The Evolving Role of the Corporate Treasurer
by Riaan Bartlett
The global financial crisis had a significant impact on the corporate treasurer in terms of responsibilities and expectations. Before the crises the primary focus of the treasurer was to manage volatility and risk with regards to cash and liquidity, foreign exchange and interest rates. Over the last couple of year this role evolved from purely risk management (execution) to being a ‘partner to the business’ and having a ‘seat at the table’ with regards to strategic decision-making. This broader and more important responsibility has been reinforced by the financial crises and its impact on the corporate environment.
Some of the key lessons for the treasurer from the financial crisis include:
- Must have a group of strong, long-term, committed relationship banks
- Access to diversified funding sources is crucial i.e., bank debt, capital markets (different markets), money market, private placement, commercial paper etc.
- Raising finance can be challenging even for well-rated corporates
- Having a large liquidity buffer is prudent (cost of carry less important)
- Safety of surplus cash is more important than the yield achieved
- Major shift in risk management especially credit risk management
- Be forward looking and have an upfront plan to manage a downside (crisis) scenario
- Management of counterparty risk, credit rating of bank below corporate’s credit ratings
- System capabilities, one source of information, less dependency on excel spreadsheets
- Stronger focus on cash and the accuracy of cash flow forecasting
- An increased focus to cut costs across the organisation including treasury (introduction of ‘do more with less’ principle meant fewer people have to do more)
- Need to take control of the working capital cycle, something that has been neglected
Strategic business partner
The 2014 AFP Strategic Role of Treasury Report reveals that the role of the corporate treasurer has transformed from a traditional cash management function to one that is significantly more visible. The recent AFP report showed that:
- 83% anticipate further growth in treasury’s expanded role over the next five years
- 69% attribute enhanced role to emphasis on cash management and liquidity
- 46% act as internal consultants to other departments
- 37% spend more than 25% of their time leading their teams
This higher visibility means that the treasurer needs to be forward looking, pro-active (not reactive) and work closely with other functions e.g., business units, tax, accounting etc.