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Five Steps to a More Effective Global Treasury

by Tim Hesler, Kevin Laczkowski and Paul Roche, McKinsey & Company

Demands on the corporate treasurer are changing, and many are struggling to  keep up. Here’s where to start. 

The rapid shift of economic activity from established markets in Europe and North America to developing ones in Africa, Asia, and Latin America has many CFOs asking treasurers to improve their performance. The pace of growth and regulation has left too many of them lagging behind on  even core activities in their home markets: cash management, banking, debt and funding, investments, and risk management for currencies and interest rates. Such shortcomings are only magnified as companies expand into emerging markets, [1] where even world-class treasury departments struggle to navigate varied banking protocols and diverse languages and customs—and often lack  an operating model and infrastructure to connect their activities, portfolios, and risks.

The cost can be heavy. Companies pay incremental interest expenses when they overborrow as a  result of inaccurate cash flow forecasting and often lose money when they don’t hedge exposures for currencies and for interest rates, commodity prices, or both. They pay unnecessary taxes when cash moves needlessly through tax-heavy regions. If inadequate controls or segregated financial responsibilities lead to fraud, companies face both financial losses and reputational damage. Those that miss their financial covenants with banks or fail to meet liquidity requirements can find themselves dealing with credit-rating downgrades, a loss of credit flexibility, or even bankruptcy.

In an effort to help corporate treasurers improve their performance in core activities, we surveyed 120 of them over the past year and conducted in- person interviews with an additional 50. Those sources, as well as our experience working with treasurers, have led us to believe that companies should focus on five moves to improve their global treasury function.