Strategic Treasury

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How to Make a Treasury Committee Work The treasury committee is often the cornerstone of any business because disciplines within finance have many stakeholders and affect a variety of other functions. Today, a treasurer is increasingly expected to be a communicator across an organisation. Doesn’t that fact alone highlight the need for a treasury committee?

Small is Beautiful: How to Make a Treasury Committee Work

Small is Beautiful: How to Make a Treasury Committee Work 

By Christof Nelischer


The treasury committee is often the cornerstone of any business. This is because it is often argued that disciplines within finance have many stakeholders and affect a variety of other functions. Therefore it is critical to bring the key stakeholders together so they can work in a collaborative way; a treasury committee achieves just that. Today, a treasurer is increasingly expected to be a communicator across an organisation. Doesn’t that fact alone highlight the need for a treasury committee?


If this is indeed the case, why then is treasury never invited to participate in committees for controllership, tax, financial planning, investor relations and other areas within finance? I have found such committees to be extremely rare, while a specific treasury committee is ubiquitous. Note that enterprise risk management is an exception to this, albeit outside of finance.

But back to basics and the fundamental question of where and how treasury adds value. With reference to the illustration of the value pyramid (see Figure 1) treasury is driven by corporate strategy, working towards implementing, executing and supporting the overall, long-term objectives of the firm. Complex operations and systems need to be continually maintained, explained and developed. Administration and settlement merely need to be cost-effective. Note that the value pyramid does not feature a treasury committee.

Committees’ effectiveness can be challenged when their members have varying levels of understanding and experience of the subject matter. The result is often a committee where the treasury professionals become impatient because the non-treasurers are reluctant to put their name to a decision due to insufficient understanding. To the non-treasurers’ minds, it is not the role of the committee to simply wave through anything proposed by treasury, but to challenge what is proposed and add value by providing input.

 

Fig 1 - A holistic view of treasury  Fig 1 - A holistic view of treasury

 

I have found, however, that the value of such input can be very little, and from the point of view of the treasury function, the committee becomes a hurdle. Such committees are then at risk of over-examining matters, leading to paralysis through analysis. Large amounts of time and energy are required to organise, prepare, conduct and minute the committee meetings. The treasury team itself will not find this helpful and I am mindful of the impact this will have on the working relationship between treasury and the other functions serving on the treasury committee.

Every treasury function has a dual role as a service provider and also as a policeman to some degree, maintaining and enforcing corporate policy. I do wonder how helpful it is if some of the population to be so governed sit on the ‘police committee’.

I once came across an initiative from senior management to include a discussion of financial markets during a treasury committee meeting. The idea was that treasury is the organisation’s interface with financial markets and should act as an internal communicator to inform and educate the rest of the organisation. I initially greeted the idea with enthusiasm, but quickly found that there was limited interest in financial markets within the rest of finance. It didn’t seem to matter enough to most people to discuss where FX rates were headed and what the Fed might do next. When there was a change in senior management, the initiative collapsed.

That leads us to question what the remit of a treasury committee ought to be. But before we answer that, we should remind ourselves that the general direction of treasury functions is to add value by continually streamlining, simplifying and automating its processes. In order to achieve this, treasury needs to work towards a clearly defined operating model that sets policy and then leaves relatively little to be decided by a committee. From the point of view of operational effectiveness, it is desirable to set policies and guidelines rather than make decisions on a case-by-case basis. Daily front-office, in particular cash management, operations should not have to rely on input from a committee. One popular topic for a treasury committee is the management of foreign exchange risk. I have found it unhelpful to discuss at each and every committee meeting the conceptual pros and cons of hedging FX.

Conversely, it is beneficial to the organisation to have that conceptual discussion with a wider audience. Senior management sign-off should be sought, as well as any necessary formal documentation, to define what the risk appetite of the organisation is, and what it does and does not deem to be a financial risk to be hedged. In the likely event that cash flow exposure on foreign exchange is a risk to be actively managed, I have found it helpful to set a framework to define minimum and maximum levels of hedging for a given period. It is then up to treasury to discuss with the business unit how exactly it is to be applied. No need, then, for a treasury committee that ends up complicating diary management and, in turn, delays decision-making. If anything, it makes for more organisational and managerial clarity if treasury is able to liaise with the business directly and come to an agreement without involving other parties.

Furthermore, there is the eternal topic of banking operations. The business should be an integral part of any selection process of banks and the subsequent implementation project.

Having eliminated discussions on financial markets and having carved out the management of tactical foreign exchange and banking matters, we are still left with a small number of tasks that I believe a treasury committee should perform. A body governing the treasury policy is a natural requirement, a point of escalation where exceptions in treasury management are to be reported, plus a body that sets the terms and parameters of delegated authority as is required for the functioning of front and back office. In order to achieve this, a small treasury committee would be appropriate, possibly limiting itself to just the group CFO, the group treasurer and the group financial controller. In fact, those three may be sufficient if cover for absence can also be provided.

 

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