by Andrzej Polak, Assistant Treasurer, The Timken Company
Every treasury department operates within a set of treasury policies that define the conditions within which financing, investment, cash and risk management decisions must be made. These policies have come under scrutiny in recent years as the need to manage liquidity and risk has become more pressing, and in some cases, policies have been found to be inadequate in the face of extreme market conditions.
Another consideration for multinational companies is the issue that every jurisdiction in which they operate has distinct tax and regulatory requirements, different investment and financing conditions, and diverse currency issues. This is particularly the case in ‘emerging’ markets where the financial infrastructure may differ from more established economies. Consequently, while it is tempting to try to establish a consistent treasury policy that can be applied in all countries, the reality is that policies that are devised specifically according to the financial conditions in each market, whilst remaining within an overall liquidity and risk management framework, are likely to meet the needs of the business more specifically.
The decision for centralisation
A key decision before devising treasury policy is to determine the degree to which the treasury organisation will be centralised, in terms of both financial decision-making and execution. In many cases, multinational corporations operate a regional approach, with decision-making often devolved to local entities in more challenging countries such as emerging markets in Asia and Latin America.