Balancing the books and the conscience
in partnership with
In times of financial complexity, figures like J.P. Morgan come to mind—a man who navigated the turbulent markets of the late 19th and early 20th centuries with both financial acumen and a clear sense of responsibility.
While Morgan’s actions weren’t always without controversy, his ability to stabilize markets during crises, such as the Panic of 1907, underscores the importance of balancing ethical considerations with financial pressures.
Modern treasurers, like Morgan, must navigate a delicate balance between ethical standards and the need for financial performance, all while upholding their company’s reputation.
Today, ethical treasury practices revolve around transparency, compliance with regulations, and solid corporate governance. Treasurers are not just responsible for managing liquidity and risk; they must also ensure that their actions align with the broader ethical expectations of stakeholders.
This includes honest reporting, responsible financial management, and adherence to legal requirements.
The 2024 Deloitte Global Treasury Survey highlights how these responsibilities are evolving, with 64% of respondents indicating that leading environmental, social, and governance (ESG) efforts has become a critical mandate for corporate finance functions. Recent conversations with clients at the AFP conference further echoed this shift, as several treasurers noted a renewed commitment to establish or revitalize their internal ESG governance committees. Heighted attention to carbon footprint and environmental issues at the board level underscores the increasingly role of treasury in advancing corporate sustainability goals.
Treasurers often face competing priorities—meeting short-term financial goals while ensuring that decisions are ethically sound for the long term. Internal pressures to boost profitability can sometimes lead to risky or unethical choices. However, treasurers are expected to maintain a balance, ensuring that any financial strategies employed do not compromise their company’s long-term ethical standing.
A failure to maintain this balance can have serious consequences, as shown by the fallout from financial scandals in recent years. Treasurers, therefore, play a key role in ensuring that the pursuit of short-term financial gains does not undermine the broader ethical frameworks that guide corporate governance.
In an era characterized by shifting geopolitical dynamics and market volatility, corporate treasurers are required to continuously adapt to protect their organizations’ financial interests without compromising ethical standards. Navigating the complexities of fluctuating currency rates, political instability, or sudden regulatory changes demands agility and foresight. Insights gathered from discussions with several treasurers at the AFP Conference reveal that many are actively engaged in structuring workflow solutions within challenging regulatory landscapes.
These organizations increasingly turn to their financial institutions, alongside tax and technology partners, as trusted advisors, seeking expert counsel and strategic guidance.The modern treasurer must stay agile to protect their company’s financial interests without compromising on ethics.
Geopolitical events, such as trade sanctions or shifts in diplomatic relations, can pose significant challenges for companies operating globally. For example, treasurers working in industries, such as healthcare that have exposure to countries facing economic sanctions must ensure compliance with both local and international regulations, while managing the financial risks associated with such volatile environments.
This often involves making difficult decisions about which markets to engage with and how to navigate trade restrictions without violating ethical or legal boundaries. The conflict between Russia and Ukraine, for example, has forced many companies to reconsider their exposure to the region, balancing the need for financial continuity with the ethical and legal requirements imposed by sanctions.
The regulatory burden is significant, as companies must ensure that they do not inadvertently violate sanctions, such as the EU’s “No-Russia clause,” which prohibits certain goods from being re-exported to Russia. These sanctions are continuously evolving, requiring treasurers to maintain robust compliance systems and adapt quickly to new rules. Failure to comply can result in fines, reputational damage, and long-term operational risks, especially as sanctions enforcement tightens across jurisdictions.
Beyond the influence of geopolitics, market volatility introduces additional complexities to treasury management. Fluctuations in interest rates, commodity prices, and currency exchange rates can quickly erode value if not managed carefully. In our informal survey conducted at the AFP conference, many treasurers emphasized the importance of balancing advanced foreign exchange workflow solutions with a strong adherence to regulatory and ethical standards. While treasurers often rely on financial instruments such as hedging to mitigate these risks, it is imperative that these tools are utilized with a sense of responsibly and integrity.
Deloitte’s survey revealed that 59% of treasurers identified managing liquidity and foreign exchange (FX) volatility as top challenges. While hedging strategies are often employed to navigate these fluctuations, they require ethical oversight to ensure they are not merely short-term solutions that could lead to greater risks down the line.
For instance, aggressive or poorly managed hedging can lead to financial loss or even accusations of market manipulation if not properly disclosed and aligned with ethical standards.
An example of aggressive or poorly managed hedging leading to financial loss and accusations of market manipulation can be seen in the case of JPMorgan Chase’s “London Whale” scandal in 2012, in which case,
JPMorgan ultimately faced regulatory fines and reputational damage, with questions raised about the alignment of its trading practices with ethical and legal standards
Ethical accountability in treasury is closely tied to strong corporate governance. In today’s business environment, maintaining a transparent governance framework is not only necessary for compliance but also for ensuring that all financial activities align with ethical standards.
The role of treasurers in upholding this governance structure is vital—they are tasked with ensuring that treasury operations meet regulatory requirements and align with broader corporate ethics policies.
Good governance begins with a clearly defined set of policies and procedures. For treasurers, this involves creating and enforcing policies around risk management, financial reporting, and investment strategies. Clear governance structures help to prevent ethical lapses by ensuring there are checks and balances in place. When treasurers report to the board, they must be able to demonstrate that all treasury activities adhere to both legal and ethical guidelines.
A key aspect of this governance is the separation of duties within treasury operations. This reduces the risk of fraud and ensures transparency across all financial transactions. The segregation of roles in areas like cash management, investments, and financial reporting ensures that no single person has undue control over sensitive financial activities. It is important to emphasize that this approach is not novel, most treasury organizations customarily separate collection and disbursement functions as a standard practice. Furthermore, many companies opt to outsource their receivables processing, including lockbox services in the United States, to eliminate any potential for unethical behaviour within their accounts receivable departments. Auditors frequently favour lockbox and outsourced check processing for these reasons.
In addition, treasurers are also responsible for ensuring that their organizations comply with a wide array of regulations. This requires not only a deep understanding of the regulatory environment but also a commitment to ethical decision-making. Non-compliance can lead to severe legal and reputational consequences, particularly for companies operating in multiple jurisdictions with differing legal requirements.
Environmental, social, and governance (ESG) factors have emerged as critical considerations for treasurers in the last decade, shifting the landscape of treasury management. The growing focus on sustainability and ethical business practices has redefined the role treasurers play in ensuring that their organizations meet not only financial goals but also ESG commitments.
For treasurers, integrating ESG into treasury operations goes beyond regulatory compliance. It involves actively embedding these principles into financial decision-making processes. Treasurers must evaluate how investments, risk management, and financial policies align with the company’s ESG goals.
Furthermore, it is imperative that treasurers remain vigilant against any perception of greenwashing. They must conduct thorough research on sustainability vehicles offered by banks and other financial institutions. For example, a treasurer might oversee investment in green bonds or ensure that the company’s financial strategies align with its sustainability goals. In doing so, treasurers are not just managing cash flow and risk; they are also safeguarding the company’s ethical standing in the eyes of investors and stakeholders.
Failing to incorporate ESG considerations can have significant ethical and financial implications. As more investors prioritize ESG in their decision-making, companies that lag behind may face not only reputational damage but also decreased access to capital. For instance, a company that fails to meet its environmental commitments might struggle to attract investors who prioritize sustainability.
Treasurers play a critical role in this process by ensuring that the company’s financial practices support long-term ESG objectives. This might involve adjusting investment portfolios to focus on sustainable assets or implementing policies that promote diversity and inclusion within the treasury team.
Maintaining high ethical standards within the treasury function requires the right tools and strategies. From leveraging technology to promoting a culture of accountability, treasurers have several avenues to ensure their operations remain ethical.
Ethical leadership in treasury begins with fostering a culture of responsibility. Treasurers can set the tone by developing policies that encourage ethical behaviour and provide ongoing training for team members on recognizing and addressing ethical dilemmas. This not only helps prevent ethical lapses but also empowers employees to take ownership of their decisions. The documentation of each policy and procedure is critical to ensure clarity, consistency, and accountability across the team.
One strategy is implementing clear reporting lines and accountability measures. By establishing transparent communication channels, treasurers can ensure that ethical issues are addressed swiftly and effectively. Regular audits of treasury operations also help maintain accountability and transparency.
Advancements in technology offer treasurers new ways to uphold ethical standards. Treasury management systems (TMS) can automate many financial processes, reducing the risk of human error and improving transparency in reporting. These systems also provide real-time data on cash flow, risk exposures, and liquidity, enabling treasurers to make informed decisions that align with ethical and regulatory requirements. This underscores the necessity for treasurers to remain adept with evolving technology and to collaborate closely with their IT departments and financial institutions.
Furthermore, as the reliance on digital tools increases, it is important for treasurers to ensure that their data management practices are ethical, secure, and compliant with privacy regulations.
As the role of treasurers continues to evolve, so too does their responsibility to maintain ethical standards in an increasingly complex business and geopolitical environment. From navigating market volatility to integrating ESG principles into financial operations, treasurers are positioned to lead by example, ensuring that their organizations not only meet financial goals but do so with integrity.
Ethical treasury management isn’t just about following the rules but about creating a culture where ethical decision-making is embedded in every process. By balancing short-term gains with long-term ethical considerations, treasurers can help build a sustainable future for their organizations while maintaining trust with stakeholder.