by Erik Seifert, Head GTS Corporate, Sweden, SEB
Treasury remains a relatively new profession, with distinct departments dedicated to managing liquidity and risk first emerging in the 1970s in response to increasing interest rate and FX volatility and the growing emphasis on international business. In 1979, the first major treasury association, the Association of Corporate Treasurers, was founded. Since that time, many aspects of treasury have changed unrecognisably, not only because of advances in technology, but also due to significant developments in the way that treasury’s role in the business has been recognised and extended. What has remained constant, however, is an unrelenting focus on delivering value to the business.
The ‘Dynasty’ age
Treasuries of the 1980s and early ‘90s were characterised by telex machines, a smattering of mobile phones the size of bungalows, proprietary trading but above all, people. Multinational corporates often had tens or even hundreds of people engaged in manual treasury processes, often organised in a similar way to a bank’s trading operation. At that time, value was often determined in terms of the return that treasury was able to earn by trading surplus cash, arbitraging interest rate differentials and exploiting FX risk. Indeed, a number of companies generated a significant proportion of their corporate profits in this way. This activity was supported by an army of people recording transactions, producing reports, confirming deals and sending payment instructions, occasionally making use of huge, self-built mainframe systems but more often than not with little automation or technology support.
An invisible department
Treasury in many companies was therefore enclosed in its own little world, leading to the perception, and often the reality, that treasurers were in an ‘ivory tower’, almost entirely separate from the company’s core activities, and with virtually no reference to it. During the 1990s and early 2000s, all this changed. Proprietary trading is volatile by nature, which became increasingly unpopular with CEOs, CFOs and shareholders as equity markets evolved and stable earnings and reliable forecasts became more important. Companies that produced surprise results were severely punished by analysts and shareholders, so proprietary trading became more of a liability than an advantage. High profile events such as the collapse of Barings, Enron et al also had an impact. Stakeholders demanded greater transparency and questioned the business justification for an energy, manufacturing, pharmaceuticals or retailing company profiting from non-core activities.
However, in addition to the change in attitude prompted by major events, there were quieter changes taking place in all industries. Globalisation was taking a greater hold with an expanding geographic reach of suppliers and customers and an increasing focus on leveraging manufacturing and services in low-cost economies. Acquisitions and strategic investments in new markets led to businesses taking a different shape with new and unfamiliar requirements.