The changing role of treasury

Once a sleepy backwater of the finance function, corporate treasury was charged with managing an organisation’s cash and funding requirements and pretty much left to get on with it. But all that changed with the financial crisis in 2008.

As liquidity dried up, business leaders needed to know if their plans could be financed and, if not, how to manage expectations. Since then, the demands on corporate treasurers have steadily increased.

The changing role of treasurers has been closely followed by the Association of Corporate Treasurers (ACT) in its annual report, The Business of Treasury.

It won’t come as any surprise that the primary expectation of a corporate treasurer is outlined in this report as being “proficient in running and delivering an effective and efficient treasury operation”. Yet, while core competencies of operations, funding and cash management remain crucially important, within some businesses these are now simply baseline expectations. Treasurers need a broader palette of skills if they are to achieve everything demanded of them.

Across the ACT’s worldwide membership, capital and liquidity management takes up the greatest amount of a treasurer’s time at 29%. This is followed by treasury operations and controls at 25% – taking the most time in the EU and APAC regions.

Other tasks taking up a treasurer’s time are risk management (15%), corporate finance (11%) and business strategy (7%).

It might be argued that by expecting more from corporate treasury, organisations are simply acknowledging the expertise they have within their team. But this has a downside.

Demand for specialist insight into additional areas of the business means a treasurer’s focus is being split and other responsibilities are getting on top of them. This includes risk management, technology and volatility – whether that involves Brexit or other geopolitical or financial disruptors.

Though these additional tasks may seem relatively minor compared to the demands of the day job, the ACT report shows they are becoming increasingly onerous. The only task to have receded in the past year is pension management.

Risk management, business strategy, corporate finance, communication and relationship management have increased considerably, stretching the treasury function very thin across the organisation.

Despite being expected to make a more strategic contribution to the business as a whole, corporate treasurers must continue to source adequate liquidity and funding in order to finance the organisation’s plans.

This used to be as simple as approaching the bank, asking for a loan and agreeing terms. While bank finance remains the primary source of funding, innovative new ways of raising cash are becoming more common.

Liquidity dried up very quickly during the last financial crisis. Businesses with banking relationships dating back more than a century found they couldn’t even get short-term credit to buy inventory to satisfy existing orders.

So treasurers needed new and flexible ways to access the financial markets, for example considering equity and debt capital markets to raise funding.

Uncertainty is currently the greatest concern. The financial markets are experiencing volatility as a result of short-, medium- and long-term influences, which may be characterised by – but not limited to – Brexit, the US trade war with China and what this means for the global economy, and the cyclical nature of all economies.

The burden of regulation has taken its toll since the last financial crisis, increasing the requirement for management information and reporting.

The European Market Infrastructure Regulation (EMIR) on derivatives, central counter parties and trade repositories, and the impact of new payment practices such as confirmation of payee and reporting across a range of business areas, places a strain on existing reporting structures.

Keeping abreast of the data is increasingly difficult if you do not have an integrated enterprise system. Even if you do, it may not provide the information you need.

As systems become software as a service (SaaS) and move into the cloud, treasurers are being asked to not only find the funding for the transition, but understand and explain the risks to the board.

Many treasurers find their efforts frustrated by a lack of implementation and technology workarounds. Too many businesses will aggregate data across Excel sheets gleaned from accounts and other information platforms as part of a culture of keeping things close to hand, ie, on specific local machines, against all the security and business continuity protocols. This does nothing to reduce risk and simply makes a treasurer’s job more difficult.

Managing cash flows under complex financial arrangements across multiple international sites demands accuracy and processes that are as frictionless as possible if financial risks are to be controlled and mitigated.

Treasurers are no longer simply reliant on their own systems to manage this, however, but can now access third-party data from a number of sources.

“The banks are providing their clients with application programme interfaces so they can connect directly to the bank’s own systems, allowing real-time analysis of their financial positions and activity with the banks,” says Dan Barnes, a finance and technology journalist.

Banks are also providing data as a service. This used to be information used by the banks to help them understand their customers. Now they offer it to help their clients build analytics based on their activity with their financial services partners.

“That’s a very useful service to treasurers,” adds Barnes. “Because they can build much more quantifiable structured models of the relationships they have with their banks.”

In addition to corporate banks, there are many businesses offering new data reporting technologies and payments services that simply were not available to treasurers in the past.

Ultimately, treasurers are being asked to step up to a more strategic, board-supporting role and generally do more with less.

“Human and capital investment has really shrunk over the past few years, while there has been a move to make the corporate treasurer’s role more strategic,” says Naresh Aggarwal, associate director, policy and technical, at the ACT.

With fewer resources and less time to manage treasury processes directly, treasurers have been forced to change the way they work, says Aggarwal.

“Being involved in strategic developments at board level is good, but it is time consuming. Being more strategic means it has become critical for treasurers to develop soft skills around managing teams, meetings and time,” he explains.

Being developed into a more effective manager can only be positive for an individual’s future career. But it should be remembered that treasurers are often very process-driven and may find the transition to a strategic role more difficult than some, unless offered the appropriate support (see The treasurers’ view).

Treasurers will be involved in a considerable amount of additional activities in the coming year, with Brexit being the immediate focus. If it should bring a slowdown in activity, this will undoubtedly have an impact on working capital. Not only should treasurers ensure they have a coherent and proportionate Brexit plan in place, they must also have lending lines secured, says the ACT’s Aggarwal.

All agreements should be analysed and a Libor plan prepared if it might affect their business. It is not only loans that have Libor clauses, but many commercial agreements have penalties that could be as high as 6% or more. Now is the time to make sure these are all identified.

In the longer term, it is environmental, social and governance (ESG) matters that are likely to present the most risk to businesses. Though some treasurers see the reporting requirements as manageable, they may become more onerous – and regulated – if levels of compliance remain low.

But it is ESG that is dragging treasurers into the communications arena, and just one of the reasons many anticipate the role of treasurer having a seat on the board in the near future.

“Treasurers can understand the impact of certain matters on the organisation’s ability to raise finance,” says Aggarwal.

Payments processes and regulatory compliance may appear more obvious business disruptors, he adds, but the corporate treasurer will find they have the opportunity to present a more nuanced position that ultimately still benefits the business.

“Promoting gender diversity, for example, may allow the business to borrow for 10 basis points less,” says Aggarwal. “That has a value the treasurer can articulate to the board in terms they will understand.”

We spoke to a number of treasurers about how their roles have changed in recent years. One treasurer working in financial services said the biggest change has been becoming more involved with the board.

“We are now much more involved with the CFO and talking with the board about overall exposure risk and what can be done to alleviate that risk,” he says.

Soft skills are also important for the transition to be successful, said another.

“This can be a difficult transition for those who are more process orientated, because they’ve been dragged from their quiet offices, doing their own thing, to take on a broad range of business areas and are expected to come up with novel ways of dealing with the challenges,” she explains.

Another treasurer outlined the board’s expectations of finding new ways of managing the core elements of treasury.

“Once it would be just about taking a loan or adding some additional stock, but now it’s become much more of a creative conversation about how we achieve these objectives.

“Once the loan document has been signed, treasurers are much more involved with other discussions. In the past five years this has moved to cover insurance risks, then overall operational risk and also counter party risks.”

This evolution is expected to continue: “The role will continue to move away from transactional processes towards more overall corporate governance. You will be expected to make sure the organisation is the right fit for what it needs to do, that it has the liquidity to do it, and that the right structures are in place to make it run properly.”

• The changing role of treasury
  Business & Management Magazine, Issue 279, November 2019

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