A recent HSBC report, ‘Rethinking Treasury: The road ahead’, found that the challenges presented by the pandemic have led to much greater cooperation between CFOs and treasurers globally.
Treasurers are playing a much bigger role in defining companies’ growth strategies, while also implementing even more rigorous risk management across their organisations.
In fact, more than 50 percent of CFOs of large organisations said their treasurer plays a key role in strategic decisions, although this fell to 28 percent for smaller firms, according to the HSBC survey. In EMEA countries, 64 percent of CFOs described treasurers as playing a critical role in the broader decision-making processes, followed by 50 percent in the Americas and 14 percent in Asia.
According to the survey, CFOs acknowledge that treasurers have earned a seat at the strategic table and expect them to offer advice on decisions at executive level. More than 78 percent of EMEA-based CFOs surveyed said they consider treasurers as part of the executive C-suite.
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Closer ties in challenging times
At multinational publisher and education group Pearson, James Kelly, senior vice president of treasury, points out that the level of interaction between a treasurer and CFO, and how the relationship develops, depends on the circumstances.
“In challenging times, treasurers can be called on to raise finance or to run various stress scenarios. This gives the treasurer an opportunity to work closely with the CFO and to get close to the key pressure points,” he says.
“Once the initial financing is complete, there is often then more scope for a treasurer to offer support to other finance colleagues to manage these pressure points, while they have heavier workloads to manage.”
One of the key areas where treasurers are working more closely with CFOs is risk mitigation, and here, their existing risk management skills sets positions them well to advise on the level of risk that a wider business or strategic action will incur.
“There is a natural alignment between treasury and financial risk management and insurance, given many of the tools are common to both,” says Kelly, pointing out that he has looked after insurance at Pearson for the last four years.
“In common with many treasurers, I am also responsible for the Viability Statement (a company’s ability to manage plausible what if scenarios), which involves modelling, stress testing liquidity and covenants for various risk scenarios.”
More recently, Kelly has taken on responsibility for enterprise risk management which means that for viability, he now prepares the required information end-to-end.
“This requires really strong communication skills and more frequent interactions with the audit committee. It has allowed me to leverage and hone the skills in my team to, not only understand and quantify risks for insurance purposes, but to also use the governance and control practices honed in treasury.”
Supporting the M&A journey
Treasurers are also supporting CFOs with data and analytics in a wide range of areas that can improve decision-making for the wider business.
“Treasurers are increasingly accessing a range of data sources for forecasting and cashflow which provide a useful base. Additionally, we have teams who are disciplined with data architecture and reconciliation in order to maintain data integrity and speed of process,” says Kelly.
“This means that the data sets we have can be mined effectively to provide insights into areas such as working capital and cashflow.”
The recent HSBC survey also found that most CFOs rely on their treasuries for data and/or analysis for the strategic planning of mergers and acquisitions (M&As).
Across EMEA, 56 percent of the CFOs surveyed said their treasuries offer full support to strategy-making around corporate M&A, including not only data and analysis but also counsel.
Meanwhile, over two-thirds (67 percent) of CFOs in larger organisations said their treasury department is involved in providing data, analysis and counsel on decisions relating to capital allocation.
“Treasury’s key input into capital allocation and M&A decision-making has tended to be around calculating ratings capacity, choosing optimal financing methods and helping with any decisions around deferred consideration,” says Kelly.
“Our corporate development and strategy colleagues will typically lead on the big picture M&A and capital allocation discussions but we feed into their processes, outlining the likely consequences of different courses of action.”
Treasurers and CFOs drive digital transformation
Sixty percent of CFOs of larger organisations surveyed by HSBC said their treasurers take responsibility for digitisation projects on financial data and processes, compared with just 38 percent in smaller organisations.
This was attributed to the geographical diversity of many larger companies, which often have multiple subsidiaries using different banks as well as the larger budgets and resources often available to treasuries in larger organisations.
“At Pearson, we have a head of finance transformation, and we make team decisions about major initiatives,” adds Kelly.
“However, within the treasury data and technology space, we have discretion about the initiatives we pursue, and our CFO has been very supportive of those.”