“The world has changed” is a statement that will only surprise you if you have been oblivious to events in the last 100 years. A whistle-stop tour of development milestones shows that despite the proclamations of a certain president during his nation’s Independence Day celebrations recently, commercial and military aeroplanes didn’t exist in the latter part of the 18th century and in fact the American army only purchased its first aircraft in 1909. Do you remember having to go into the bank to draw money – I do! – and I remember my aunt in about 1977 telling her friends that the ATM was a wonderful machine – “You put your card in and money comes out!” My uncle looked decidedly nervous. Forty years ago, the internet was the province of computer geeks; now everyone uses it, and 15 years ago mobile money was money you transported from one place to another. Life without aeroplanes, ATMs, the internet and mobile phones now seems inconceivable. I suspect that 100 years ago, the future seemed to be very far away but the speed with which developments take place now means that if you ask yourself “When is the future?” the answer will be that it is much closer than you think.
The world has become very connected and the pace of life has increased dramatically in a short space of time. We are exposed to so much information and the speed and availability of communication means that events in other parts of the world affect our domestic environment quickly. This means that our immediate futures, never mind our longer-term futures, become less predictable. In words usually attributed to Benjamin Franklin, “Nothing is certain but death and taxes”. I would like to add a third certainty to these two and that is uncertainty.
We live in a volatile age by almost any metric you care to name; political, social and economic. The time of being able to manage or mitigate your risks, as an individual, as a business or even as a state has passed. As a result of our increased connectivity, risks are systemic, endemic and global. They are also largely exogenous, which makes them extremely difficult to anticipate and to manage. As businesses, we need to be able to anticipate and understand some of our risks, in order to mitigate them more effectively. Part of understanding these risks is also understanding that like air travel, risks change over time, and quickly.
The changing treasury function
Historically, the company treasury was a part of the accounting function. The treasury function then evolved into a unit of the business that was expected to be not just a cost centre, but actually to make money. Strategies were employed by corporate treasurers to manage risk in various ways, and an objective was to make these strategies profitable as well. In the brave new world that we live in, this too has changed and the treasury function is now about managing the company’s risk. The problem is that the risks that treasuries now face are big hairy risks, not just at company level but also at industry, country and global levels. They have become much more difficult to manage. These risks are amplified when dealing with a company that operates in more than one jurisdiction.