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The Corporate Treasurer’s Changing Role How the role has evolved since the 2007-09 Global Financial Crisis Written by Kantox Finance Insights Manager Timothy Woods, and CFO Laurent Descout  Share this guide

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While the role of CFO has evolved since the Global Financial Crisis to that of change agent, strategic business partner, and executive partner to the CEO, the role of treasurer has also undergone profound changes. As risk in the corporate sector has heightened sharply since the financial meltdown, as companies are forced to look beyond banks for financing, as the capital and FX markets are inherently more volatile and as liquidity becomes a greater challenge, corporate treasuries have naturally been given more responsibility. The treasurer has seen their role take on new dimensions beyond merely administrative roles to include new strategic demands. Not only have their traditional roles been elevated yet more in importance, but they have also had to adapt in order to include the need to communicate effectively with stakeholders from within and outside the organisation, take on a new strategic role, often involved in top-level meetings, and embrace the need for new technologies in their role. In this paper, we look at the traditional roles of the treasurer from before the 2007-09 crisis and how the role has changed since, and finishing up with what can be expected for the role in future.

 

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The traditional treasurer roles

Treasurers have traditionally been in charge with managing the following main duties. Each organisation is different however, and may include others.

1. Cash and liquidity management The treasury is charged with forecasting the financial needs of the company. This involves short-term management of cash and liquidity and a thorough level of expertise regarding working capital management. In order to pay the company’s bills, fund business ventures and also in case of a sudden need for cash a treasurer always seeks to free up as much cash as possible for the business in order to avoid the need to borrow capital. A treasurer who consistently ensures liquidity is optimum carries out a crucial role for companies, as it avoids, or at least reduces the incurrence of debt through borrowing and contributing to the efficiency of its processes through making necessary cash available, ultimately improving the business’s bottom line. 2. Financial risk management This involves an analysis of possible risk exposure across the entire business, deciding what risks are worth taking after considering returns and necessity, and mitigation techniques to hedge the risk. As risk manager, the treasurer must attempt to anticipate where risk could come from (which of course involves meticulous analysis and calculation), put in place means to absorb any financial blows in the worst case scenario, and manage an effective risk hedging strategy. Foreign exchange for instance, represents an area of the business where risk is par for the course and must be managed effectively. This year Hornby, the model train maker posted losses of 1.2 million pounds due to fluctuations in the foreign exchange market. Such volatility can make or break a company’s profit margins, and it is up to treasurer to effectively hedge against. 3. Capital markets and funding management This involves how a business funds its operations. It typically comes in the form of bank and capital market debt. The treasurer must devise a plan to optimise the terms and conditions of the capital and debt involved. This may

 

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include negotiations on bank financing (loan or overdraft), venture capital investment and bond issues. 4. Corporate financial management Corporate financial management is concerned with balancing the business and the financial needs of a company and ensuring that the cost of capital is kept to a minimum. The treasurer is required to assess how best the company should raise required funds and to exploit the company’s assets to minimise costs, among other duties to do with corporate financial management.

The new treasurer The changes to the role of the chief financial officer (CFO, or financial director [FD]) in recent years are held up as an example of the changing role of financial departments as a whole in the corporate sector. However, just as the role of CFO has changed so profoundly, the treasurer has also had to adapt to more diversity in their role, greater responsibility, and generally, more expectations at a senior management level. One of the most important roles of the treasurer has and continues to be that of risk manager. Particularly since the 2007-09 Global Financial Crisis the threat of risk has heightened sharply for the corporate sector.

The 2014 AFP Strategic Role of Treasury Survey, which highlights the differences between the “old” and the “new” treasurer, demonstrating the continual evolution of the role:

 

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A shift from focus on earnings to liquidity and an increased need for prudent financial risk management is the legacy that the Global Financial Crisis left for the treasurer, which has had a far-reaching impact on the role. In a more volatile, uncertain business landscape, organisations are acutely aware of the priority need of ensuring that they remain sufficiently liquid and that exposure to risk is contained. In such an environment, the importance of the financial decisions a company makes is even more crucial. Therefore, the role of treasurer has naturally been elevated in terms of stature and importance. This comes in the form of a need to earmark methods other than bank financing for cash, due to a continued lack of bank credit for corporates and the risk that adherence to the wave of new regulation in the corporate sector may drain resources and focus from other areas of the business. Additionally, a pervasive insecurity regarding the safety of bank deposits in light of the global meltdown is apparent.

Left, the AFP survey demonstrates how far the treasury’s role in the corporation has evolved. 83% of respondents think that its role will expand even further in the next five years, suggesting that the role of the treasurer is in the midst of an evolution flux.

“In a more volatile, uncertain business landscape, organisations are acutely aware of the priority need of ensuring that they remain sufficiently liquid and that exposure to risk is contained”  

 

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This is exacerbated further by sluggish economic recovery and growth in the west, as well as increased international competition, from the BRICS nations in particular and not least, the threat posed by failing to keep up with advances in technology, which increasingly represent a means to a competitive edge. And so, the sharp rise in the importance of managing risk effectively, more so than ever before, has thrust the treasurer to the forefront of corporate strategy.

Image: Advances in the role of treasurer

Roles of the modern-day treasurer The same five roles listed above are of course continued to this day by the treasury, though the key difference now is that the added intricacies to the roles and the increased responsibilities given to the treasury mean that the modern-day treasurer is more integral to their company than ever before. Added to these roles, today’s treasurer is also expected to be a key strategist, often sitting in on executive level meetings and advising the CEO directly. An evolving and more complex financial sector means the knowhow on the part of treasurer must be greater than it was. Moreover, increased competition and new challenges from globalisation and e-commerce mean more, and often, new, financial demands, and thus the treasurer has a key role in this side of business strategy.

Left, contrasting the role of the treasurer before and after the 2008 financial crisis. Today the treasurer is seen as a strategist, a communicator and advisor, with a much more detailed skillset as fundamental to the success of the role.

 

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Technological advances pertinent to the role of treasurer seemingly come with more frequency every year, including treasury management systems, payment tracking systems and FX management systems. The Global Financial Crisis demonstrated the need for vastly improved treasury management systems, where now treasurers must ensure they are adequately equipped with the right technology to assist in analysing their cash position, current and projected risk exposure and to provide timely, accurate and up-to-date information and data. They must also manage stakeholder relations, including credit rating agencies, banks, the board, investors and other departments within the organisation. The role now demands a diverse skillset that was not so necessary before. The treasurer has evolved, in effect, from a purely administrative function to incorporating a strategic dimension in all aspects of their role. Changes to risk management Corporations are focused on minimising their financial risk across the board, with a particular focus on foreign exchange exposure, interest rates and liquidity. Moreover, financial decision-makers are becoming savvier with regard to shopping around for better terms on a host of financial services and products. The risk to liquidity is paramount to the corporate sector, as so many companies now have to operate on the assumption that they can no longer rely on bank financing, as banks continue to direct their investments in government bonds at the corporate sector’s expense. Companies are becoming more wary of the need to maintain a cash reserve to offset any potential tricky financial situations, as bank financing can no longer be relied upon as it may have been prior to 2007. The main risks facing the modern-day treasurer:

• Capital market and FX market volatility, which require from the treasurer an analysis and mitigation strategy formulation to effectively hedge against such risk.

“They must also manage shareholder relations, including credit rating agencies, banks, the board, investors and other departments within the organisation"  

 

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• The threat that current and prospective regulation could have a seriously detrimental effect on liquidity. Regulation adherence takes time, resources and capital. For a company to implement regulatory procedures without adversely affecting the core business, the treasurer must ensure that there are adequate measures in place to protect their company, such as a cash surplus.

• Threats to liquidity in a post-financial environment with little to no reliance on credit from the banking sector.

Senior strategist As the treasurer is charged with managing cash and keeping their firms liquidity levels optimum, reducing debt levels and keeping risk in check, they now often command a place in senior management, report to the CFO and may even sit in on board meetings. The negative effects on a company’s cash of a volatile FX market or of expanding into the wrong market has the potential to be devastating. For this reason, the strategic importance of the treasurer’s role now is critical to how the CFO and the board make their decisions, to reducing risk and costs, and to boosting the company’s bottom line.

The future of the treasurer

The future success of companies will be increasingly dependent on technology. Treasury departments in particular must leverage technological advances to meet the demands of their business. As the business landscape changes seemingly at rocket speed, and the finance sector still very much at the beginning of what is seen as a sector-wide period of change and disruption, treasury departments cannot ignore technology if they hope to survive and flourish in a future that will surely throw up many unexpected developments. In particular, treasurers should consider technological systems, including those designed for automated risk management, centralised control and information processing.

“Treasurers should consider technological systems, including those designed for automated risk management, centralised control and information processing”  

“The strategic importance of the treasurer's role now is critical to how the CFO and the board make their decisions, to reducing costs, and to boosting the company's bottom line”  

 

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Additionally straight-through processing could significantly improve efficiency, reduce operational costs and hedge against trade settlement risk. Lastly, a leveraging of the Internet is crucial. For instance, the technological innovation in FX management or investment management is more often available through online platforms. As the role has evolved, treasurers not only need an increased array of skills with regard to managing treasury systems and typical treasury functions, but also are now needed to fulfil an advisory role, to the CFO and increasingly to the board. They must also maintain good relations with a variety of outside parties, including consultants, banks and auditors. Internally the treasurer may also liaise with figures from a multitude of departments from within their company and they increasingly need to be able to “sell” their company, to bankers and investors for instance. Negotiation, presentation and communication skills are now integral and indispensable for a successful treasurer. With expansive change occurring in the finance sector and in international business, the treasurer must step up to the challenges of what the role entails and be ready for future developments, which will surely continue to have a sizeable impact on their role, as the finance department in general continues its increasingly expansive role within the corporation.

 

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“With expansive change in the finance sector and in international business, the treasurer must step up the challenges of what the role entails and be ready for future developments”  

 

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