Strategic Treasury

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Meet Today’s Treasurer The author explores the evolving role of treasury, paying particular attention to how the financial crisis accentuated pressures on liquidity and counterparty risk, and ongoing currency and commodity volatility sharpened treasurers’ focus on minimising exposures.

Meet Today’s Treasurer

by Erik Seifert, Head GTS Corporate, Sweden, SEB

Treasury remains a relatively new profession, with distinct departments dedicated to managing liquidity and risk first emerging in the 1970s in response to increasing interest rate and FX volatility and the growing emphasis on international business. In 1979, the first major treasury association, the Association of Corporate Treasurers, was founded. Since that time, many aspects of treasury have changed unrecognisably, not only because of advances in technology, but also due to significant developments in the way that treasury’s role in the business has been recognised and extended. What has remained constant, however, is an unrelenting focus on delivering value to the business.

The ‘Dynasty’ age

Treasuries of the 1980s and early ‘90s were characterised by telex machines, a smattering of mobile phones the size of bungalows, proprietary trading but above all, people. Multinational corporates often had tens or even hundreds of people engaged in manual treasury processes, often organised in a similar way to a bank’s trading operation. At that time, value was often determined in terms of the return that treasury was able to earn by trading surplus cash, arbitraging interest rate differentials and exploiting FX risk. Indeed, a number of companies generated a significant proportion of their corporate profits in this way. This activity was supported by an army of people recording transactions, producing reports, confirming deals and sending payment instructions, occasionally making use of huge, self-built mainframe systems but more often than not with little automation or technology support.

An invisible department

Treasury in many companies was therefore enclosed in its own little world, leading to the perception, and often the reality, that treasurers were in an ‘ivory tower’, almost entirely separate from the company’s core activities, and with virtually no reference to it. During the 1990s and early 2000s, all this changed. Proprietary trading is volatile by nature, which became increasingly unpopular with CEOs, CFOs and shareholders as equity markets evolved and stable earnings and reliable forecasts became more important. Companies that produced surprise results were severely punished by analysts and shareholders, so proprietary trading became more of a liability than an advantage. High profile events such as the collapse of Barings, Enron et al also had an impact. Stakeholders demanded greater transparency and questioned the business justification for an energy, manufacturing, pharmaceuticals or retailing company profiting from non-core activities.

However, in addition to the change in attitude prompted by major events, there were quieter changes taking place in all industries. Globalisation was taking a greater hold with an expanding geographic reach of suppliers and customers and an increasing focus on leveraging manufacturing and services in low-cost economies. Acquisitions and strategic investments in new markets led to businesses taking a different shape with new and unfamiliar requirements.

A new kind of value

Right from its early beginnings, the treasury function was focused on delivering value, and as stakeholder expectations, market conditions, technology innovation and the needs of the business evolved, so too has the way in which treasurers achieve this. Increasingly, the concept of value has shifted from direct profitability in treasury to the way in which it supports the company in performing its core activities. This has had a variety of implications. The core principles of treasury that were first established: liquidity, risk and corporate finance, remain the same, but the global nature of business, technology innovation and new expectations of the role that treasury can play in enhancing the business have changed.

Treasurers need to be far more 'tech savvy' than their predecessors, a trend that is likely to continue in the future.

Firstly, the door of the ivory tower is now open, and treasurers are to be found working with local finance managers across the globe on liquidity and risk issues right through to new business enablers such as customer financing and prepaid cards for customer incentives. The most effective treasurers today have a truly global vision, not derived from the perspective of a single global treasury centre, but with an appreciation of in-country regulatory, fiscal, cultural and business organisation issues, resulting in regional treasury centres or distributed treasury staff located in business unit finance teams.

Secondly, the concept of communication and information flows has changed dramatically. Treasurers’ increasing demand for information, and huge technological advances, have resulted in sophisticated systems for monitoring global liquidity and risk positions, integrating information across systems and communicating with internal and external counterparties in a secure and transparent way. Multi-bank connectivity such as SWIFT Corporate Access, standardisation and new communication tools such as mobile technology and social media are making their mark, and will continue to do so.

Thirdly, the scope of treasury activities has expanded as its global influence has increased and the benefits of shared services have become more apparent. For example, payment factories, bank communication, back-office processing centres and areas such as collection factories are increasingly falling within treasurers’ remit or sphere of influence.

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