft was the opportunity to broaden his professional experience “in a very enriching way”. Looking back at his career, he believes that if he’d stayed in financial services his view would have remained relatively narrow. “When I came to Microsoft I was primarily focused on FX. But I was soon able to broaden my outlook, getting involved in many different activities. For me, diversity of experience is far more fulfilling.”

So it is that the evolution of Microsoft from a software firm to now include hardware and services has for Zinn been an exciting progression. “Before, all of our assets were cash. Now, as we have evolved into more of a hardware business, we have these things called inventories!” he jokes. “We’ve had to figure out not only how to move away from thinking of everything in just cash terms but also how we move towards funding, forecasting and sourcing for things such as parts, logistics and shipping insurance.”

As for anyone seeking advice on how to move up the treasury career ladder, Zinn refers to his own progress and what he may have done differently. “I think that I would have gotten broader experiences sooner because it’s so much easier at that stage to take those risks and switch roles than it is to do so later in life,” he concludes. One thing is certain: with all his experience to date and the esteem in which he is held in the treasury and corporate finance community, ice hockey’s loss has clearly been treasury’s gain!