Treasury Practice

Building connections beyond treasury

Published: May 2020

The best performing treasurers are arguably those who look beyond the parameters of treasury and support the wider organisation any way they can. But what does this look like in practice, where can treasurers add the most value – and what additional challenges may the current crisis present?

Glass bridge between two buildings

Carl Sharman, Head of Treasury Technology Advisory at Deloitte, says that during his career as a consultant he has seen a considerable shift in terms of the treasurer’s role. “Back when I started 13 years ago, there was a sense that treasury was doing treasury things and not actually engaging with the business,” he says. “From a consulting perspective, we were trying to encourage treasurers to get out of the office and partner with the business by offering up their skill sets – particularly in areas such as enterprise risk management.”

At the time of the 2008 financial crisis, Sharman says the increased profile of the treasurer meant some were predicting treasurers would end up on the board of directors. “We never saw that happen – the treasurer still reports to the CFO in almost every organisation, and the CFO is the finance representative on the board,” he says. “And that leaves the treasurer to perhaps utilise their time better by going and supporting business units or other stakeholders.”

Alex Young, head of Corporate Sales for GTS EMEA at Bank of America (BofA), says that in recent years the treasurer’s role has continued to evolve. As a result, it now plays a far more strategic role in driving company results, while also demonstrating an increased focus on risk mitigation across the organisation. “Looking at FTSE 100 clients in the UK, and their peers across other European countries, treasurers have always been very close to the strategy of the business – but increasingly, they are becoming more strategic in their roles,” he says.

As a result, he says treasurers’ day-to-day responsibilities have continued to grow, with treasurers taking a more proactive approach to risk management, protecting the balance sheet and putting in place clear foreign exchange and hedging strategies across the organisation. Where cash management is concerned, he notes that treasurers’ areas of focus include the need for accurate cash forecasting and maintaining a strong liquidity position. And at the same time, treasurers are increasingly playing a role in developing an ESG agenda and supporting the company’s strategy in this area.

Hub and spokes

Given their increasingly wider remit, it’s clear that treasurers need to support a variety of internal colleagues and stakeholders in different ways. As Young comments, “treasuries are like a hub with many spokes reaching out to various functions and units across the business.”

For example, he says, in addition to regular discussions with the broader finance team, treasury has expanded engagement with areas as diverse as accounts payable, accounts receivable, procurement, inventory management and sales. “And obviously, in recent years companies have set up shared service centres or centres of excellence, which may include payment factories or in-house banks – but also audit, HR and legal, which are also key functions that treasury will have connectivity with.”

For treasurers who need to communicate effectively with those points of contact, there’s no one-size-fits-all approach. “I will always try to engage with other departments within an organisation to better understand how the organisation functions and where and how one can contribute,” says Daniel Jefferies, Group Treasurer at Equiniti Group. He observes that since everyone is different, there is no one specific method that can be used to do this effectively – “consequently one would aim to use soft skills and emotional intelligence, whilst always being honest and open.”

Building connections

When it comes to supporting business units and other stakeholders across the enterprise, it’s clear that treasury has plenty to offer. For example, BofA’s Young points out that treasury will be able to provide critical data on the company’s foreign exchange exposures, and will be able to advise on currency restrictions in different countries, which is an important consideration when it comes to operating across global geographies or to support expansion or acquisition in new markets.

The procure-to-pay cycle is another area where treasurers can add value, as Jack Spitzer, Senior Vice President of Finance at Plexus Worldwide, explains. “There are efficiencies to be gained through automation which can shorten cycle times, increase visibility, improve analytics and allow valuable time to be redirected to more value-added tasks,” he says. “The motivation can be cash improvements, better data or reduced variability for improved forecasting, or even cost reduction (profit-enhancing).”

Another important relationship is that between the treasury department and the legal department, explains Sigurd Dahrendorf, the former treasurer of braking and control systems manufacturer Knorr-Bremse. Noting that different treasury departments will have different responsibilities, he says that many will need to address legal problems in relation to financing, bank negotiations, closing contracts and guarantees.

Treasurers have always been very close to the strategy of the business – but increasingly, they are becoming more strategic in their roles.

Alex Young, head of Corporate Sales for GTS EMEA, Bank of America

“In such cases, it is very important to have very good cooperation with the legal department,” he says. “It is essential to have someone within the legal department who is specialised and experienced in treasury-related matters.” He adds that as well as having a clear view of legal considerations, lawyers also need to have a good financial understanding.

Consequently, in his previous role Dahrendorf worked with Legal Counsel to build a team of such people. As a result, the company was able to create rules to follow when assessing new contracts and guarantees. “This made it possible for the treasury people to have a first look over the legal requirements,” he adds. “For more complicated constructions, the relevant experts from the legal department were at our disposal – we did not have to explain a lot to them as we were a team for a long time.”

Consequently, Dahrendorf says it was easier to assess legal documents within the treasury department, as well as being in a position to discover any disadvantageous legal formulations at an early stage.

Thinking outside the box

Deloitte’s Sharman argues that the treasurers who tend to be the better performers are those who are not only focused on treasury matters, but who also work to understand how the business operates from beginning to end. “They will then figure out how they can add value to any part of that chain,” he says. “So if they work in a retail business, they will figure out where the company buys from, who it sells to and where it operates in the world.”

In a truly global organisation, Sharman adds, the best way treasurers can support their business units is by mapping their function to the underlying business. “It’s really about finding where the skill sets fit,” he comments. “So to take construction as an example, the treasurer would be looking at cash, risk and debt for the business as a whole at the macro level – but you’d also have smaller projects or initiatives where the treasurer’s skillset can be used to help the running of the business.” This might involve advising on how the cost of capital might inform decisions about which projects to embark on, or helping with cash collection at the micro level to keep those projects moving.

In particular, Sharman emphasises that by having a clear understanding of the business, treasurers will be better placed to optimise their cash forecasting process: “To be able to forecast cash, you need to understand how the underlying business flows work so that you can attach cash flows to those business flows.” By speaking to people throughout the business, he says, treasurers can gain a greater understanding of how cash moves through the organisation and thereby build a more accurate forecasting model.

Of course, it’s not only treasurers who need to look beyond the parameters of their own jobs. As Spitzer notes, “It’s imperative that we educate business units on how their actions or lack of actions influence the company’s financial and cash status. We need to make this mentality part of their mindset.”

Achieving alignment

One important consideration when it comes to collaborating with business units is the need for common goals. “You might have one unit which is purely focused on sales and margin, whereas another unit might be measuring working capital efficiency – and those two are somewhat in conflict with each other,” says BofA’s Young. “So what you need is that clear alignment across the board, and where possible, one goal or objective that everyone is working to within the company.”

This alignment can be achieved by the treasurer working closely with the CFO, as well as with the various heads of all lines of business. “I think it’s important for each of the departments to understand what the benefit is to the organisation of deploying a programme or solution,” says Young. Where working capital solutions such as card solutions and supply chain finance are concerned, he says there are clear benefits when treasury and procurement work together in lockstep.

In addition, treasury can have an important role to play when it comes to supporting the business as it moves into new business models and new routes to market. Young says many of the bank’s consumer and retail clients are increasingly moving away from bricks-and-mortar sales into online sales, not least because of the opportunities for greater cost efficiencies and better controls. “That’s great for the company strategy, but how does that impact treasury and the management of the company’s cash?” he comments. “So it’s about open communication and alignment, with the treasurer able to suggest which digital and online solutions can allow their clients to interact with the business more effectively.”

Current challenges

Of course, the current COVID-19 pandemic presents additional challenges where this topic is concerned. Young says that the crisis has placed a huge focus on the treasurer, and that “the profile of the treasurer within the organisations we are working with has never been higher.”

Initially, he says, the focus was on the company’s business continuity planning (BCP) strategy. “Week one was all about how the organisation would continue to operate effectively from home; on whether all those business areas were functioning correctly and adequately funded; on whether businesses could make payroll and whether they had sufficient cash on the balance sheet,” he says. “So that was the first priority.”

Beyond this, he says treasurers’ priorities have included ensuring that the treasury is in control of the cash flow forecasting process and working with the C-suite to consider what steps might be needed to boost the company’s liquidity over the medium-term solvency cycle. “That of course leads to funding, and we’ve certainly been seeing an enormous amount of capital raising across the industry and across the globe,” Young says.

Alongside these actions, Young says treasurers have continued to focus on the importance of communicating effectively with business units. “I think that’s essential at this point in time,” he says. “Typically this might mean keeping in touch more regularly here and there, but I think more communication is key at the moment, and we’ve certainly seen that across the corporate organisations we’ve spoken to.” As well as adapting to a working from home environment, it is the role of the treasurer not only to implement but also to anticipate the needs of the business, Young notes. “And that includes anticipating what they see as key priorities on the other side of this crisis.”

In terms of what communication with business units might look like in light of the crisis, Spitzer says that if a company is in a strong balance sheet position and prepared for a shock event like COVID-19, with a contingency plan in place, “the message is two-fold”. First, he says, treasurers need to convey a message of reassurance and positivity – “We have a strong balance sheet, our financial prudence has put us in a good position.” Second, treasurers should remind everyone about the contingency planning and the actions that will be taken.

“In uncertain times, you don’t take strength for granted,” Spitzer concludes. “Usually contingency involves reining-in spending, so this is where treasurers can work with Financial Planning to clearly communicate, ensure execution and provide updated forecasts.”

Managing business units during a pandemic

Wolters kluwer logo

George Dessing is Executive Vice President, Treasury & Risk at Wolters Kluwer, which provides professional information, software solutions and services for a number of sectors. Dessing explains that treasury is viewed as a holistic role within the company, with his responsibilities including global treasury, risk management, (non-IT) business continuity and real estate.

In previous Treasury Today articles, Dessing has argued that treasurers need to be visible and proactive in order to support business growth. But in the context of the COVID-19 pandemic, it’s clear that some flexibility is needed if treasurers are to maintain effective relationships within the organisation.

While the company has taken steps to support its clients, partners, consumers and communities with COVID-19 resources, Dessing says his areas of focus include incident management, which follows the PEAR principle (People, Environment, Assets, Reputation). “It is our common foundation for building our incident strategy, action and communication plans, which align with our company’s values,” he says. “Even in tough situations, we’re stronger together.”

Where treasury is concerned, Dessing emphasises the importance of the following characteristics at a time of uncertainty and volatility:

  • Be prompt. “Treasurers need to stay ahead of the curve, rather than waiting for the moment that cash is needed,” says Dessing. “Therefore, securing your liquidity and cash flow needs to be even more top of mind in times of a crisis.”
  • Be proactive. “This includes connecting with internal and external groups, such as business units and banks,” says Dessing. “A new trend could be consolidation, bankruptcies, and restructuring which could offer opportunities for larger (digital) companies.”
  • Be the ‘guardian of cash’. Dessing says: “In today’s digital environment, treasurers should drive awareness of fraud risk, especially when your employees work from home. We need to remember to stay vigilant for COVID-19 related cyber fraud.”
  • Be open minded. “Now is the time for change as I believe that this crisis will do something good as a big drive to automate payment processes and start eliminating the paper approach of US check processing – ‘digital dominates, less print’.”
  • Be passionate and care for your employees. “Our people will ask themselves what is important in their lives, like for example their (virtual) work-life balance – it is important to be supportive of others’ ideas.”
  • Be a team player. “Being a strategic partner means being open and connected, as well as an effective communicator,” says Dessing. “Especially now that everybody is working from home, it feels that we are more connected than ever before.”

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