GovernanceMacroeconomicsNo respite for weary treasurers as challenges continue to mount

No respite for weary treasurers as challenges continue to mount

Supply chain disruption and inflation are among the key challenges facing treasurers, according to the Association of Corporate Treasurers

Supply chain disruption, inflation, and volatile markets are the biggest challenges buffeting treasury teams as they battle to help keep their companies on an even keel, according to Sarah Boyce, associate director of policy and technical at the Association of Corporate Treasurers (ACT).

“Against a backdrop of a very uncertain economic and geopolitical outlook, these three issues are going to remain huge challenges for treasurers globally for some time yet,” says Boyce, adding that these issues are being exacerbated by overworked treasury and finance teams struggling to remain motivated and engaged. “There are a lot of very tired people out there,” she says.

For Boyce, the disruption of global supply chains offers a powerful insight into the kinds of complex, cascading issues treasurers must now grapple with on multiple fronts. Supply chain disruption and dislocation has, for instance, sparked wider concerns about deglobalisation generally and, more specifically, the trend towards reshoring and localised production and how this will play out for corporates and ultimately investors and consumers.

BlackRock warning

Institutional investors have been quick to highlight the potentially historic changes underway and the impact they could have on corporates.

In March, Larry Fink, CEO of BlackRock, the world’s largest asset manager, warned in his annual letter to shareholders that “the Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades”.

The isolation of Russia from capital markets, coupled with the US-China standoff, has led to companies and governments worldwide re-evaluating their dependencies and re-analysing their manufacturing and assembly footprints, according to Fink.

The resulting, growing trend towards onshoring or nearshoring operations “will inevitably create challenges for companies, including higher costs and margin pressures”,  Fink adds, warning that while companies’ and consumers’ balance sheets are strong today, giving them more of a cushion to weather these difficulties, “a large-scale reorientation of supply chains will inherently be inflationary”.

Boyce is also of the view that after 20-30 years of sustained globalisation driven by offshoring and development of increasingly sophisticated, interconnected supply chains, events of the last few years have given many organisations pause for thought.

Large organisations are now working through a host of issues, whether that is bringing manufacturing back onshore; making sure they’ve got a shorter supply chain to gain greater visibility; or ensuring more warehousing is available to hold higher levels of stock so that they can manage future disruptions more effectively, says Boyce.

“Every company is going to have a slightly different approach and that will feed into treasury responsibilities in areas such as currency exposures, cash flow and working capital cycle durations, reassessing liquidity requirements across the organisation,” says Boyce. “These big changes taking place in supply chain architecture really do impact a whole, pretty fundamental raft of activities within the organisation and treasuries especially, which is why it’s all such a major concern for treasurers now.”

The strategic treasurer

However, when compared to 10-15 years ago, treasurers, especially in larger organisations, are better prepared to help their organisation navigate the multiple challenges facing them, according to Boyce.

Crucially, treasurers now have a role and stature within their companies that enables them to make real, positive difference to high level decision making due to the transition of treasuries over many years from being reactive to being more proactive and strategic in their many responsibilities, she says. In fact, Boyce points to the 2008 financial crisis as a “tipping point” for corporate treasurers, with their role really starting to change thereafter.

“For the vast majority it was from then on that they became much more visible to their board and the C-suite generally, and the role of the treasurer has continued to change,” says Boyce. “I think the majority, certainly within large companies, will now say their role is more strategic than it was 15 years ago. Technology has played a big role here, and over the next 5-10 years we will see even greater levels of treasury automation, freeing up even more of their time for strategic work.”

The ongoing evolution of the treasurers’ role and the increasing use of technology, however, also means that the skill set required of treasurers has evolved and will continue to evolve – something the ACT looks to nurture by offering various courses and qualifications.

“The access to education and knowledge is there so it’s then a question of ensuring people realise it’s all available and the importance of actually engaging with it,” says Boyce. “These things are easy to skip if you feel like you’re too busy to engage but actually, in hindsight, it’s probably better use of treasurers’ time. It’s about consciously making CPD a priority, acknowledging that it’s very important considering the rate of change taking place.”

Keeping up to date

Well before the Ukraine crisis, one of ACT’s hopes internally was that, after all treasurers had endured through the pandemic, 2022 would be the year when they could take a bit of a step back, think about their policies and procedures, make sure they had gotten everything up to date and felt well placed to push on.

Boyce is hoping that will still all be possible at some stage in the future, especially considering the outlook for rates and inflation. “It’s making people nervous,” she says. “There’s a whole generation of the younger treasurers and bankers out there that has never seen interest rates above 2% [which is what the market is pricing in for middle of next year]. They are grappling with how to manage risks that will flow from that, essentially for the first time, and in-house skills and experience are not really there anymore.”

Indeed Boyce, former director of treasury at confectionary giant Cadbury, says that many are so used to low interest rates that even some senior treasurers she has spoken with are struggling to explain exactly how they used to go about managing risk in a high rate environment:

“It’s quite ironic because for some of us, managing in high rate environments was fundamental for many decades – the last 10 years have actually felt like a bit of a relief,” she says.

“It is entirely feasible that the next 10 years will be characterised by interest rate and market volatility much more than has been the case for the last 10 years.

“Treasurers will therefore need to have appropriate policies and procedures in place, be alive to the threats that represents. Risk management will become much more important than perhaps it’s needed to be in the recent past because the risks have been relatively minor. Preparation and good housekeeping are key.”

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