Published: March 01, 2012
Recognised as the Treasury Team of the Year 2011 in the gtnews awards, and winner of the Grand Prize in the AFP Pinnacle Award in 2010, Brocade’s treasury department has raised the standard to which every treasury can aspire. In this article, treasurer Jean Furter describes how Brocade’s treasury has differentiated itself, and the value that it has been able to contribute to the business.
Treasury is at the heart of every complex multinational organisation. The right treasury strategy can have a major impact on the company’s ability to anticipate and respond to changes in market conditions and deliver on new business strategies. With this in mind, it always surprises me how many treasurers continue to take a tactical view of their activities, concentrating only on how to increase efficiency in operational cash and risk management activities. Often, considerable attention is given to technology and processes to achieve this.
At Brocade, we have a different approach. Technology has a role to play, of course, but intimacy with the business is what facilitates improvement. Treasury has to be a strong strategic presence in the organisation, and play a role in defining business strategy. The greater treasury’s knowledge and depth of involvement in the company at a strategic level, the more effective it can be, and the more efficient in delivering on its specific responsibilities. This article looks at how Brocade’s treasury has become an integral strategic force in the business, and how performance has been enhanced as a result.
One observation I have made in my discussions with treasurers is that many remain quite isolated from the business itself. Without having an in-depth knowledge and involvement with day-to-day decision-making, it is very difficult for treasurers to become involved in strategic planning, such as launching a new business initiative, or mergers and acquisitions. Consequently, treasurers are often ‘blindsided’ when they have to respond by providing the necessary support. Being the last to know inevitably makes it impossible to plan the most effective way of supporting the business, whether expanding into a new market, sourcing financing or delivering a customer or supplier financing programme.
Before I joined Brocade, the treasury function was, like most others, largely tactical, with no input into strategic planning. There had been a number of situations where treasury could have contributed significantly to plans such as expanding into a new region by raising issues such as dealing with non-convertible currencies etc. We knew we could perform our role more effectively by being part of the team that makes the major strategic decisions, so we could help to shape business strategy and deliver the right solutions to achieve it.
The first step in reaching this goal was to develop a greater depth of understanding of the business. We did this by meeting with key stakeholders across the business to understand what they do. Listening is key! Having identified their pain points, we could then start to deliver solutions to address them, therefore building credibility and trust. We took a similar approach with the executive management team and the board of directors. We reviewed the corporate structure and debt profile and devised solutions that would add value by increasing earnings per share (EPS). We have also developed a strong relationship with the financial planning organisation resulting in full treasury involvement in the company’s financial and strategic planning processes. All financial projections presented to executive management and board now include a treasury section. This approach takes time, and needs to be developed incrementally, but it is a process that delivers value along the way, whilst elevating treasury’s profile amongst the key decision-makers in the business.[[[PAGE]]]
Gaining a seat on the strategic decision-making team has brought considerable advantages to the business, and has allowed treasury to become more effective, not only by enhancing day-to-day efficiencies, although this has been a by-product, but by influencing the major financial and strategic decisions. For example, our recent $200m share repurchase was initiated following an analysis undertaken by treasury. We have implemented a comprehensive enterprise risk management programme. This involves identifying key risks across the business, simulating scenarios, evaluating the results and putting in place associated risk mitigation strategies. We have built a sophisticated cash flow forecasting model that has enabled us not only to optimise our capital structure but also to understand our downside risks in detail and focus on increasing EPS. We have also found ways to support our sales efforts more effectively, such as developing a leasing and customer finance programme.
We also entirely revamped the company’s foreign exchange (FX) processes, by consolidating all FX activities to treasury, establishing and disseminating all exchange rates worldwide across functions, identifying FX exposures and fully controlling FX variance and income statement analyses, creating a strong basis that allowed enhancing our hedging programmes by implementing benchmarked dynamic hedging strategies. We took a leadership role in co-ordination with the sales organisation in customer contract negotiation and developing strategies for large sales opportunities in foreign currencies. This transformation allowed us to improve our FX performance significantly and provide competitive advantage to our international sales efforts.
Our experiences have proved that by increasing treasury’s strategic value, we have been able to reduce the risks of expanding the business into new regions and maximise our opportunities for success. We are now part of a committee for setting up new subsidiary companies, which enables us to do this in a co-ordinated, risk-efficient way. Treasury can look beyond simply managing its own cost base to making an impact on the bottom line. Better information and involvement in the business leads to better delivery, which in turn affects how cash and liquidity management, risk management, customer financing and supply chain finance are managed.
Not only does this transformation happen slowly, it can only materialise if the right people are involved. Consequently, we have had a huge focus on talent management, attracting and retaining the right people, and helping them to develop their skills and experience. While treasury knowledge is one factor in developing a good treasurer, attitude is equally important, so we have nurtured people who have a strong interest in what we do, the passion to improve on it, and the ability to communicate effectively. We construct development plans that build on each individual’s strengths, but with a common commitment to co-operation and communication.
We meet twice weekly and encourage regular dialogue, as opposed to relying on emails and messages that become impersonal. During these meetings, individuals make presentations on a range of topics, including projects for which they are responsible. This has enabled us to develop a strong professional community within treasury, and individuals are able to empathise with the responsibilities and objectives of every other team member. In addition, there is often a temptation to make reports and presentations very complicated, but by presenting them to other team members, people tend to make them far more accessible, which is a culture we have continued into the way that we provide information to stakeholders across the business.
Proactively fostering talent and developing a culture of excellence has created a virtuous cycle, and we find it easier to encourage the best people into the team, and foster pride in our business. We also work with universities and MBA programmes to circulate our experiences into the academic community and create a channel for new talent in the future.[[[PAGE]]]
To increase its visibility within the organisation, treasury needs to listen, communicate appropriately and demonstrate how it can deliver value. Commitment to the company’s strategic vision, as opposed to purely operational concerns, is attractive to senior management and provides immense motivation to the team, encouraging them to deliver further value. This year, our focus is on further refining our executive level communication to ensure that we fully understand each executive and board member’s pain points, how we can help to address them, and how they wish to receive information. Treasury has enormous potential within every organisation: the challenge is to deliver it.
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