Treasurers may not historically have played much of a role in supporting business growth. But in 2019, proactive treasurers are stepping up and taking on a more strategic role within their organisations.
Business growth is a goal for many organisations – but companies have plenty of challenges to overcome when contemplating growth in the current market. The Gartner 2019 CEO and Business Executive Survey found that 53% of respondents mentioned growth as a top three business priority, up from 40% in the 2018 survey. But CEOs also referenced the challenges that can arise when expanding internationally, with 23% citing the impact of tariffs, quotas and other trade controls.
While treasurers may not be at the forefront of the company’s growth strategy, they will nevertheless be affected by it. “Growth is driven by investor expectations around margin growth, and that obviously cascades to the CFO and ultimately finds its way – perhaps through a different set of key performance indicators – to the treasury,” says Peter Cunningham, EMEA Head of Consumer & Healthcare Sector, Treasury and Trade Solutions at Citi. “But it’s an ongoing challenge to pursue growth strategies while doing the day job. And that day job has become a bit more complicated in the current environment – it’s certainly a more volatile outlook in light of factors like geopolitical pressures, trade wars and Brexit.”
Treasury may traditionally have focused on bread-and-butter activities such as cash management, funding and investments. In today’s environment, however, the role of the treasurer has taken on a much more strategic focus – at least for some companies. For example, the ACT’s 2018 report, The Business of Treasury, found that 87% of respondents saw treasury as a strategic business partner in their organisations.
Evolving role of the treasurer
While treasurers have not historically played much of a role in identifying and harnessing opportunities for growth, this is now changing, says Deepali Pendse, head of South East Asia Corporate Sales, Global Transaction Services at Bank of America Merrill Lynch (BofAML).
Pendse outlines the traditional role of the treasurer as one which has “little autonomy” and is limited to asset liability management and liquidity. Under this model, Pendse says that treasurers tend to focus on activities such as ensuring optimal use of cash, managing financial risk and cash flow forecasting – adding that this role is overall “more operational centric”.
Today, in contrast, Pendse notes that treasurers now have greater autonomy, coupled with local decision-making power. “They are involved in the impact of regulatory changes, implications of capital adequacy and risk management,” she adds. “They are also required to collaborate with various units within the business and advise senior management – and they are heavily involved in capital allocation decisions.”
Cunningham says that “the treasurer is not the first person you’d think of as enabling growth within the treasury” – but he also notes that the treasury’s role in supporting growth is changing. “In the last five years I’ve seen the emergence of new roles and titles within treasury, such as ‘treasury advisory’ or ‘commercial treasury’,” he explains. “Effectively, the remit of these roles is to come out of the silo of treasury and engage with the business.”
He adds this can also be achieved via senior secondments between different departments. “So a treasury person might sit and work in the procurement division or the credit control department for 12 months. While the focus of these exercises may not be specifically on growth, it’s certainly about looking at what value-add treasury can generate for the business, and what it can contribute to the company beyond risk mitigation and optimal funding models.”
Why step up?
There are many reasons why treasurers might want to embrace a more strategic role within their organisations. Career progression is one compelling motivator. “What is the next role for the treasurer?” says David Stebbings, Director, Head of Treasury Advisory at PwC. “It’s either another treasury role in another company, or to be CFO – or another financial management position with a wider remit. And if you want to be a CFO, you have to step up.”
In other cases, external factors can facilitate a shift into a more strategic role. This can include market developments which underline the importance of the treasurer’s expertise – such as the global financial crisis or, more recently, Brexit and the US-China trade war. The trajectory of an individual company can also demand greater input from the treasury.
“As companies become more global, foreign exchange becomes more important and banking arrangements can become more difficult – so the treasurer has a bigger role to play in all that,” says Stebbings. “Of course, some don’t want to. Some are quite happy to do the traditional treasurer role, and then potentially move into tax.”
That said, Stebbings also observes that a traditional approach is more viable in some companies than in others. “It is much riskier now to be inward-looking and focused on technical treasury,” he says. “In businesses that are growing internationally, you are more likely to succeed with a business-focused approach – but you still need to get the basic transactional and funding elements right as well.”
How can treasurers support growth?
What does this mean in practice? Stebbings highlights a number of areas in which treasurers can support business growth: “The treasurer has a significant role to play when it comes to expanding the global footprint of the business,” he explains. “Not just by setting up cash management arrangements, but also by understanding the foreign exchange.” He argues that FX is as much a business issue as it is a treasury issue – and that treasurers increasingly need to get involved with issues such as the impact of FX risk on pricing contracts with contracts and suppliers.
Stebbings adds that treasurers can also support growth in other key areas, for example by negotiating arrangements for credit card receipts, or by supporting suppliers through the use of supply chain finance.
Working capital and beyond
Working capital management is another notable component of supporting business growth, as Daniel Jefferies, Group Treasurer at Equiniti Group, explains. “This includes asking what the working capital requirements are for the business – are you cash generative? Do you have highly cyclical cash flows? What is the best way to support that in the business?” he says.
In addition, Jefferies includes activities such as capital structure and funding under the heading of supporting growth. “It’s also about taking risk out of the business, and allowing the business to do what it does best,” he says, citing a role at another company where he had used hedging and risk management to take away risk and volatility from the company’s products.
But while there are many ways in which treasury can support growth and take on a more strategic role, this doesn’t mean that treasury can or should be leading the company in this area. As Jefferies remarks, “You are not there to set the organisational strategy, but you are there to support it.”
Advising on e-commerce
Citi’s Cunningham says another area of opportunity is the value that treasurers can provide when companies are developing their e-commerce strategies. While such strategies tend to be driven by the consumer payments team, with a focus on enabling the company to connect directly with consumers, Cunningham notes that there is much to be gained by looking at this topic through a treasury lens.
“When a consumer or FMCG company sells direct to the end consumer, there’s theoretically more margin to capture because you are cutting out the middleman,” says Cunningham. “But the big upside that isn’t appreciated by many companies is that there’s a huge working capital opportunity here.”
He points out that FMCG companies may have a DSO of 50-60 days – “but when you collect at point of sale, that DSO becomes effectively zero. So there’s a clear opportunity to be captured as you push more sales through that direct to consumer channel – but it also explodes the volumes of sales and collections you have, with the average transaction value coming down significantly.”
As Cunningham explains, the higher volume of transactions can wreak havoc and create bottlenecks if processes are not fully automated “so there are some interesting opportunities and costs that need to be addressed. I feel that treasury should have a seat at the table here, but from the discussions I’m having, that’s not really happening today.”
Nevertheless, Cunningham says that there are some cases where treasury is becoming more engaged in this area. He cites the example of a company where the treasurer is working directly with web designers to incentivise desired consumer behaviour during the checkout process.
Leveraging evolving technology
Meanwhile, BofAML’s Pendse notes the importance of leveraging technology to drive treasury process automation and “free up staff to focus on strategic, value-added work”. She adds that obstacles to this may include a lack of budget for treasury infrastructure, or for transitioning from process-based treasury to a more strategic approach, noting that some changes in staff may be needed.
Likewise, Pendse says that treasurers can support business growth by leveraging evolving technologies such as AI and API. “The future is data, and how to manage and leverage it for better commercial outcomes,” she says. “What developing stories can a treasurer see from harnessing the data within treasury? Better forecasting, more efficient hedging strategies, lower cost funding.” Nevertheless, she also points out that the obstacles to leveraging these technologies can be considerable, such as having data in multiple systems and issues around the consistency of data.
Treasurers are busy people – and not everyone has the time or inclination to seek out a more active role in supporting business growth.
“It takes a certain type of treasurer who is able to reach out of his or her career domain and work with other business management for the benefit of the business,” says Stebbings. “And this can be difficult to do – procurement might see supply chain finance as their area, for example. So you can get a certain amount of pushback when you are entering someone else’s domain.”
For treasurers who are looking to step up, Jefferies underlines the importance of taking a proactive approach. “You should definitely be prepared to offer your views to your line manager, or to the CFO, and ask, ‘how do you see things progressing over time, and how best can I support you?’” he says. “This might involve asking questions about the capital structure and proposed future actions, and then saying, ‘in that case, do you want me to think about options for funding or risk management?’ Or on a more basic level, it might mean making sure you have the right structure in place to support future activities. I would always encourage having that conversation.”
Dessing, meanwhile, warns that treasurers cannot support growth simply by sitting behind the PC. He adds that treasurers need to have certain characteristics in order to play the part of a strategic partner, including some of the following:
Be prompt. Dessing says that treasurers need to stay ahead of the curve, rather than waiting for the moment that cash is actually needed.
Be proactive. This includes connecting with internal and external groups, such as business units, tax, accounting, legal, communication, IR, advisors, auditors and banks.
Be a team player. Being a strategic partner means being open and connected, as well as an effective communicator.
Be the ‘guarder of cash’. Dessing notes that in today’s digital environment, treasurers should drive “awareness of fraud risk and the associated proper behaviour”.
Be open minded. Rather than focusing narrowly on bank account management and cash, Dessing says treasurers should have a holistic role with a wide range of responsibilities and covering areas such as financial and operational risks, pensions and real estate.
Be passionate. Last but not least, Dessing advises treasurers need a “best in class mentality” so they can “deliver the value-add” – and he also emphasises the importance of being supportive of others’ ideas.
Supporting high-growth companies
Supporting growth is one thing – but what challenges might treasurers face when supporting high-growth companies? Cunningham notes that in such cases, there can be a lot of pressure to be first to market and build sticky relationships – particularly if the company is offering a unique proposition.
“From a treasury and finance perspective, that focus on speed can trump safety and soundness – and there are a lot of areas that treasury would traditionally look at when the company enters a new market, such as currency controls, banking regulations and the due diligence that treasury would undertake in a slower life cycle,” he says. “Then there’s the need to choose the right cash management or treasury infrastructure to support the underlying business model in that market.”
In a fast-growing company, Cunningham says that treasurers may not have the luxury of going through the same level of due diligence – and this may force treasurers to approach the exercise slightly differently. “So it might mean you don’t establish local legal entities in that market, or a resident bank account, or a local currency account. Within the confines of local regulations, there may be easier, lighter ways to enter a market that might not be 100% optimised from a cost and risk management perspective – but they can enable you to plant that flag in the market very quickly, and potentially review the infrastructure at a later date.”