Corporate TreasuryCentralisationGeneralLocal Control: Five Reasons Not To Centralise Treasury – Part II

Local Control: Five Reasons Not To Centralise Treasury - Part II

Background and Introduction

Adrian Rodgers, of ARC Solutions in Europe, recently gave gtnews readers some excellent reasons not to centralise operations too much. Local Knowledge: Five Reasons Not to Centralise Treasury – Part I The experience of calling on companies here in Asia suggests the same. Out here, in the recent past, companies in most industries have globalised themselves, leaving minimal presences behind. These actions, taken for the best of reasons, have often ended up with the worst of results.

The Path to Globalisation

It normally starts with a push and a pull: a push because there is pressure to cut costs and increase controls; and pull because new technology allows ever more globalised shared service centres and treasuries to be set up. Local and regional treasury staff are pared down (especially expatriates,) and tasks are centralised. Anything local is handled by the remaining finance/accounting staff in-country or by a single person regionally.

But it doesn’t stop there – the same needs usually result in cuts in travel budgets and people in headquarters as well. It’s predictable. But what is maybe less predictable is that this elimination of treasury in country and regionally is often the death of it also at home. For that reason, if for no other, those sitting pretty in head office should sit up and take note.

1. Automating Treasury: Where will it Stop?

Quite apart from improving controls, the practical requirements of managing more with less mean that the individuals involved need to be more cautious than they would otherwise be. Over time they develop a more conservative and inflexible mindset, dedicated to simplifying, standardising and controlling. And the best way to do that is to automate and outsource.

But what are the implications of that? If regional treasury can be automated and outsourced, why not head office as well? The more inflexible a function, the more its actions can be put down in a process manual and so the more it can be automated or outsourced too.

Therefore – if you’re a CFO – why have a treasury function at all? Some companies already don’t.

2. A False Impression of Control

Global treasury’s ambition may be to simplify, but the real world is not that simple. Given this contradiction, more information gets handled outside the system when treasury is centralised.

At this point the reality is that the global centre does not know what is happening locally (how many bank accounts there are; what processes are actually being followed; what has changed since last time the treasury requirements were review, etc). All that is left is an impression of control, backed by impressive systems and nice, thick process documentation.

3. Globalised Treasury: Strangling the Treasurer

The more globalised the function, the more conservative it is. The more conservative it is, the less an individual can contribute. So if the person is good at their job, will they want to work for that company or will they move away to join a company that appreciates their strengths? The answer is obvious.

The result is: There are fewer skilled personnel in treasury, which leads to less understanding of treasury globally, regionally and locally. This reinforces the previous points. It’s a vicious cycle.

4. Losing Out on Local Experience and Skills

Let’s go back to cost cutting. Expatriates are comparatively expensive so locals are recruited in the global centre to handle treasury in all countries everywhere.

This causes reduced understanding of the cultural and market environment (as highlighted in Adrian Rodgers’ article.) But – more importantly – it creates a greater power gulf between the people at the bottom and those at the top. Peers of the same nationality surround the head office treasury person and, rather than fight the country culture as well as the company hierarchy, the local staff just gives up. And that’s a lost opportunity. Different individuals from different cultures have different strengths. If strengths are matched to jobs a better result is achieved overall.

5. Treasury – Absent, presumed dead

A person from a service company recently told me that he was responsible for supporting treasury in the region, but that he didn’t know who the relevant person to talk to in head office about treasury was. This was extreme but indicative. When talking to the remaining people in country (finance or business,) they usually do not really know who does what in treasury or what value they bring.

And that’s the killer. As increased business management, automation and outsourcing deliver greater efficiencies, why should a businessperson think about treasury, much less consult them.

So, in summary, why should a company not centralise too many of its treasury activities? For five key reasons:

Summary

  1. To keep the function present and relevant as the business develops
  2. To make sure that real controls are in place – not just pretty reports
  3. To ensure that skilled and experienced people are and remain available to the company, to the benefit of the company overall.
  4. To use the best people for the job. Diversity brings strength if managed properly.
  5. To add real value to the underlying business

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