Expanding the Strategic Role of Treasury

Over recent years economic conditions have challenged the way that many companies operate and the roles of those sitting around the boardroom table. For treasurers, it has resulted in a broadening of their responsibilities as they have grown to become strategic advisers within the business. The insight that treasurers are now uniquely positioned to share with their chief financial officers (CFOs) means that this trend is set to become a permanent state of affairs, creating significant opportunities for treasurers to add increasing value to their organisations.

The traditional roles of the treasurer, which includes ensuring a business makes optimum use of its cash and manages financial risk effectively, still exists. Businesses continue to need effective cash flow forecasting and productive relationships with their banks. However, areas which have always been the preserve of the corporate treasurer are more sharply in focus in the current climate. Assessing a bank’s strength as a counterparty, for example, takes on new significance as credit ratings are revised and scrutinised more closely.

Four New Strategic Roles

Meanwhile, the scope of the treasurer’s role is also changing. Their traditional responsibilities have increased in importance, while advancements in technology mean many processes have been automated. This frees up time for the treasurer to add value by providing unique insight to the business and, in particular, to the CFO. This increased automation combined with the requirement for a closer management of risk, driven by economic conditions and increased globalisation, is creating a new strategic role.

Merger and acquisition (M&A) activity, entering new markets, supply chain management and raising awareness of potential legal and regulatory risk are four key areas that the new strategic treasury role is increasingly encompassing. At the heart of each of these are rigorous risk assessments that require an understanding of an ever-changing world.

For an organisation planning M&A activity, such as the acquisition of an international business to support global growth, treasurers are well placed to understand the value that can be derived before making a financially sensitive decision. By reviewing a company’s cash position, treasurers can advise on whether a business is making a suitable and calculated risk in acquiring another organisation. Equally if a business is making a divestment, efficiently reorganising corporate liquidity is essential to a smooth transition.

Businesses that have focused on the developed markets of the West have seen their trading environment remain uncertain in the past five years. We are seeing these businesses increasingly look to the faster growing economies to realise growth in new markets. While business leaders focus on the overall opportunity, entering new markets with a clear picture of this new environment is critical.

Adding Value

When venturing into the unknown, treasurers can add real value by raising awareness of different payment conditions, laws and regulations. It’s all well and good recognising the need for a product in a new country but without the ability to manage currency and foreign exchange (FX) issues, or to understand the infrastructure required to make or receive payments in a new market, expansion plans won’t easily get off the ground.

Maintaining a robust supply chain is another new challenge where the treasurer can add value, particularly during a time of economic uncertainty. One aspect of the treasurer’s role is to work with their business units to consult on the optimal currency for contracts, for example, whether they should use the renminbi (RMB) or US dollar (USD), as well as help in ensuring that their supply chain is sustainable. Providing contact for a supplier that is struggling with payment terms but whose products are integral to the business, and then working to provide supplier finance and creating liquidity – these are the things that keeps the full supply chain delivering.

All of these expand a treasurer’s understanding of, and input into, the wider business. But it is by assessing what is happening in the wider world and applying the findings internally that makes the treasurer a true partner to the CFO. From scenario planning for sovereign risk issues – for example the impact of potential changes in the eurozone – to understanding new regulatory changes, from International Financial Reporting Standards (IFRS) accounting changes to the introduction of the single euro payments area (SEPA), treasurers’ understanding of major events in the external environment and the implications for business becomes increasingly relevant.

Given the increasingly consultative nature of the role, treasurers need to hone new skills, enabling them to work ever more effectively with a multitude of stakeholders including board members, supply chain managers and procurement teams, to name but a few. Additionally, building an external group of advisers, such as trusted banks, who can help share and grow knowledge and build solutions will be key to success.

Ultimately, the past five years may have meant some bad news for businesses but for treasurers real opportunities have emerged. The new landscape has the potential to elevate the treasurer to a new standing in a business, where they are recognised as a key player in the growth strategy and adviser in fundamental decisions affecting organisations’ success.



Related reading