Future-proofing Treasury: A Roadmap to Best Practice

 

HSBC's Global Liquidity and Cash Management’s Annual Natural Resources and Utilities Forum on March, 22 2018

Ensuring your treasury function is in the best possible shape to respond to imminent threats and opportunities requires preparation, imagination, and flexibility. In March 2018, HSBC hosted its second annual Global Liquidity and Cash Management Natural Resources and Utilities Forum in Houston, USA, to discuss the future of the energy sector. One of the highlights of the event was a dynamic roundtable discussion, an edited version of which appears below, in which industry experts shared their insights and real-life experiences around future-proofing treasury.

 

Panellists:    Melissa Cougle Vice President, Integration, Ensco PLC       Tamara Saront-Eisner Vice President and Treasurer for the US and Americas Zone, Air Liquide Brook Ballard Treasury Manager, Cheniere Energy Inc   Tom Barsi Senior Vice President, Corporate and Business Development, Carbon Black Eleanor Hill  (Moderator) Editor, Treasury Management International (TMI)

 

Regulation and reform

Eleanor Hill, TMI:
What are the key regulatory and reform trends impacting the future of corporate treasury and the energy sector?

An HSBC representative:
Looking at regulation and reform in the broadest sense, we see four main trends influencing how corporate treasurers are preparing for the future. The first is the rise of protectionism across the globe. There are the obvious examples of this, such as Brexit in the UK. Many of President Trump’s new policies in the US also have a protectionist slant. But this trend is not limited to the Western world. China and some ASEAN nations have one way or another put in place rules like enforcing conversion of 75% of their export earnings to local currency, restriction on movement of local currencies offshore and the like.  

Protectionist policies naturally have an impact on the way treasury departments operate. Moreover, these changes can happen rapidly, with little warning, meaning that treasurers now have to be more agile than ever before – and increasingly connected to the macro world.

The second trend we see is the rapidly evolving payments landscape. National real-time payment schemes are now either live, or in the process of implementation, in over 20 markets worldwide. 

From a treasury perspective, the move to instant payments signals the end of clearing currencies via batch runs, Monday to Friday. Payments will now be coming in on a real-time basis, seven days a week. As such, treasurers need to think strategically about how to put those monies to use, even at weekends. In addition, system changes may be required in order to reap the benefits of receiving monies in real-time. Elsewhere, suppliers may start requesting real-time payments, which is yet another angle to consider. 

An additional shift in the operating environment is the move towards digital commerce and communication, and the cybersecurity risks that come with that. Treasurers must be ever more vigilant around new threats to the business, especially given their role as gatekeepers of company cash.

The fourth trend we see, which is specific to the natural resources and utilities sector, is the rise of national oil companies internationally. Many are now expanding overseas and entering new markets, or ones where sector reforms have taken place, such as Mexico. Going forward, this means that we will likely see more international joint ventures – which come with their own challenges. To succeed, treasurers must enter into these with an open mind and be prepared to find new ways of working, whilst embracing cultural differences.

Eleanor Hill, TMI:
Coming back to the point around protectionism, let’s focus for a moment on US tax reform, which is the most significant overhaul of the US tax code in 30 years. Could you please share some of your strategic thinking around US tax reform? How should treasurers be preparing?

Brook Ballard, Cheniere:
It might be a cliché, but cash is king. So, US tax reform provides a significant incentive to reassess the ROI of your cash, and reconsider how you can utilise it best – whether that be in a location abroad or in the US. As part of that process, Cheniere will be looking closely at where we hold debt around the world and weighing up the rising cost of that debt.

As an exporter of liquefied natural gas (LNG) to far-flung markets, including China, we also need to ensure that we continue to build and invest in the infrastructure in order to support growing global demand. This will more than likely mean putting additional cash to use in the US. 

Tamara Saront-Eisner, Air Liquide:
Overall, we see US tax reform as a positive change – but being a French-headquartered company, we have a few different challenges to consider. One is the excise tax that will apply to cross-border payments between affiliates of the same company – and Air Liquide is largely funded through intercompany loans, so that will be difficult. The new tax also applies to everything from royalties to interest, and even CapEx, meaning that we have a lot to reconsider. 

Soon after the reforms were announced, we put in place a roadmap that involved reshaping our capital structure, looking again at our interest cost, and thinking about the repatriation of dividends from some of our subsidiaries. Ultimately, for us, it’s about ensuring we can continue to efficiently and effectively fund our US operations. That may mean turning to other US sources of capital to fund our operations in the US. 

Although we were quick to set up our roadmap to respond to US tax reform, there is still a lot of work to be done in terms of assessing the impact – especially in areas such as the taxation of intellectual property (IP).

 

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Melissa Cougle, Ensco:
We have been evaluating restructuring options to remain as tax-efficient as possible on the back of US tax reform. With our headquarters in the UK, the interest challenge that Tamara raised is also a significant consideration for Ensco.

Additionally, while this might be the most comprehensive reform of the US tax code in the past three decades, it was pushed through Congress in the span of a few months and leads to questions as to whether the reforms could be undone in a similarly short timeframe.

This uncertainty only makes life tougher for treasurers. On the one hand, you need to be prepared for these reforms and have a long-term plan for adjusting to the new structure; while on the other hand, you need to build in enough flexibility to alter those plans quickly if needed.

Eleanor Hill, TMI:
We can’t talk about regulation and reform without mentioning Brexit. There are still many outstanding issues surrounding the UK’s departure from the EU, so how can corporate treasurers plan ahead?

An HSBC representative:
It is difficult to plan ahead given the unknowns, but that doesn’t mean that preparation isn’t important. It is a good opportunity to take stock of current treasury practices, workflows and set-ups. 

Treasurers in the energy sector have a particular incentive to undertake such a review, given the significant number of bank accounts they tend to operate. Now is also a good time to revisit the financial products that the company has in place and to understand what the impact may be on those if the UK legal regime changes. 

Alongside this ‘stock-take’, a number of treasurers are engaging in dialogue with management to ensure they have sufficient budget to undertake any necessary adjustments to the corporate structure and/or bank account migrations. Of course, firm decisions such as where to set up new treasury structures are likely to come slightly further down the line, when there is more clarity, but it is still worth having a roadmap and budget in place for such an event. 

As well as looking internally, treasurers also need to consider the impact of Brexit on their external business partners – from banks and technology vendors to buyers and suppliers. Treasurers definitely need to know whether their bank in the UK has a licence to clear euros elsewhere. HSBC has had this capability in France, for example,  but some other banks may not be in this position.

Tamara Saront-Eisner, Air Liquide:
We are taking a two-pronged approach to our Brexit preparations, looking at the potential impact from a local level and an international level. We have a significant presence within the UK, but our business model in general is to produce close to our customers. Our raw materials are not imported, therefore, which means that the impact on our commercial flows will actually be fairly limited.

That said, we are taking a number of the steps that Lance mentioned, such as assessing how our cash pooling arrangements and bank accounts domiciled in London may be impacted. We also want to know about the UK banks’ access to European payment schemes, as this will be very important.

Looking at the international impact, we are concerned about the uncertainty and volatility that Brexit has brought into the European market. We will keep a very close eye on how this evolves. 

Attracting the best talent

Eleanor Hill, TMI:
One way of ensuring your treasury team is in great shape to cope with and take advantage of regulatory and reform trends is having the right talent on board. What constitutes a great treasurer in the energy sector, and how easy is it to attract candidates with those characteristics?

Melissa Cougle, Ensco:
There are a few different skills that today’s treasurers need beyond the traditional technical competencies. One of those is the ability to be constantly surveying the external landscape and understanding how world events outside of your control may impact how you manage the company’s cash. 

Agility in your thought process is also vital. In today’s business world priority lists change constantly, especially in the fast-paced energy industry. Treasurers must be forward-looking and have the ability to re-evaluate their priorities in response to fluctuating external pressures as well as internal demands.

Having a laser focus to continue progress is also critical. Despite the ever-moving priority list, you also need to drive things through to completion. Organisations, including treasury, must continue to execute, no matter what is happening around them.

Candidate sourcing is a little easier than it once was because the sector is emerging from a downturn, but the skillset that we’re looking for has advanced significantly over the last five to ten years. The energy sector also faces a specific recruitment challenge – especially among millennials – because of the stigma that still surrounds it. 

 

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Brook Ballard, Cheniere:
For me, building a team that can undertake proper critical thinking is closely linked with recruiting diverse team members – people who think differently from one another. If you surround a particular concept or challenge with a selection of opinions or solutions, the best thinking is actually found where those ideas intersect. That’s precisely why diversity matters and how it adds value.

In addition to the points Melissa raised, another key skill we will need in future team members is the ability to utilise the latest technologies to their full extent. This not only means being able to evaluate new technologies and their potential within the treasury function, but also knowing how to communicate effectively through technology and use it as a collaborative tool. Of course, understanding how to keep company funds secure from cyber criminals is another technology skill that is increasingly sought after among candidates.

At the end of the day, though, human relationships still play a critical role in recruitment decisions. How technologically-savvy a candidate may or may not be is not necessarily as important as getting the right individual to fit in with the team.

Tamara Saront-Eisner, Air Liquide:
Like Melissa, I thought that we would now be in a slightly easier recruiting environment, since the industry is re-emerging. But it’s actually been tough to attract candidates with the right skills, especially in more niche positions such as corporate finance, or those roles requiring counterparty risk analysis, for instance. 

This may well be a result of many experts leaving the US, or at least Houston, during the downturn. The sector lost a lot of good talent and hasn’t been able to win everyone back. Our recruitment cycle has therefore extended, as it is taking longer to find the right candidates to fill our vacancies.

Finding junior treasury talent is also quite challenging. As an engineering company that is very process-oriented, we find it easy to attract engineering graduates straight out of university but the same can’t always be said for graduates who have been studying business, finance, or accounting. 

Brook Ballard, Cheniere:
Absolutely. It’s really tough to get the younger generations engaged. I don’t think that’s necessarily specific to the energy sector, although we are competing with more attractive industries.

At Cheniere, we believe that showing younger individuals that the company and management team truly care about their employees is a great recruitment and retention tool. This might be through small gestures - for example, everyone in the company recently received a complimentary gym bag to remind us of the importance of taking care of ourselves. Or it might be about taking the time to understand what engages younger generations and what their career aspirations are, and then giving them exciting and meaningful tasks to execute on. After all, no one leaves a great company; they usually quit because of bad management or out of boredom. 

When recruiting, we also try to look beyond qualifications to a person’s potential and their willingness to learn. So, we recruit straight out of universities like Yale, Harvard and Princeton. Eagerness is a very powerful tool that treasury leaders need to learn to harness more effectively.

An HSBC representative:
We have a number of initiatives under way at HSBC to help us attract great talent. Within the Global Liquidity and Cash Management team specifically, my focus has been building a high-performance culture, regardless of gender, age, ethnicity, sexual orientation.

Having true diversity in the team creates an environment where people with different backgrounds and cultures work together and are exposed to varying viewpoints and ideas. This helps people become accustomed to hearing and sharing their different perspectives and presenting their ideas, as well as their aspirations.

It’s vital that this happens not only at the working level, but also in leadership representation. I actively encourage women to be vocal about their career ambitions and to take leadership positions, by utilising the support systems the bank provides, for example.

At the more junior end of the scale, I also encourage young people to challenge themselves in their respective roles and to consider international experience. Over the last year alone we facilitated 26 career appointments in my team, of which 13 involved international postings.  

In addition, we see personal development plans as important talent retention tools. These are not just once-a-year tick box exercises, but a means to truly learn and grow. The bank is serious about delivering on these plans for employees, because – as Brook alluded to – employees that have ample opportunities to develop and progress are far more likely to be happy, and therefore to stay at the organisation.  

A similar approach – focusing on performance and diversity – can be applied to corporate treasury functions. In fact, we see more and more corporate clients turning to these ‘softer’ attributes as a means to build a highly effective team, although qualifications and technical expertise remain priorities too.

 

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Eleanor Hill, TMI:
Does the energy industry need to do a better job of beating its own drum in order to attract the best talent going forward?

Melissa Cougle, Ensco:
Absolutely. We should be proud of the role our companies play in global exchange and everyday life. The world as we know it cannot function without the energy sector. Old and young, including millennials, drive cars or get in an Uber – and use petroleum products in their everyday lives. No technology or product presently available can fill the gap that would be created if fossil fuels ceased to be used as an industrial product. 

An HSBC representative:
I agree completely. There shouldn’t be any shame in working in oil and gas – or in banking for that matter. We provide services that are vital to the smooth running of the global economy and our contribution to society should not be underestimated either.

Cutting-edge cybersecurity

Eleanor Hill, TMI:
One area where millennials often have an advantage over more senior treasury staff is the digital world. Cutting-edge technology, and cybersecurity in particular, hasn’t necessarily been a core treasury competency in the past. What do the treasurers of tomorrow need to know about cybersecurity?

An HSBC representative:
Cyberattackers are increasingly targeting treasury departments, so there needs to be a cultural shift that moves cybersecurity from being an ‘IT problem’ to being high on every treasurer’s agenda. Email compromise like the ‘CEO fraud’ is becoming increasingly common and all treasury and finance staff need to be specifically trained on spotting scams, from spoofed emails to voice phishing.

Not only are the cybercriminals after money, they are looking to steal data as well – and the value of data is another new concept that treasurers need to adjust their mind-sets to. One of the main ways data can be breached is through third parties. Imagine you are undertaking an M&A transaction, for instance. A significant amount of financial data will change hands during that transaction and a number of different parties will be involved. How do you know that the legal firm you are using has the latest security protocols in place? These are the kinds of tough questions that companies need to start asking of their counterparties.  

Brook Ballard, Cheniere:
People are the weakest link when it comes to cybersecurity, so I agree with Lance that training for treasury staff around the sophistication of cyberattacks is really important. Five years ago, you could often spot a fraudulent email because they contained typos or terrible grammar! Those days are gone. Today’s cybercriminals are super smart and extremely thorough.

The power of educating staff about the proper use of systems and the importance of implementing and following thorough processes should not be underestimated, either. By inserting people into processes, having four eyes on payment authorisations over a certain threshold, for example, you can actually turn your team into a tool for mitigating cyberrisk.

Melissa Cougle, Ensco:
You also have to build up a cultural awareness of the significance of cybersecurity within the team, whilst encouraging an environment where any member of the treasury function – no matter how junior – feels able to question the instructions they have received. A questioning mind is a great tool in the fight against fraud, as is a healthy dose of scepticism. So, even when a suspicious transaction turns out to be genuine, individuals should be acknowledged for taking the time to double check its authenticity.

Also, we really need to be more aware of just how devious the cybercriminals are becoming. Where they used to be involved in ‘exceptional’ transactions, they are now finding ways to insert themselves into the middle of routine transactions. That’s even scarier because no-one is on high alert for those kinds of routine transactions, making criminal activity harder to detect.

Eleanor Hill, TMI:
Where can treasurers turn for help with cybersecurity training and awareness?

Tamara Saront-Eisner, Air Liquide: Many of the large transaction banks offer excellent, in-depth online training and videos. Some even check which of their treasury customers have undertaken the training and will follow up with you if you haven’t! So, I would definitely advise any treasurer who is proactive about cybersecurity to have an honest and open dialogue with their bank. They may be surprised at how much support is on offer.

In the US, the FBI’s cybersecurity division also has some excellent resources available. They are keen to work collaboratively with corporates, sharing past examples of cyber-attacks, which can be eye-opening.  

No matter how prepared you are, though, cybercrimes will still happen. It is therefore important for treasurers to spend time updating their business continuity plan to ensure that they can access their bank accounts and make payments even when their corporate network is down, and when their laptop is out of action.  

An HSBC representative:
Just to add some detail around the support available from banks, HSBC not only has training modules available, we have also written a practical guide that outlines the tell-tale signs of a breach and what to do when the worst happens. Of course, HSBC is also investing heavily in the latest security for our banking platforms, including biometrics, in order to help protect our clients.

Within the cash management world specifically, we are also assisting clients to review their processes and systems to eliminate redundancies and weaknesses. To do this, we have a process consulting team, consisting of a diverse selection of experts, many with backgrounds as SAP and TMS practitioners, who help treasury teams with their continuous improvement journeys. 

We are also helping clients to shift further into the digital world by moving away from paper, in order to minimise human involvement in everyday treasury processes. Similarly, on the connectivity side, we are assisting more and more clients to establish direct-to-bank access, taking away the need for manual intervention – and thereby removing the human risk factor.

 

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Future-proofing: best practice

Eleanor Hill, TMI:
Finally, what are your top tips for future-proofing treasury?

Tamara Saront-Eisner, Air Liquide:
In my view, future-proofing treasury is about building a strategic team, with an agile mindset and a focus on technology. Also, treasury needs to be a true partner to the business and be able to build the right financial infrastructure to optimise cash throughout the company. 

Brook Ballard, Cheniere:
For me, it’s about engaging people and using technology as a tool. At the same time, treasurers need to look to install the right processes within their department, no longer to do more with less, but more with more – the latter being human capital and tailored technology.

Melissa Cougle, Ensco:
You have to have a continuous improvement mindset. That means assessing your procedures, making needed changes as they arise and staying up to date with technology. Although, to avoid first adoption pain, treasurers can often benefit from being fast-followers rather than technology leaders. 

You also have to be nimble, with one eye on the outside world and the other on the internal needs of the company. But those aren’t two distinct things – the secret to being a great treasurer is marrying all of those elements up and seeing the bigger picture. 

An HSBC representative:
I couldn’t agree more that we all need to embrace rather than fear technology. But you also need the right skills to know how to leverage that technology. You can’t just buy a new Ferrari and expect it to instantly improve your commute to work, for example. 

You firstly need to know how to drive, which route to take, and then how to work with the car to achieve the maximum performance out of it. Treasury technology is no different – and that’s precisely why treasury talent is going to be so vital to the future growth of all corporates, not least those in the energy sector.   

 

About:  Ensco plc (NYSE: ESV) brings energy to the world as a global provider of offshore drilling services to the petroleum industry. For more than 30 years, the company has focused on operating safely and going beyond customer expectations. Operating one of the newest ultra-deepwater fleets and a leading premium jackup fleet, Ensco has a major presence in the most strategic offshore basins across six continents. Air Liquide in the US counts more than 20,000 employees in more than 1,300 locations, offering industrial gases and related services to customers in a range of industries, including oil and gas, chemicals, metals, construction, food and beverages, research and analysis, electronics and healthcare. Cheniere Energy, Inc. is an energy company primarily engaged in liquefied natural gas (LNG) related business. The company operates through two segments: LNG terminal business and LNG natural gas marketing business. The company owns the Sabine Pass LNG terminal in Louisiana through its ownership interest in and management agreements with Cheniere Energy partners, L.P. (Cheniere Partners), which is a publicly traded limited partnership.