Corporate TreasurySound treasury management begins with a robust treasury policy, says Avery Dennison’s director of treasury

Sound treasury management begins with a robust treasury policy, says Avery Dennison’s director of treasury

Ensuring high levels of corporate governance is at the heart of most company boards, and corporate treasury departments are no exception

Ramon Tolk, senior director of treasury at global packaging and labelling manufacturer Avery Dennison, believes that treasury policies are vital to ensure alignment with internal corporate requirements.

All new treasury personnel should be expected to read and understand the treasury policy as soon as they join the team to ensure their full adherence to its guidelines when performing their specific tasks, according to Tolk.

“The more a company grows, the greater the need for roles and responsibilities to be embedded in a treasury policy,” he says, pointing out that while he is not aware of any companies that do not have a policy in place, it may be less relevant for very small companies.

“A lot also depends on how a company is organised,” he adds. “A company might be very large but organised in such a way that roles and responsibilities are decentralised, so that subsidiaries can operate on their own account.

“Most large companies, however, usually follow a centralised model and have a centralised treasury with one policy in place.”

A treasury policy can be a standalone document or part of wider financial documentation, explains Tolk. Avery Dennison relies on a Financial Handbook, which lays down the policies for individual departments such as commercial finance and accounting and also includes a section for treasury. This section is written by the treasury department and is reviewed on an annual basis by his team to ensure it is up to date.

Different treasury functions

For most corporate treasury departments, the nature of the business, its geographic structure and its model of operations will determine the responsibilities and prime focal points of the treasury department’s activities. Treasury policies and guidelines are then outlined for the individual functions of that treasury department and typically include both cash and risk management.

According to Silicon Valley Bank’s Treasury Policy Guide, treasurers embarking on a policies and procedures manual should draw up a  checklist and framework;  consider their objectives in terms of security, liquidity and yield; define their risks and a strategy to deal with them; and consider the treasury controls needed. They should also assign responsibilities; take account of regulatory requirements and consider how they will monitor the policy’s performance and ensure its ongoing review.

“A treasury policy’s purpose is generally to enable efficient management of financial risk within your company. It formally sets out current treasury activities and establishes a treasury risk management environment in which all objectives, policies, and operating parameters are clearly defined,” says David Williams, director – EMEA liquidity product management, in the report.

“A treasury policy often considers inevitable financial risks and covers all the different activities you undertake.”

According to Tolk, there are differences in the treasury policies drawn up by different companies, which reflect differences in the nature of those companies and their own focal points. He points out that “everything is relevant when it comes to drafting a treasury policy” with guidelines laid down for treasury functions ranging from bank account management to handling foreign exchange.

“There is always a chapter on bank account management, which gives clarity on who is responsible for opening and closing bank accounts, and the approvals needed for opening and closing bank accounts.

“Our policy also details the process for granting access to electronic banking portals and the authorisation individual people may get,” he says, pointing out that the policy further stipulates “a period user access review” to ensure the access rights are up to date.

Most company treasury policy also covers the management of foreign exchange exposures.

“Local finance teams accumulate information on their fx exposures and make it available to treasury, and then treasury takes care of the execution of fx deals with the banks,” says Tolk.

“A policy should detail how to deal with these exposures and the thresholds for managing exposures – that is, how much of the exposures should be hedged – and also the types of instruments used to cover exposures.”

Spare cash and investments are also typically covered in a treasury policy in terms of who has control over excess cash. These guidelines should also cover the counterparties relied on – that is, the banks and money market funds used; thresholds; and the type of investments that should be sought, says Tolk.

“A policy should also detail where in a company investment decision can be made – that is whether or not a subsidiary can handle its own investments,” he adds.

Corporate guidelines

While treasurers and their teams take responsibility for the drafting and implementation of corporate treasury policies, as well as their ongoing review, internal corporate governance guidelines always serve as a benchmark.

“Internal corporate guidelines do have an influence on treasury policies in terms of the wider practicalities,” says Tolk “Treasury policies need to be aligned with corporate governance guidelines on matters such as decision-making – whether this should be done at a local level, regional level or HQ level.”

He explains that despite the ongoing digitisation of many treasury functions, drafting a treasury policy is still a manual job, which requires input from a range of personnel.

“To my knowledge, there is not a single technology available that can play a major role in drawing up a treasury policy which is effectively a human role that requires human input and must be written up,” says Tolk. “We do, however, make treasury policies available to everyone in the organisation via a shared drive or intranet.”

He points out that the treasury team as a whole is responsible for writing the treasury policy – not one specific person – so that each member can apply their specialist knowledge of different functions. The team also works with corporate finance, particularly where there is an overlap in responsibilities.

“It is possible that treasury will, for example, need input from corporate finance in areas like hedging where finance and the accounting team will give input on the application of hedge accounting,” concludes Tolk.

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