Roadmap Towards a First-Class Group Treasury

As the perennial debate continues around the pros and cons of a centralised treasury, this article plots a route to an efficient and streamlined group treasury function – emphasising the importance of empathy, communication and engagement at all levels.

In recent years there have been numerous articles, discussions, and seminars, debating to what extent a corporate treasury department should be centralised/decentralised. And there are plenty of arguments on each side. Individual corporations will choose a model that fits their business plan, strategic vision, and geographic reach.

More often than not, businesses have either a decentralised treasury, with central control and reporting function, or centralised treasury functions, which have more visibility and involvement in treasury management.  But between those two types, some hybrid set-ups are emerging to adapt to companies’ needs and particularities, enabling an optimal balance between local knowledge, agility, corporate control, and economy of scale to be reached.

Regardless of how centralised/decentralised a corporate treasury is, one major challenge facing group treasurers is the management of a virtual treasury organisation, globally. As a result, it is crucial that people working across the business are engaged in creating and sustaining a first-class treasury.

This is achievable through a number of facets, including:

• Clear strategy
• Smart reporting
• Milestones and their implications, such as ERP selection
• Human interaction and knowledge sharing

Clear and engaging strategy

Generally, central treasury has the strategic vision about how the group treasury should be handled. It puts in place the group policy that provides a framework for different areas of treasury, such cash management, risk management, and global financial counterparties.

While at group/central level the strategic vision is crystal clear, group entities, subsidiaries, and operating units will generally not have such clarity.

On the other hand, decentralised teams manage treasury aspects on a daily basis. They have an invaluable hands-on working knowledge of not only local constraints but also opportunities. They also maintain a closer relationship with local banks, and consequently, they potentially face challenges. Those challenges are significant to them, but when a corporation is looking at the global picture, those local issues could be overlooked or ignored completely.  The same applies to opportunities identified at a local level that could aid corporation growth globally.

This can lead to less engagement from decentralised entities with the risk that some interesting openings could be completely missed.

So, how can we rectify this? The solution lies in involving all treasury entities in shaping the strategic milestones, with two-way communication sessions. This way, personnel working at both local and headquarters level are able to outline the priorities for the coming years, highlight the challenges and opportunities, and also communicate and engage when the strategy is drawn up and circulated.

This will lead not only to better understanding of the strategy, higher commitment and improved results but also to greater job satisfaction, less resistance to change and better adaptability by the team.

Obtaining quality reporting

Reporting capabilities are major allies of central functions. They enable the collection of information from entities and provide a global snapshot of group’s position in terms of cash, credit lines with banks, foreign exchange positions, etc.

Depending on how automated the treasury function is, reporting insights could be drawn directly from the ERP, TMS or via spreadsheets supplied by the entities.

In both cases, there are some important points to consider to generate SMART reports:

• Be straight to the point: focus on the main elements to optimise or cover risks, especially when using spreadsheets.
• These reports, in addition to bringing insights to the central team, should provide an occasion for entities to ask themselves questions about how well they are executing their tasks in term of optimisation, handling risks, and adding value to the company.
• Another key point is to limit repetition in reports. This takes up valuable time and is likely to lead to less engagement from teams, and could dilute focus.
• Allowing space for honest comments: when we need to consolidate information from different areas, standardisation is key. However, it is crucial to have a dedicated space to allow entities to express their particular concerns and needs due to their specific geographies, business model etc.  These opportunities to share concerns can seem to be time-consuming, but they can be mines of valuable information.
• Automation: numerous TMSs and ERPs now offer interesting reporting functionalities, either directly integrated or via business intelligence (BI) tools. Automation is a significant advantage that will enable teams to focus more on interpreting and analysing figures than preparing and collating them.
• However, even with developed automation, some guidelines should be followed to attain accuracy and avoid the pitfalls of ‘garbage in, garbage out’ (GIGO) syndrome:
• Allowing entities to own their numbers: this will encourage them to have the correct information in the system(s), at the right time
• Comments and analysis: involving entities to be involved in analysis will lead to greater accuracy in global interpretation
• Giving feedback: generally, reports are prepared by decentralised/local entities and addressed to the central/group function. The main focus of central teams is to collect the information, on time and of first-pass quality. However, it is also important to give feedback to the information providers as to how this information was used and how it assisted decision-making. This should help to increase their engagement and enhance the quality of future reporting.

Implications of milestones

Corporate treasurers have a number of milestone decisions to make when aiming to build a first-class treasury, such system and bank selection

Taking system selection first, while it seems obvious that this decision will be made at a central level because it will be applied to all group entities, it is essential to engage teams at both local and central levels at an early stage of the project. Failure to do so could hinder the entire process.

The teams must be fully engaged with the documentation because while central teams will cover standardised processes, specifics will doubtless arise for local entities. And to be clear, no system can handle all specifics. Generally, one of main objectives of a system implementation is to standardise, so it is crucial to highlight those important differences, and engage in a transparent discussion as to on how they could be handled, in or outside the system.

This will help central teams to manage entities’ expectations, ensure complete alignment around the chosen system and guarantee a higher buy-in across the functions.

Regarding bank relationship management, the central team will be keen to have fewer bank counterparties across geographies where the group has its footprint, and the advantages are obvious:

• Economies of scale due to greater negotiation power commensurate with the size of the balance
• More control on local activities by having a direct contact with the bank and also being able to collaborate with local teams
• Cash management solutions that a global bank could offer in different locations, facilitation and standardisation of processes, plus centralisation tools such as cross-border cash pooling

However, it is important to bear in mind that a bank can rarely offer the perfect solution to central and local teams across a group with a global presence.

It is also vital to remain receptive to the challenges local teams may experience with their banks and to strive to find balance between global and local bank relationship management.

If central teams within both the business and the bank are taking the lead, they should seek the input from local teams. This is because if the bank’s team considers the central team’s focus to be more important than that of the local team, the focus on service could shift. As a result, the basics may not be addressed properly, especially if the local team is disengaged and frustrated at being ignored.

To avoid this conflict between central and local teams, empathy, communication and engagement are vital to the success of milestone projects.

Human interaction and knowledge-sharing

Virtual management is becoming increasingly popular within global corporations. Obviously, this trend has been dramatically highlighted as a result of the pandemic.

To ensure full engagement of teams at both levels, it is important to maintain permanent contact between them. This can be achieved by:

• Adhering to a regular catch-up, even if agendas are overbooked – and they usually are. Teams will be tempted to skip the catch-ups, believing they will be more productive if they focus on delivering instead. However, if managed well, those sessions will enable improved delivery for both central and decentralised teams
• Planning the agenda ahead and sharing it with participants so they can be prepared
• Ensuring two-way communication.  This is a golden opportunity for group teams to share strategic vision, clarify specific points, and request information, but it should be also an occasion to practice active listening, learn about local teams’ pain points, and receive their feedback on group initiatives. Equal time should be allocated to both talking and listening.
• Sharing knowledge. Central teams are generally better equipped in terms of information provider systems and have access to global research from financial institutions. It is vital to spread this knowledge to the local teams. This will mean they are being permanently updated and also will be a source of motivation
• Sharing best practices between central and local teams. Having a dedicated time to share initiatives means projects being executed at both levels will be sources of inspiration to others and also a way to reward the teams involved

Finally, it is important to remember that beyond figures and data, treasury is being managed by people and it is clearly important to sustain their engagement through sharing, explaining, exercising empathy and building trust. When the engagement is there, with the right people and skills in the right places, performance will naturally follow.