“If you’re not a risk taker, then you should get the hell out of business.” is one of many inspirational lines from Ray Kroc, the man behind the McDonald’s franchise model we all know today.
Yet as poignant as these words may have been back in the Fifties, it is hard to fathom how this former milkshake salesman’s roll-of-the-dice decision-making would fit into the global behemoth that is McDonald’s today. After all, for any firm currently operating in the global food and beverage industry, it isn’t so much about taking greater risk, more about finding smarter ways to manage it.
Take the very thing that enabled Kroc to franchise the McDonald’s name and bag his first restaurant – cash flow. Kroc had to raise US$50,000 from cash flow in his existing milkshake business; which is a mere drop in the ocean when you consider the endless accounting audits, ongoing fees and working capital involved in setting up a modern-day franchise. These costs would pale into insignificance if Kroc was heading up McDonald’s now, as far greater cash flow challenges would lie ahead.
For any c-level exec equivalent to Kroc working for a major food and beverage conglomerate, a highly volatile global macro and geopolitical climate is putting a huge strain on annual capital allocation. Understanding how much cash is at risk is a perennial concern of any firm, and numerous situations could hit the balance sheet at any given time.
For example, any US restaurant chain heavily exposed to commodities may be trying to forecast how much costs they can pass to end customers amid rising food prices. At the same time, if – say – more than half of their sales are international, it may be looking at its hedging strategies to determine the bottom line impact of future rises in interest and foreign exchange (FX) rates. After all, currency risk can be embedded into a physical commodity risk, exposing the balance sheet at any point.
The trouble is that too many corporates simply cannot access the right information from their group treasury and procurement teams to make informed decisions about how best to manage these scenarios. Throwing money at the latest tech is fine, but this doesn’t solve the key issue that the Kroc’s of today face – getting the right level of insight to appease shareholder concerns.
Brash and buccaneering risk takers certainly have their place in the corporate world, as well as the big screen. However, daily currency and commodity market price swings mean execs need to be more focused than ever on the less Hollywood task of managing risk, which has never been more complicated.
This is why, to ensure cash flow is managed efficiently under any scenario, c-level execs need to have full visibility across treasury and procurement teams. Without this insight, boardrooms put their company’s value and reputation at risk. With increasing shareholder pressure to reduce costs and provide value, it may just take a 21st century version of Kroc to convince the rest of the boardroom that having a complete view of risk exposure is the best way to forecast the capital that needs to be allocated during times of stress.
After all, as the “founder” once put it, “the quality of a leader is reflected in the standards they set for themselves.”
When it comes to the relationship between Europe and Britain – uniformity isn’t a word that currently springs to mind. And that’s not just a reference to Brexit. Whilst the Europe and Britain do find themselves in the midst of a political break-up – their monetary policies are also showing signs of divergence.
Europe’s introduction of the General Data Protection Regulation (GDPR) next May will have implications for businesses around the world and US corporates should start getting ready if they haven’t already done so.
The recent NotPetya cyberattack underlined the need for organisations to address their exposure and how to mitigate the risk.
As anticipated, US organisations exited prime money market funds en masse following last year’s SEC reforms. AFP’s latest Liquidity Survey indicates what it will take to encourage them back.