The Strategic Treasurer

A Partnership for Corporate Growth

Craig A. Jeffery

• Publisher: Wiley
• Year: 2009
• Print ISBN: 9780470407776
• eBook ISBN: 9780470508053
• Edition: 1
• Topic: Business
• Subtopic: Managerial Accounting
• Index: Business

The current period of market and governmental turbulence is the most challenging—yet rewarding—time to be a treasurer. Now, as perhaps never before, the treasurer's visions, skills, and worth will be tested and proven. A useful reference, The Strategic Treasurer: A Partnership for Corporate Growth systematically equips today's corporate treasurers to move from merely being the liquidity manager to becoming a strategic driver and steward of corporate value as well as an equal partner with senior management.

CHAPTER 1

Building the Case for Being a Strategic Treasurer

A successful Treasurer must not only manage traditional funding and relationship activities, but also must possess an integrated and strategic view of the organization and broadly manage risk, add value by effectively partnering with key business players, and manage complex technologies and relationships. To do less jeopardizes the company and significantly limits their career.

—Henry L. Waszkowski, Managing Director,
Treasury Performance Group

 

 

 

 

When going through a period of tremendous market turbulence and upheaval, as we have experienced recently, Treasurers have two primary thoughts. The first thought centers on their responsibility of protecting their organization for the next situation that will arise. They plan and prepare themselves for the next event, so that they will be able to respond quickly and properly to protect their organizations. Their second thought, during a lull in the storm, is about how exciting it is to be a Treasurer during this time. There has never been a better time to be a Treasurer than now. The equivalent of many years’ worth of learning can be crammed into weeks or days.

With market turbulence at an unprecedented level, this environment will hone some Treasurers’ skills and identify opportunities to improve their preparedness. For other Treasurers, it will point out significant gaps in their thinking and plans. Some will look for positions other than that of Treasurer—on their own initiative or out of necessity.

As increasingly broad financial difficulties have emerged, there has been marked improvement in the perceived value of the Treasurer. During long periods of relative stability in the liquidity markets, it is easier for senior management and board members to become complacent about the importance of Treasury for the health and well-being of the organization. Strategic Treasurers bring value to the organization in ways beyond securing the necessary capital and protecting the organization’s balance sheet. They identify and manage a range of risks, assist the organization in making better decisions with analytical rigor, and partner with other departments to improve processes and performance.

A Strategic Treasurer brings great value to the organization and has a strong sense of career fulfillment. The fact that Treasurers continue to develop marketable skills and intellectual capabilities is an added benefit.

There is much a Treasurer can learn both from history and the more recent variety of events and from issues that continue to emerge. The thoughtful Treasurer will not only learn from the specific situations. She will understand with alacrity how to apply principles already learned to new and different situations.

It is an exhilarating time to be a Treasurer. And being a Strategic Treasurer has never been more highly valued.

Volatility and Turbulence as Opportunity

Different surfers have different reactions as they head out into the ocean as the waves build up ahead of a hurricane that is bearing toward shore. Some think, I must be crazy putting myself at such great risk. Another response is a smile at the thought of what a great time it will be navigating in the new and uncharted surf. The level of focus that is required in the extreme environment is exhilarating. The surfer’s skills will be refined. This difficult environment provides a testing ground that will make regular surfing seem far easier than ever before.

Now, not everyone really wants to head out into dangerous surf, but there are times when even the most prudent will find themselves in situations that have emerged in which a response is needed. For example, the events of 2007 and 2008 have created extreme financial risk management situations—some of which possibly could have been predicted, but most of which could not have been prevented.

Those Treasurers who have mastered the basics and have prepared for dealing with a variety of situations can respond most rapidly and can quickly improvise when needed to adjust for changing conditions. Extremely challenging events will make some quit, break some, or make some stronger and better able to handle the next situation. Appropriate, continuous preparation will help bring about the third result.

Resiliency, Diversification, and Due Diligence

Organizations need to be resilient. They must be able to weather multiple storms, absorb multiple hits, and survive. No single event should put a company out of business or imperil its very survival.

No area in the company plays a larger role than Treasury in helping the organization be resilient. Securing and sustaining adequate liquidity may be simple in good times and nearly impossible when times are challenging.

The Strategic Treasurer will ensure liquidity and resiliency through a variety of means. This resiliency requires careful planning, diligence monitoring, and quick analysis and responses to changing conditions.

Building resiliency also means diversification, even though that appears to add costs to the organization during more stable times.

Diversification alone is not sufficient. Treasury will need to perform due diligence with various counterparties and providers as a matter of course. For example, in the 2007-2009 economic climate, due diligence requires more intense focus—especially when blue chip companies are failing, rating agencies’ information is suspect, and no one is quite sure how the government will respond to the latest situation.

The Strategic Treasurer will communicate both how and why he is building resiliency into the business. The Strategic Treasurer will also recognize that the world of second-guessers—who have the benefit of 20/20 hindsight—will always question actions and point out what could have been. The Strategic Treasurer will stay the course, even if the true value of what he is doing takes three decades to be recognized by the board and senior management.

At the end of 2008, the Bernard Madoff Ponzi scheme scandal came to light. The fund was enormous, long lasting, and highly restrictive regarding who could invest in it. Warning signals that were released beginning in 2000 were essentially ignored or buried for more than eight years. Some individuals lost their entire personal worth as a result.

This disaster came to light over just a few days, and its impact was not just confined to individual investors. Several charities lost all of their invested assets, which had been held with Madoff, and many had to shut down. Other charities were gravely impaired by losses or by the loss of big donors whose financial position had suffered greatly. Such situations are sad but instructive. Whether for-profit, governmental, or not-for-profit, organizations should have a level of resiliency that allows them to handle any type of financial surprise or environmental disaster. One bad situation or counterparty should not be able to put an organization out of business.

Being a Strategic Business Partner

Treasury is never effective when it acts in an insular manner—disconnected from the organization’s business. Treasury needs to be proactive in seeking to help the organization fulfill its mission and to help specific departments achieve their goals efficiently and thoughtfully.

Treasury brings a unique set of skills to the organization, skills that need to be brought to the table and put to use. The Treasurer’s analytical rigor can help every area of the organization. Her ability to understand the broader environment and her ready access to external advisors allows the Treasurer to employ the dialectical method and challenge the status quo when it needs to be challenged.

Most Treasurers have an inherent fiscal conservatism that helps prevent their company or organization from entering into overly risky situations. They provide an intellectual and financial framework of stability that is essential for survival and confidence.

Chapter 3 discusses in greater detail the value to the organization and Treasury when the Treasurer acts as a strategic business partner.

It Is Good to Be Needed

During the years and even decades when much in the world that impacts Treasury is stable, the organizational view toward Treasury has ranged from bare tolerance to general acceptance. But when extreme volatility hits the markets, the organization’s need to survive creates a strong realization of how important it is to have a great Treasurer. Such Treasurers not only help the organizations survive, but also help the various business units improve their processes. And, as Treasurers and their department help the organization make prudent decisions about investments and risk, they will be viewed as increasingly valuable.

Strategic Treasurers set proper expectations of their role. They also recognize the need to explain their role to the organization, and they realize that communication must be a recurring activity. Astute Treasurers recognize that communication and education are not a single event. Relationship and expectation management are vital to the organization and for Treasury. Chapter 4 covers this topic in more detail.

Technology Has Improved

Treasurers, in order to marshal all of the resources at their disposal, need a clear view of the battle and the resources available. The technology tools and services that are available have recently seen significant advances on many fronts. There are software tools that can make it far easier and more complete than ever before to gather information and identify issues and exceptions to policies. These tools allow Treasury groups to devote far more time to analysis and strategic issues.

Indeed, services are now available to medium and small firms that were once exclusively the domain of the largest multinationals. These services are available through banks and various technology vendors.

The movement to Internet-based services has been dramatic. For most companies, these application service providers (ASPs) offer an ever-expanding level of capabilities with a fraction of the overhead of the previous technology platforms. The functionality of ASPs, also known as Software as a Service (SaaS) providers, benefit many organizations. They offer a pay-as-you-go method of using technology, which means a lower capital outlay and automatically updated software. This method also avoids the major challenges of owning the necessary hardware, which is leading to faster and more complete implementations. Reducing the amount and magnitude of the technical headaches and operational activities is welcome relief.

Strategic Treasurers will take advantage of these new and improved technologies to support their goals of owning cash, managing working capital effectively, and helping to ensure that risks are managed and mitigated appropriately. Having a clear Treasury information and technology plan remains important and is now easier to implement and will better support the business processes and goals that Treasury must achieve.

Chapter 14 on Treasury Technology describes the opportunity and necessity of leveraging this technology in more detail.

Summary

Clearly, going through major market and governmental turbulence is the best time to be a Treasurer. Perhaps, as never before, one’s plans and skills will be tested. The resilience and strength of organizations depend on what the Treasurer has done and how she will respond.

The Treasurer who acts as a strategic business partner, instead of being simply a dispassionate vendor to the organization, will serve her organization far more effectively, enjoy the work more thoroughly, and stay gainfully employed far longer than those who focus solely on operational and tactical matters.

Being a Strategic Treasurer requires a strong technical background and the ability to communicate effectively with various financial and nonfinancial people in a way that makes sense to each. The Treasurer must have an especially strong ability to identify and manage risks. He must be or become the clear owner of cash and liquidity and will be either the overseer or owner of working capital. The health and survival of the organization depends, in large measure, on how well the Treasurer manages its business, counterparties, and relationships.

Boards of directors and senior management now understand, more than ever before, the value of having a highly capable Treasurer. This is the time of the Strategic Treasurer.

CHAPTER 2

First Things for the New Treasurer^a

Plan your work and work your plan.

—Vince Lombardi

By nearly all accounts, honeymoons are wonderful. They are the mystical time carved out at the start of a relationship before reality sets in. Neither party can do any wrong. All is bliss. Life is easy. Then the honeymoon is over, and the part of a relationship that requires ongoing work begins.

After becoming Treasurer, there is a brief period that must be used wisely. Although there are usually urgent and immediate demands on the new Treasurer, there is always a bit more tolerance and understanding during the period immediately after the hire date. Without question, the first few months are the optimal time for the new Treasurer to get his mind around the organization and determine Treasury’s initial needs and goals. After this time is over the pressures increase dramatically, and the expectation levels rise.

Taking over the reins of a smoothly running organization is, perhaps, a rare luxury. Turbulent economic times, combined with challenges that face the organization, can make the reality of grabbing the reins of control both exhilarating and intensely focusing. While urgent matters at hand may require an enormous amount of time and dedication to manage, the Treasurer still must ensure that certain activities are done and plans put in motion. And, while some of those activities do not need to be done specifically by the Treasurer, some will indeed require direct involvement.

Most Treasury organizations are thinly staffed, which requires a greater emphasis on how the Tre...

Table of contents

• Praise
• Title Page
• Copyright Page
• Preface
• Acknowledgements
• CHAPTER 1 - Building the Case for Being a Strategic Treasurer
• CHAPTER 2 - First Things for the New Treasurer
• CHAPTER 3 - Being a Partner, Not a Vendor
• CHAPTER 4 - Managing Relationships
• CHAPTER 5 - Owning Cash and the Five Os of Treasury
• CHAPTER 6 - Cash Boot Camp for Treasurers
• CHAPTER 7 - Owning Working Capital
• CHAPTER 8 - Differences Between a Process View and a Silo View
• CHAPTER 9 - Financial Risk Management: Part One
• CHAPTER 10 - Financial Risk Management: Part Two
• CHAPTER 11 - Losses and Fraud: What Can Keep Treasurers Awake at Night
• CHAPTER 12 - Communication: Mars and Venus
• CHAPTER 13 - Building and Developing the Treasury Team
• CHAPTER 14 - Understanding and Maximizing the Use of Treasury Technology Tools
• CHAPTER 15 - Advice from Various Treasury Leaders
• CHAPTER 16 - Volatility and Liquidity Management
• CHAPTER 17 - Achieving Visibility to Your Liquidity Visibility and ...
• CHAPTER 18 - Envisioning Treasury in the Future
• CHAPTER 19 - “Not-to-Do” List for the Treasurer
• APPENDIX - Resource Information
• Index