This year the Association of Financial Professionals’ (AFP’s) Annual Conference was held in the US city that is home to A-list celebrities and Hollywood – Los Angeles. Against the backdrop of the current economic downturn and the impending US elections, AFP members and exhibitors convened to discuss current treasury trends and how corporate treasurers can most effectively deal with the ongoing impact of the credit crunch.
Slam-dunk for Basketball Hero and Business Entrepreneur
“The economic landscape is shifting and the role of treasury has never been as important,” affirmed Loren Starr, the outgoing chairman of the AFP, in his speech at the opening general session. “As a result, the AFP Annual Conference has never been as critical to its members in helping them to better weather the current environment.”
Starr went on to introduce the AFP’s guest keynote speaker, Earvin ‘Magic’ Johnson, a basketball legend who has also made his fortune as a business guru managing his own brand, Magic Johnson Enterprise, which focuses on meeting the needs of America’s urban community. He spoke about his experience as an entrepreneur and the business lessons he has learnt in an inspiring and energetic presentation that truly engaged the audience.
A point he repeatedly made was that of understanding your customer base and what they really want. Among his many ventures, he referred to his experience of buying and opening 119 Starbuck franchises in urban America and how he tailored the stores to meet the needs of the customers including food – replacing scones with pumpkin pie – and music – transforming what he called ‘elevator music’ into Earth, Wind and Fire. According to Johnson, the urban/minority consumer has US$2 trillion spending power, which is currently an untapped market. “My business philosophy is to meet demand not create it,” he said.
He admitted that the current market had affected his in-store traffic flow but, overall, his message was a positive and uplifting one, encouraging the audience to ride the current downturn and stay focused. “Even now, you have to over-deliver to your customers and to your bosses,” he said. “Winners win no matter what and while every business has to make adjustments to deal with the current climate, we all need to meet the challenge head on. What will be a real sign of success is who will be standing when the market comes back.”
A Day in the Life of the Treasurer During the Credit Crunch
The credit crunch and its impact on treasury was an obvious talking point at the conference. Many of the practitioners that gtnews spoke to admitted they were feeling nervous right now and said it was difficult to resist consistently checking their Blackberries for the latest news, as the markets were changing so dramatically and quickly. In the last two weeks alone, the US Federal Reserve approved the takeover of US bank, Wachovia, and its subsidiaries by Wells Fargo, while South Korea announced a US$130bn financial rescue package to stabilise its markets, and the chairman of the French savings bank, Caisse d’Epargne, resigned following the announcement that the bank had made losses of €600m. (Stay up-to-date with all the latest news around the credit crunch in the gtnews timeline here: The Credit Crisis Timeline.)
In LA, the AFP surveyed attendees on the current state of the short-term credit market. The survey generated 1,060 responses from respondents who were senior finance and treasury executives from a broad range of companies with annual revenues over US$500m. When asked about access to credit, two-thirds said they had already taken defensive action, such as reducing capital spending (37%) or freezing/reducing hiring (26%). When asked what they would do if the troubled economy did not abate, 61% said they would further reduce capital spending, over one quarter would consider redundancy and 27% said they would reduce their inventory level.
The respondents agreed that the US government’s action over the past three weeks has stabilised the credit markets. Over 1,000 respondents indicated that various government actions, including the US Treasury plan to purchase an equity stake in key financial institutions and guarantee money market funds (MMFs), along with the Federal Reserve’s plan to purchase commercial paper, has improved the outlook for credit availability. The respondents also overwhelmingly indicated (97%) that they think the US economy is in recession. One third (34%) believe that the recent turmoil in the credit markets precipitated the recession, while nearly two-thirds (63%) believe that the US was already in recession prior to September’s events, such as the collapse of Lehman Brothers. (Read more about the survey results here:
The two corporate panelists in the conference session, ‘A Day in the Life of the Treasurer During the Credit Crunch‘, outlined how their day-to-day operations had changed in recent months and offered their advice to peers.
Brenda Szymanowksi, CTP and treasurer at Asten Johnson, said that it was absolutely imperative that her company was more careful with its cash right now and that it had a committed syndicated credit facility in place. “All companies should know the ins and outs of their credit facilities, including all covenants and salient terms,” she said. Another corporate panelist, Linda Davis, VP and treasurer at ScanSource, said that the time she spent talking to her banking partners had substantially increased and that right now the focus was on liquidity management and customer retention.
One issue that was raised at the session was the diminished trust in the credit rating agencies. One attendee asked how they could trust the credit ratings agency’s ratings on financial institutions in light of recent events when banks that were deemed to have a strong portfolio and robust capital didn’t in reality and consequently collapsed or were taken over. The panelists didn’t have a comprehensive answer to this question but did reiterate the importance of gaining objective information about the institutions you work with.
The rating agencies are, quite rightly, under close scrutiny right now. For instance, in Europe, draft legislation has been proposed to regulate the agencies – a huge leap from the current environment where there is a non-binding code of conduct. (Read more about this issue in the gtnews article:
Optimising Treasury Career Prospects
Career progression was another key theme at the conference. The session, ‘Optimising Career Prospects: The Role of Treasury‘, was moderated by Mike Hewitt, CEO of gtnews, who highlighted the results of a recent gtnews survey that considered treasurers’ and recruiters’ perceptions of the job market and career prospects. Despite the economic downturn, a positive statistic was that 36% of the survey respondents said that they would look to grow their treasury team by up to 9% while 23% said that they would extend the team by 10% or more.
When asked who they were looking for, 46% of the respondents with recruitment responsibility said treasury analysts, 31% said treasury manager and 8% said they were looking for an unspecified role within cash management. The majority of the recruiters (67%) also said that they expected the treasury market to grow by more than 10% over the next two years.
In response to the question: how long do you expect to stay in your role?, 36% of the respondents said less than one year while 51% said between two and four years. Interestingly, 38% of the respondents said they would be willing to re-locate within their own country, 21% said within their region and 41% said they would be willing to move anywhere for the right job. (You can view the full results of this survey here:
Global Treasury Recruitment Survey 2008)
The session clearly highlighted the fact that the treasury profession is likely to grow rather than contract as well as the fact that treasurers, more than ever, are thinking globally in terms of their career path. But what about the day-to-day role of treasury – what are the key trends right now?
“How to market ourselves properly and effectively is one of the key problems for treasury,” said Michael Connolly, group treasurer at Tiffany’s, a panelist at the session and a gtnews editorial board member. In order to align itself with the rest of the company, Connolly advised treasurers to get a true understanding of the business by questioning the business units on a regular basis. “Treasurers also need to have a strong accounting foundation as well as knowledge of all internal business processes,” he said. “It also helps to be familiar with tax issues and financial planning, such as business unit capital structuring.”
Treasury’s relationship with accounting was explored in more detail in the session, ‘Accounting Essentials for Treasury Professionals’ where David O’Brien, a treasury consultant and past chairman of the AFP, highlighted some important points. “Accounting is the language of finance. Learn the language to increase professional expertise and value because it is a part of the decision-making process,” he said. “Because certain treasury functions are all about accounting, it is impossible for treasurers to manage without understanding concepts such as cash flow hedging (FAS 133). The treasury perspective is critical to the proper accounting treatment of certain treasury activities.”
While he acknowledged that treasury would never take the lead on accounting necessarily, he underlined the fact that collaboration was needed. “Treasury needs to understand accounting practices in order to advise on it,” he affirmed.
Craig Busch, group treasurer at Worley Parsons, was another panelist at the session on career prospects, as well as a gtnews editorial board member. He began his presentation by outlining the fact that because his company is based in Australia, he faced some difficult challenges right now, as the Australian dollar has been the third hardest hit currency as a result of the credit crunch. For him, bank relationships, liquidity management and low-cost credit are all day-to-day priorities. “It is vital that treasury gets its infrastructure right in terms of systems, policies and drivers,” he said. “All treasurers need to ask whether their business can meet the challenges it faces right now and stress-testing all policies is a must. Begin with the end in mind and question everything you do on a daily business.”
He also advised treasurers to utilise benchmarking factors to compare their operations and processes with their peers. In fact, at the conference, the AFP released the results of its 2008 Benchmarking Programme and key results included the following:
- 62% of respondents said they have a centralised treasury although IT costs are higher in centralised operations.
- 76% of treasurers report to their CFO.
- 67% still use spreadsheets or manual processes.
- The top three treasury responsibilities were found to be: bank relationship management (98%); cash flow forecasting (90%) and short-term investment management (87%).
(gtnews will be publishing an article based on the survey results in November.)
At the end of the career progression session, the audience was asked to put their questions to the panel and some interesting points were raised. One audience member asked whether the panel though the CTP qualification was important. Connolly affirmed that it was an “extremely valuable tool”, which provided a significant body of knowledge.
Another attendee at the gtnews session asked the corporate panelists whether the credit crunch had unveiled any shortcomings within their own organisations. Both panelists, Busch at Worley Parsons and Connolly at Tiffany’s, agreed that the credit crunch had underlined the importance of visibility over cash. Both practitioners pointed to the challenge of gaining access to data and receiving what they needed from subsidiaries in a timely way. One of the methods that Busch said his company used to ensure treasury received the right information for cash flow forecasting is a ‘name & shame’ policy within the company’s regional and global dashboards.
The final question from the audience was a topical one. An attendee asked what the prospects were for ex-bankers to become treasurers in the current climate, as redundancies continue to sweep through the banking industry with ongoing consolidation. Busch and Connolly agreed that this was a feasible career move but that training was required. “I was a banker for 15 years before I moved into treasury,” said Busch. “I had to up-skill and complete a Master’s to enter the treasury profession and I think joining local corporate treasury associations and networking is also important in order to gain an understanding of the job.”
Engaging with the rest of the organisation and networking were common themes in all of the career sessions at the AFP Conference this year. “Communication is key – you need to be able to sell your ideas to your boss and the board. It needs to be well-written and concise,” said Laurie Mitchell Sherwood, CTP, vice president, corporate development and treasurer for Atmos Energy Corporation in the session, ‘Career Advancement in Treasury’. She added: “Don’t be afraid of challenges – we have all taken risks. I took on a procurement role when I only knew about 10% of what I needed to know.”
In the same session, Kathleen Bender, CTP, compliance director at Prudential International Insurance, said: “Every move, every career advancement is from talking to people – so networking – and not saying ‘no’ right off the bat.”
Read the latest gtnews articles about career progression and advice moving forward here: Extended Careers and the Later-Career Phase: Winners in the Second Half, Career Opportunities for Corporate Treasurers in Asia, How to Further Your Career in Treasury, Self-employed CFOs: Offering Part-time Service Leads to New Careers.
Challenges Facing Mid-market Corporates versus Large Corporates
A prevalent trend within the industry has been the rise of the mid-market corporate who now seeks the same advanced treasury management services typically associated with large corporates. This has led to an increased interest from banks of all sizes in the mid-market segment, and initiatives and solutions being developed with this particular corporate category in mind. At the session, ‘Implementing Best Practices in International Treasury Management for Mid-market and Large Corporates’, Mary Fetch, VP and treasurer at Multi-color Corp, outlined her needs as a mid-cap corporate as well as providing some pearls of wisdom to her peer group.
“Our treasury is a four-person team focusing on risk management, financial planning, capital structure and banking relationships. The company has an excel-based treasury management system and we don’t have any shared service centres,” she explained. “One thing that I have learnt working for a mid-cap company is that as treasurer you have to be diplomatic and work with other departments, such as accounting and operations, in order to get your job done.”
As a mid-market company, she also highlighted the fact that she was cost conscious but that this shouldn’t be to the detriment of treasury operations. She said it was always important to have bank partners, tax experts and lawyers involved in business decisions even if that meant including them all on the same call despite the cost. Fetch also made the point that while bank partners might delegate their mid-market team to work with mid-cap corporates, they might not necessarily have an international focus. “You might actually need the assistance of your bank partner’s large corporate team,” she said. “Just because you might be a small organisation doesn’t mean you can’t ask for the best people.”
She also suggested that banks could be a better source of information than tax experts and lawyers in certain cases, such as setting up a new entity in Europe, often providing more efficient and practical advice at a lower cost. “Always keep your communication channels open,” she affirmed.
In terms of payment and collection vehicles, Fetch acknowledged that it was impossible to get away from having some local bank accounts because of the local instruments used in countries. “We can’t support the cost of sophisticated solutions for netting and pooling so we rely on the expertise and solutions provided by our banks in the region,” she said.
The mid-market corporate is moving out from the shadows of its larger counterpart and demanding the same sophistication and efficiency in terms of tools and partners. For financial institutions, this is a lucrative opportunity but one that requires adaptation in order to meet the needs of the client. Read the gtnews article,
to delve deeper into this subject.
We cannot get away from the fact that the industry is experiencing an unprecedented economic downturn that is being felt across the global financial markets. In the gtnews AFP conference report last year, we wondered whether the sub-prime mortgage crisis would be “a dim though painful memory” by the time we landed in LA for this year’s conference. Unfortunately, the crisis is by no means a distant memory but instead a prescient and significant challenge for corporates, banks and policy-makers.
A positive message that was reiterated by many of the speakers at the AFP conference was that this was the time for treasurers to step up and demonstrate their value and significant role within their organisations. In order to do so, all treasurers need to market themselves effectively to the rest of the company so that everyone really understands what it is that treasury does and, second, treasurers need to engage with stakeholders and interact with the rest of the business in order to be able to perform their own tasks and responsibilities effectively.
It is the treasurer who has visibility over all cash flows, access to funds, makes investment decisions and who often owns the relationship with bank partners. By embracing these responsibilities and taking a proactive approach to day-to-day challenges, no one within the organisation will be in a better position than the treasurer to navigate the current economic downturn.
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