“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.”
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.”
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.”