The Strategic Treasurer E-Book

Craig A. Jeffery

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 429

Veröffentlichungsjahr: 2009

Beschreibung

The current period of market and governmental turbulence is the most challenging--yet rewarding--time to be a treasurer. Now, as perhaps never before, the treasurer's visions, skills, and worth will be tested and proven. A useful reference, The Strategic Treasurer: A Partnership for Corporate Growth systematically equips today's corporate treasurers to move from merely being the liquidity manager to becoming a strategic driver and steward of corporate value as well as an equal partner with senior management.

Leseprobe

Table of Contents

Praise

Title Page

Copyright Page

Preface

Treasurers Deserve Equal Time

Chapter Overviews

Corporate Directors

Acknowledgements

CHAPTER 1 - Building the Case for Being a Strategic Treasurer

Volatility and Turbulence as Opportunity

Resiliency, Diversification, and Due Diligence

Being a Strategic Business Partner

It Is Good to Be Needed

Technology Has Improved

Summary

CHAPTER 2 - First Things for the New Treasurer

Study the Business

Assess Treasury

Identify Risks

Socializing Your Assessment

Put Your Team Together Like a Puzzle

Creating and Socializing the Vision and Plan

A Time for Action

Ongoing Intellectual Curiosity

Summary

CHAPTER 3 - Being a Partner, Not a Vendor

Avoiding Inevitable Pitfalls

Keeping in Between the Two Lines

Know What Is Important to the Organization and to Its Partners

Summary

CHAPTER 4 - Managing Relationships

Scope of the Relationship Management Plan

Key Components of a Relationship Management Plan

Plan and Process for Accomplishing the Objectives

Rationale for Formally Documenting Relationships

Request for Proposal

Summary

CHAPTER 5 - Owning Cash and the Five Os of Treasury

The Os of Treasury

Centralized or Decentralized Treasury

Taking Ownership

Protecting the Balance Sheet

Summary

CHAPTER 6 - Cash Boot Camp for Treasurers

Cash

A Tale of Two Types of Cash

Disbursement Example

Collection/Receivable Example

Discussion

Technology Enables Appropriate Cash Recording and Reporting

Cash Implications

Summary

CHAPTER 7 - Owning Working Capital

Two Definitions of Working Capital

Two Different Measurements for Working Capital

Working Capital Impact on Organizational Value

Differences Between Liquidity and Historical Working Capital Measures

Projecting Working Capital Usage and Variations

Steps Needed to Optimize Working Capital

Summary

CHAPTER 8 - Differences Between a Process View and a Silo View

The Process Perspective Is Vital

Symptoms of a Silo View

Fighting the Silo Mentality with the Process

Summary

CHAPTER 9 - Financial Risk Management: Part One

Risk

Summary

Notes

CHAPTER 10 - Financial Risk Management: Part Two

Risk Management Choices

Possible Reasons for Hedging

Value in Risk Management

Volatility and Impact

What to Hedge?

Financial Risk Management Process

Treasurer’s Role

Black Swans

When Do We Hedge?

No Cheers for Hedges; It’s the Objective That Matters

Summary

Notes

CHAPTER 11 - Losses and Fraud: What Can Keep Treasurers Awake at Night

Situations of Loss

Fraud

Summary

CHAPTER 12 - Communication: Mars and Venus

Cash

Forecasting

Working Capital

Controls

Summary

CHAPTER 13 - Building and Developing the Treasury Team

Putting the Puzzle Together

Developing the Team

Summary

CHAPTER 14 - Understanding and Maximizing the Use of Treasury Technology Tools

Technology Supports the Treasury Role, and Treasury Supports the Organization

Treasury Technology Landscape

Extension and Visibility Services

Treasury Workstation and the Technology Landscape

The Order of Activities

Respecting Your Time: A Tale of Dashboards and Reports

Other Treasury Systems

Managing Financial Processes

Summary

Notes

CHAPTER 15 - Advice from Various Treasury Leaders

Change Management

Risk Management

Relationship Management

Mindset and Perspectives of the Treasurer

Developing Treasury Staff

Vision, Strategy, and Execution

Reading List

Summary

CHAPTER 16 - Volatility and Liquidity Management

Protecting the King

Volatile Times

Financial Crisis of 2007+

Financial Instrument Risk

Counterparties

Foreign Exchange Rates

Commodities

Rating Agencies

Banks and Insurance Companies

Governments

Summary

CHAPTER 17 - Achieving Visibility to Your Liquidity Visibility and ...

Achieving Visibility to Liquidity Requires Internal and External Data

Prerequisites to Achieving Visibility

Connecting Through Networks

Assessing Threats and Impacts to the Organization’s Liquidity

Summary

CHAPTER 18 - Envisioning Treasury in the Future

Treasury’s Role in the Corporation

Stewardship: Technology Developments and Green Treasury

Everything as a Service: Cloud Computing Comes to Treasury

Visibility and Risk Management

Relationship Power Shifts

Liquidity and Balance Sheet Management

Chairing the Working Capital Council and Advising Business Areas

Cash, Checks, and Miscellaneous Projections

Some Things Will Not Change

Summary

CHAPTER 19 - “Not-to-Do” List for the Treasurer

Relationship Management

Technology Decisions and Perspectives Don’ts

Staffing, Resources, and Consultants

Projects and Communication

Decisions, Debates, and Assumptions

The Crowd: Follow or Take the Road Less Traveled

Some Basics

Summary

APPENDIX - Resource Information

Index

Praises forThe Strategic Treasurer: A Partnership for Corporate Growth

“The Strategic Treasurer is a must read for anyone looking to break away from the transactional Treasurer role and take the Treasurer position to its rightful place as a strategic business partner. Jeffery gives the insights needed to view the big picture as required in this new role, while providing the practical concepts needed to move along this new path.”

—Arthur P. Lorenz, CTP, CPA, Treasurer,Hunter Douglas North America

“Today’s dynamic businesses need treasurers who do more than shave points off debt rates. Businesses need treasurers who are visionary partners on the executive team, directing smart financial management throughout the enterprise. From ‘boot camp’ basics to sophisticated relationship building and financial risk management, Craig helps treasurers break through yesterday’s silo mentality to deliver more value in creative ways.”

—Robert J. Warren, CPA, CMA, VP Corporate Development &Finance, (Formerly VP & Treasurer 20 years),Diebold, Incorporated

“As a client of Craig’s, I found the same systematic approach to the Treasury function in his writing that I did in working with him during his engagement. He has encapsulated the Treasury function as a process that defines of one of the most critical aspects of any business-the ownership and stewardship of cash. This is a great read, while providing guidance, for both those aspiring to assume a leadership role in Treasury as well as those who are currently in leadership and seeking ways to improve their current process.”

—Ward Allen, VP Finance, WinWholesale Inc.

“Craig Jeffery makes a strong case that recent market turbulence greatly increases the importance of the Treasurer position as steward of a company’s liquidity and manager of its financial risk. The book abounds with practical guidance, but never loses sight of the larger picture. Treasury is an integral part of a financial process that permeates the entire organization. The strategic treasurer looks beyond his functional boundaries and sees disparate activities and controls as part of a single process . . . Jeffery shows you how.”

—Dennis Sweeney, Deputy Treasurer,General Electric Company

“Craig makes it clear that mere technical expertise does not a strategic treasurer make and challenges us to look past our traditional zones of influence. The technical aspects of the treasurer’s job remain, and Craig reasserts the critical ones with insight into how their application and utility can sometimes be distorted in the real world environment. This book is a valuable resource for the neophyte as well as the seasoned professional in the trenches looking to get re-grounded on what is most important.”

—John Beattie, VP & Treasurer, Spectrum Brands, Inc.

“Like anything in business, beyond the academic and the theoretical, the practical approach to a discipline ultimately governs both the planning and the successful execution to the enterprise. Craig has been able to capture this in print.”

—Mark Henry, Treasurer, SVP Global Tax &Risk Management, Infor

“The Strategic Treasurer serves as an excellent reference tool for corporate finance executives. Craig Jeffery distinguishes the role of Treasurer from that of Controller and shows how the treasury function is about much more than cash management.”

—Thomas A. King, Treasurer, Progressive Insurance

Copyright © 2009 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Jeffery, Craig, 1963-

The strategic treasurer: a partnership for corporate growth/Craig Jeffery. p. cm.

Includes bibliographical references and index.

eISBN : 978-0-470-50805-3

1. Corporate treasurers. 2. Corporations-Finance. 3. Cash management. I. Title.

HG4026.J44 2009

658.15-dc22

2009010853

Preface

Market turbulence has created quite a ride for Treasurers in recent years. M This has emphasized the need to better manage risks and to achieve a level of visibility to liquidity and the risks to liquidity that was never before imagined. Accordingly, the need to perform all of these duties has to be met in Internet time versus financial reporting time. It is time again for Treasurers to show their value. This has not always been so obvious.

Long before double entry accounting was conceived as an idea, the function of Treasury existed. The function as well as the job title of “Treasurer” was part of ancient governments many millennia ago. In corporations, the Treasurer title has existed for many decades, filling a role that is distinct from the Controller. However, Treasury is not generally thought of as a discipline for which one says “When I grow up, I want to be. . .” and goes to school for specific training. The skills necessary to execute the Treasurer role sometimes overlap other positions in finance but often are quite unique to this function. The areas of responsibility include capital structure, cash management, stewardship of assets, foreign exchange management, interest rate risk management, corporate finance, and debt and investment management. A solid understanding of accounting has consistently been a prerequisite for the role.

Here in the twenty-first century, however, the Treasurer’s role encompasses much more and includes additional responsibilities in the areas of working capital management and more broad coverage of financial risk management. And no longer can Treasurers work in isolation when fulfilling their duties.

Addressing these added responsibilities has become possible due to the development and now the extensive use of various technology tools and services. Indeed, technology now allows the Treasurer to more accurately and efficiently measure risk, protect regional and global assets, optimize working capital, manage investments, and leverage external and internal relationships effectively. The increase in responsibility over time has made the Treasurer’s role more interesting. But that is not all that has made it more interesting.

With the expanded role of today’s Treasurer, the imperative now is to go beyond the basic expectation of managing the cash conversion cycle to becoming a strategic business partner. Thus, the concept of Strategic Treasurer was born out of this author’s belief that the Treasurer’s role in today’s global organizations requires a new definition and focus, lest it give up its rightful territory and shrink to a mere bookkeeping or transaction-oriented function.

Strategic has in the past years found its way into the business lexicon as the term that adds value to a chore, simply by its utterance. For the Strategic Treasurer, however, merely using a new word and following a roadmap comprised of a series of tasks and checklists will not get the job done.

Being strategic is basically having the ability to view the big picture, to assess suitable options, and to act on one’s best judgment. Being strategic requires thinking and ordering one’s thoughts and then taking appropriate action. Consider a regiment occupying a mountain pass, where a few people can hold off a giant army. Being strategic will allow just that—holding the vast armies of lower priority items at bay and attending to the urgent ones. It is a case of negating the items that can defeat and render the role of Treasurer less valuable.

This is not to say that protecting one’s job or turf is the priority. It is much more than that. The Treasurer must proactively act as a strategic business partner with other units, bringing their specific skills and insights to the table to add corporate value and focus. By thinking and acting as Strategic Treasurers, today’s Treasurers have an opportunity to bring far more meaning to their efforts by contributing to a greater level of organizational success.

This book is designed for those on the path to becoming a Strategic Treasurer and for those already there but wanting to refine their goals and skills to more effectively act as a business partner of the organization they support. The book is divided into 19 chapters, which will be summarized briefly in the Chapter Overviews. For Corporate Directors and others in senior management who are strapped for time, a suggested prioritization of chapters follows.

Treasurers Deserve Equal Time

Currently, numerous books exist geared toward the roles of the Chief Financial Officer and Controller, with more being published almost monthly. The Treasurer is largely limited to some excellent periodical resources, with very few books on the general subject of Treasury or Treasurers.

Books that exist in the fields pertaining to Treasury are heavily weighted toward general reference on cash management or are core materials related to professional designations. Specific volumes on cash management, international cash management, foreign exchange risk management, hedging and hedge accounting, investment management, and investor relations cover the majority of the other materials available to Treasurers and Treasury professionals.

It is interesting that several large international banks have more cash and Treasury management books produced in-house available than what seem to be in print from public sources. This could easily provide an argument for having more material available to the Treasurer and those who need to care about that role.

Treasurers have seen a regular and consistent increase in their responsibilities. Board members and the CEO have recently been recognizing the value that a Strategic Treasurer brings to their organization.

This book is intended to add to the resources that are available to the Treasurer. Additionally, it can be a tool to provide guidance and provoke thought for those who have been Treasurers for years, are new to the role, or are contemplating becoming a Treasurer someday. However, a number of important areas of which the Treasurer must be aware are not covered in this book in depth or at all, since other materials are readily available for those areas.

Chapter Overviews

Chapter 1, “Building the Case for Being a Strategic Treasurer,” outlines the key arguments for the value of the Treasurer and the necessity of that role being filled with one who acts in a strategic manner.

Chapter 2, “First Things for the New Treasurer,” provides guidance to those starting this role in an organization. It outlines many of the most important steps that should be initiated as quickly as possible.

Chapter 3, “Being a Partner, Not a Vendor,” lays the intellectual framework and reasons for why Treasurers must act as a business partner and use their unique strengths to help the business.

Chapter 4, “Managing Relationships,” provides reasons and guidance for being systematic and formal about managing bank and other key relationships. Organizations need relationships that provide advice and capital, and Treasurers must be deliberate about this responsibility.

Chapter 5, “Owning Cash and the Five Os of Treasury,” details key reasons why Treasurers must act as the owners of corporate or entity cash. It describes what owning cash means and provides some prescriptive steps for moving to that position.

Chapter 6, “Cash Boot Camp for Treasurers,” provides a practical and accounting-oriented approach to understanding different perspectives of cash as well as how accounting and Treasury can live in harmony at the point where their cash-recording lives intersect.

Chapter 7, “Owning Working Capital,” discusses the importance of having the Treasurer either own or oversee working capital for the organization. Traditional and alternative formulas are covered, and examples highlighting various working capital optimization methods are provided.

Chapter 8, “Differences between a Process View and a Silo View,” presses the case that Treasury must understand and help optimize an entire process rather than a single department.

Chapter 9, “Financial Risk Management, Part One: Considering Risk Through the Eye of the Beholder,” details a framework for viewing and assessing the financial risks organizations face. This chapter was written by contributing editor David Stowe.

Chapter 10, “Financial Risk Management, Part Two: Altering the Risk a Company Faces to Match the Risk It Desires,” provides intellectual and practical guidance for managing risks according to your plan. This chapter was written by contributing editor David Stowe.

Chapter 11, “Losses and Fraud: What Can Keep Treasurers Awake at Night,” touches on several key areas where losses can occur from action, or inaction, and offers advice to ensure more peaceful sleep for the Treasurer.

Chapter 12, “Communication: Mars and Venus,” begins to document the variety of ways the Treasurer and Controller see things differently. The reason behind these differences is described and discussed, allowing for understanding between these two crucial financial players.

Chapter 13, “Building and Developing the Treasury Team,” shares perspectives on forming and reorganizing a Treasury team. It details how having the right team is more important in Treasury than in many other areas of an organization.

Chapter 14, “Understanding and Maximizing the Use of Treasury Technology Tools,” describes portions of the vast technology landscape and the opportunities that exist to employ these tools to help the Treasurer and the organization fulfill their respective missions.

Chapter 15, “Advice from Various Treasury Leaders,” offers a range of quotes and summarized information, from various Treasury leaders of organizations in high concentration.

Chapter 16, “Volatility and Liquidity Management,” describes various recent situations that have made the Treasurer’s job particularly exciting. It describes the market situation and government interventions that prove reality is not as stable as theory. It enforces the activities and perspectives that a Treasurer must perform and maintain to protect an organization.

Chapter 17, “Achieving Visibility to Your Liquidity,” provides guidance, perspectives, and analysis to enable the Treasurer to possess a clear view of the organization’s liquidity as well as the various areas and events that can impact that liquidity. Chapters 16 and 17 were written during the financial upheaval in late 2008 and early 2009.

Chapter 18, “Envisioning Treasury in the Future,” takes a look at and makes predictions about what the future holds for Treasuries. It explores what will remain the same and what will change across several categories.

Chapter 19, “‘Not-to-Do’ List for the Treasurer,” offers an assortment of ideas to move Treasurers toward success by being more selective in what they and their group do and do not do. With this guidance, Treasurers will be able to more clearly focus on the areas where they can best invest their time and thinking.

Corporate Directors

This book is targeted for those in or pursuing the role of Treasurer. However, others in senior leadership positions and members of the board of directors will want to be more familiar with some of the core responsibilities and perspectives of this role, and they may benefit from many of the chapters. There are also areas that pertain to survival of the business related to liquidity management and financial risk management that should be of particular value to board members. While much authority and responsibility may be delegated downward in the organization, there are a few key areas where every board member will want to have a reasonable sense of risks and roles as well as how excellent organizations can manage these properly. The following grid is intended to prioritize these chapters, with the understanding of real time constraints.

The recent market turbulence has impacted every organization in some manner. Every organization needs to understand and manage its risks and also ensure it has adequate and protected liquidity. Accordingly, many readers will initially turn their attention to the Financial Risk Management and Controls and Liquidity Management chapters of the book.

Acknowledgments

When finishing the manuscript of a book a number of feelings and thoughts stream to the front of one’s mind. Relief is the dominant feeling that replaced the earlier feelings of anxiety about deadlines and other commitments. Appreciation and thankfulness are two other thoughts that are increasingly vivid and important.

David Stowe, who originally counseled against writing a book at such a hectic time, provided much help in ensuring its completion. This help included writing two chapters on risk management and providing critical guidance in key areas. His help and intellectual curiosity have been immensely helpful with this book and with growing the firm.

When looking back on all of the people who have coached, guided, taught, challenged, and encouraged me in my life, career, and even with this book, I owe quite a debt of gratitude. It has now become apparent to me that as others coached and taught me, my level of acceptance of that guidance and teaching varied dramatically over time and in different situations. I have learned much from all of my managers, coworkers, and those I have had the privilege of managing over the years, and I acknowledge their help, professionalism, and patience.

My older brother, Scott D. H. Jeffery, who joined the Treasury profession after me, has been an enormously positive influence on my life as well as my career. He was instrumental in providing the impetus to get my business, Strategic Treasurer LLC, off the ground and has provided wise counsel through the years. In all the ways he has helped or encouraged me, none speaks more loudly than seeing grace under pressure modeled in his life. He has modeled that well and consistently. I loudly acknowledge his support, guidance, love, and encouragement over the years.

Henry L. Waskowski led the Wachovia Treasury & Financial Consulting group for years before forming Treasury Performance Group in 2004. Most people may not realize that my former manager is the individual who has most influenced the profession over the past two decades. He has done so without fanfare or self-promotion. He has influenced people new to the profession as well as the leading thinkers in this space in such a quiet and thoughtful manner that those of us who have been challenged and influenced by him think about the content of his ideas and not the person who delivered them. Henry has been a great mentor, supporter, intellectual provocateur, and friend for almost a decade. Many of the good ideas and concepts in this book bear the mark of his fingerprints.

Over the years I have had managers who have taught, challenged, and put up with me. I am grateful and appreciative for all they have done.

Bob and Carl Roehrich taught and modeled much about the value of hard work, logistics, and general business sense. Lois Bradgon, Nick Mason, and Dan Doty taught many useful concepts that mainly I learned years after the fact. Nancy Deyette Romppainen, Don Waggaman, Rich Garrett, and Jim McAuley provided me with many finance, Treasury, and business opportunities to challenge my thinking and expand my experiences and advance my career. Ward Gailey loved business strategy and was not afraid to try new things, and Don Shaurette loved the art of the deal and of networking.

Many colleagues and friends at various banks have continually challenged my thinking on Treasury, change management, communication, and planning, including Doug Hartsema, Ranjana Clark, David Trotter, Joni Topper, Linda Cascardo, Bryon Null, Joe Schneider, Maria D’Alessandro, Kevin Peak, Diane Quinn, Ron Chakravarti, and many others.

Every one of our clients has taught me and our team valuable lessons and perspectives. I especially appreciate those who taught us the most while graciously pretending to receive tremendous value from our work together. We are particularly indebted to you in so many ways.

For all of those at Strategic Treasurer LLC who put up with my distraction and other shortcomings, which were exacerbated during the period of time when I was writing—thank you. Thank you for picking up the slack and adjusting to rapid priority changes. I further acknowledge those who helped with the document editing, graphics, and organization, including Jane Jeffery, Ellen Heffes, and Christy Cook. I would also like to thank my editors at John Wiley & Sons: Stacey Rivera, Development Editor; Sheck Cho, Executive Editor; Lisa Vuoncino, Production Editor; and other staff: Helen Cho, Editorial Coordinator and Debra Bowman, Professional Indexer. Either this book project or I would have died without their help.

Finally, I acknowledge my family for their support, prayers, love, and patience. I further thank and acknowledge my dear wife, Suzanne, publicly for her friendship, encouragement, and unswerving support over the years, without which the Strategic Treasurer LLC consulting firm would not have been created or this book written. She encouraged me to form and pursue dreams, when taking a Treasurer position would have seemed to be a far safer alternative to establishing a consulting firm.

Sources, where directly attributable, have been referenced in this book. Furthermore, where an idea or a major component of an idea or concept was created and introduced by someone else, we have made efforts to ensure that the proper person is either credited or acknowledged.

Various articles and books have influenced my thinking over time or provided a base of understanding. There are many other conference presentations and discussions that have become part of my thinking, and therefore this book, in some shape or form.

Errors and misunderstandings of others’ concepts remain my responsibility.

CHAPTER 1

Building the Case for Being a Strategic Treasurer

A successful Treasurer must not only manage traditional funding and relationship activities, but also must possess an integrated and strategic view of the organization and broadly manage risk, add value by effectively partnering with key business players, and manage complex technologies and relationships. To do less jeopardizes the company and significantly limits their career.

—Henry L. Waszkowski, Managing Director,Treasury Performance Group

When going through a period of tremendous market turbulence and upheaval, as we have experienced recently, Treasurers have two primary thoughts. The first thought centers on their responsibility of protecting their organization for the next situation that will arise. They plan and prepare themselves for the next event, so that they will be able to respond quickly and properly to protect their organizations. Their second thought, during a lull in the storm, is about how exciting it is to be a Treasurer during this time. There has never been a better time to be a Treasurer than now. The equivalent of many years’ worth of learning can be crammed into weeks or days.

With market turbulence at an unprecedented level, this environment will hone some Treasurers’ skills and identify opportunities to improve their preparedness. For other Treasurers, it will point out significant gaps in their thinking and plans. Some will look for positions other than that of Treasurer—on their own initiative or out of necessity.

As increasingly broad financial difficulties have emerged, there has been marked improvement in the perceived value of the Treasurer. During long periods of relative stability in the liquidity markets, it is easier for senior management and board members to become complacent about the importance of Treasury for the health and well-being of the organization. Strategic Treasurers bring value to the organization in ways beyond securing the necessary capital and protecting the organization’s balance sheet. They identify and manage a range of risks, assist the organization in making better decisions with analytical rigor, and partner with other departments to improve processes and performance.

A Strategic Treasurer brings great value to the organization and has a strong sense of career fulfillment. The fact that Treasurers continue to develop marketable skills and intellectual capabilities is an added benefit.

There is much a Treasurer can learn both from history and the more recent variety of events and from issues that continue to emerge. The thoughtful Treasurer will not only learn from the specific situations. She will understand with alacrity how to apply principles already learned to new and different situations.

It is an exhilarating time to be a Treasurer. And being a Strategic Treasurer has never been more highly valued.

Volatility and Turbulence as Opportunity

Different surfers have different reactions as they head out into the ocean as the waves build up ahead of a hurricane that is bearing toward shore. Some think, I must be crazy putting myself at such great risk. Another response is a smile at the thought of what a great time it will be navigating in the new and uncharted surf. The level of focus that is required in the extreme environment is exhilarating. The surfer’s skills will be refined. This difficult environment provides a testing ground that will make regular surfing seem far easier than ever before.

Now, not everyone really wants to head out into dangerous surf, but there are times when even the most prudent will find themselves in situations that have emerged in which a response is needed. For example, the events of 2007 and 2008 have created extreme financial risk management situations—some of which possibly could have been predicted, but most of which could not have been prevented.

Those Treasurers who have mastered the basics and have prepared for dealing with a variety of situations can respond most rapidly and can quickly improvise when needed to adjust for changing conditions. Extremely challenging events will make some quit, break some, or make some stronger and better able to handle the next situation. Appropriate, continuous preparation will help bring about the third result.

Resiliency, Diversification, and Due Diligence

Organizations need to be resilient. They must be able to weather multiple storms, absorb multiple hits, and survive. No single event should put a company out of business or imperil its very survival.

No area in the company plays a larger role than Treasury in helping the organization be resilient. Securing and sustaining adequate liquidity may be simple in good times and nearly impossible when times are challenging.

The Strategic Treasurer will ensure liquidity and resiliency through a variety of means. This resiliency requires careful planning, diligence monitoring, and quick analysis and responses to changing conditions.

Building resiliency also means diversification, even though that appears to add costs to the organization during more stable times.

Diversification alone is not sufficient. Treasury will need to perform due diligence with various counterparties and providers as a matter of course. For example, in the 2007-2009 economic climate, due diligence requires more intense focus—especially when blue chip companies are failing, rating agencies’ information is suspect, and no one is quite sure how the government will respond to the latest situation.

The Strategic Treasurer will communicate both how and why he is building resiliency into the business. The Strategic Treasurer will also recognize that the world of second-guessers—who have the benefit of 20/20 hindsight—will always question actions and point out what could have been. The Strategic Treasurer will stay the course, even if the true value of what he is doing takes three decades to be recognized by the board and senior management.

At the end of 2008, the Bernard Madoff Ponzi scheme scandal came to light. The fund was enormous, long lasting, and highly restrictive regarding who could invest in it. Warning signals that were released beginning in 2000 were essentially ignored or buried for more than eight years. Some individuals lost their entire personal worth as a result.

This disaster came to light over just a few days, and its impact was not just confined to individual investors. Several charities lost all of their invested assets, which had been held with Madoff, and many had to shut down. Other charities were gravely impaired by losses or by the loss of big donors whose financial position had suffered greatly. Such situations are sad but instructive. Whether for-profit, governmental, or not-for-profit, organizations should have a level of resiliency that allows them to handle any type of financial surprise or environmental disaster. One bad situation or counterparty should not be able to put an organization out of business.

Being a Strategic Business Partner

Treasury is never effective when it acts in an insular manner—disconnected from the organization’s business. Treasury needs to be proactive in seeking to help the organization fulfill its mission and to help specific departments achieve their goals efficiently and thoughtfully.

Treasury brings a unique set of skills to the organization, skills that need to be brought to the table and put to use. The Treasurer’s analytical rigor can help every area of the organization. Her ability to understand the broader environment and her ready access to external advisors allows the Treasurer to employ the dialectical method and challenge the status quo when it needs to be challenged.

Most Treasurers have an inherent fiscal conservatism that helps prevent their company or organization from entering into overly risky situations. They provide an intellectual and financial framework of stability that is essential for survival and confidence.

Chapter 3 discusses in greater detail the value to the organization and Treasury when the Treasurer acts as a strategic business partner.

It Is Good to Be Needed

During the years and even decades when much in the world that impacts Treasury is stable, the organizational view toward Treasury has ranged from bare tolerance to general acceptance. But when extreme volatility hits the markets, the organization’s need to survive creates a strong realization of how important it is to have a great Treasurer. Such Treasurers not only help the organizations survive, but also help the various business units improve their processes. And, as Treasurers and their department help the organization make prudent decisions about investments and risk, they will be viewed as increasingly valuable.

Strategic Treasurers set proper expectations of their role. They also recognize the need to explain their role to the organization, and they realize that communication must be a recurring activity. Astute Treasurers recognize that communication and education are not a single event. Relationship and expectation management are vital to the organization and for Treasury. Chapter 4 covers this topic in more detail.

Technology Has Improved

Treasurers, in order to marshal all of the resources at their disposal, need a clear view of the battle and the resources available. The technology tools and services that are available have recently seen significant advances on many fronts. There are software tools that can make it far easier and more complete than ever before to gather information and identify issues and exceptions to policies. These tools allow Treasury groups to devote far more time to analysis and strategic issues.

Indeed, services are now available to medium and small firms that were once exclusively the domain of the largest multinationals. These services are available through banks and various technology vendors.

The movement to Internet-based services has been dramatic. For most companies, these application service providers (ASPs) offer an ever-expanding level of capabilities with a fraction of the overhead of the previous technology platforms. The functionality of ASPs, also known as Software as a Service (SaaS) providers, benefit many organizations. They offer a pay-as-you-go method of using technology, which means a lower capital outlay and automatically updated software. This method also avoids the major challenges of owning the necessary hardware, which is leading to faster and more complete implementations. Reducing the amount and magnitude of the technical headaches and operational activities is welcome relief.

Strategic Treasurers will take advantage of these new and improved technologies to support their goals of owning cash, managing working capital effectively, and helping to ensure that risks are managed and mitigated appropriately. Having a clear Treasury information and technology plan remains important and is now easier to implement and will better support the business processes and goals that Treasury must achieve.

Chapter 14 on Treasury Technology describes the opportunity and necessity of leveraging this technology in more detail.

Summary

Clearly, going through major market and governmental turbulence is the best time to be a Treasurer. Perhaps, as never before, one’s plans and skills will be tested. The resilience and strength of organizations depend on what the Treasurer has done and how she will respond.

The Treasurer who acts as a strategic business partner, instead of being simply a dispassionate vendor to the organization, will serve her organization far more effectively, enjoy the work more thoroughly, and stay gainfully employed far longer than those who focus solely on operational and tactical matters.

Being a Strategic Treasurer requires a strong technical background and the ability to communicate effectively with various financial and nonfinancial people in a way that makes sense to each. The Treasurer must have an especially strong ability to identify and manage risks. He must be or become the clear owner of cash and liquidity and will be either the overseer or owner of working capital. The health and survival of the organization depends, in large measure, on how well the Treasurer manages its business, counterparties, and relationships.

Boards of directors and senior management now understand, more than ever before, the value of having a highly capable Treasurer. This is the time of the Strategic Treasurer.

CHAPTER 2

First Things for the New Treasurera

Plan your work and work your plan.

—Vince Lombardi

By nearly all accounts, honeymoons are wonderful. They are the mystical time carved out at the start of a relationship before reality sets in. Neither party can do any wrong. All is bliss. Life is easy. Then the honeymoon is over, and the part of a relationship that requires ongoing work begins.

After becoming Treasurer, there is a brief period that must be used wisely. Although there are usually urgent and immediate demands on the new Treasurer, there is always a bit more tolerance and understanding during the period immediately after the hire date. Without question, the first few months are the optimal time for the new Treasurer to get his mind around the organization and determine Treasury’s initial needs and goals. After this time is over the pressures increase dramatically, and the expectation levels rise.

Taking over the reins of a smoothly running organization is, perhaps, a rare luxury. Turbulent economic times, combined with challenges that face the organization, can make the reality of grabbing the reins of control both exhilarating and intensely focusing. While urgent matters at hand may require an enormous amount of time and dedication to manage, the Treasurer still must ensure that certain activities are done and plans put in motion. And, while some of those activities do not need to be done specifically by the Treasurer, some will indeed require direct involvement.

Most Treasury organizations are thinly staffed, which requires a greater emphasis on how the Treasurer puts the group together and how she develops the people within that team. No matter what level Treasury is staffed at, Treasurers have the responsibility to fulfill their mission without fail. Given the fact that Treasury must secure adequate liquidity and manage a wide variety of risks, forming the typically small team to accomplish this effort is a top objective.

Beginning this new role requires a reasonable approach and ordered thinking. Exhibit 2.1 shows the conceptual progression of activities from the start of the process through to action steps taken to achieve your new vision and fulfill your duties as Treasurer.

Study the Business

While some in Treasury view their role as separate and apart from the details of the business, this is not a mature perspective. The Treasurer, and in fact everyone in Treasury, needs to have a solid understanding of how the business works. Joni Topper, Senior Vice President (SVP) and Regional Director of Government and Institutional Banking for Wells Fargo, based in Los Angeles, takes that point and emphasizes that excellent Treasurers make the efforts to ensure that the Treasury department as a whole has a good understanding of the entire business end of the organization. She states,

It is very important for the Treasurer to really understand the details of the business. And, they need to recognize that there are some people in every organization or business that are really good in some areas. They may understand the production side, for example, but may not know too much about other aspects. Their knowledge may be compartmentalized. Great Treasurers find ways of synthesizing the various facts that individuals know in order to put together a department that understands their business more completely.

The Vice President and Treasurer of Honeywell, John Tus, points out the need to have a broad comprehension of the business in order to perform Treasury duties: “The leader must understand how the Treasurer fits into the organization to create value. Where is cash being generated, built up and invested?” A danger that looms larger for Treasurers arises due to the role they play in the organization. “Treasury can be viewed as part of an insular function versus the Controller or someone heading up Financial Planning and Analysis. Those roles have more automatic interaction with the business areas and the business itself. Treasury is focused more externally: banks, credit arrangements and agreements, and overall liquidity management.”

While the rationale for studying and understanding the business has been addressed, the description of how a new Treasurer would go about this work has not. And, while this book will not go into a detailed recommendation of how to study your business, a few thoughts may be useful. These have been provided based on observation and analysis of successful Treasurers.

EXHIBIT 2.1 Conceptual Progression of Activities

• Reading list. Financial and general newspapers, business periodicals, and broad economic journals make up the most mentioned items for a reading list. The intent is to stay on top of treasury/finance, general business, and the specifics related to your business and to stay mindful of the broader issues developing.

• Internal discussions. Systematic internal discussions about the business and how Treasury can help are held either by Treasury alone or with various departments that Treasury supports. Discussing the ramifications of events or the business plan helps to keep Treasury intellectually sharp.

• External dialog. The internal dialog in an organization is often a bit too predictable. Actively engaging external parties, such as bankers and consultants, can create a whole new level of thought by those who are more willing to challenge the status quo. This external input aids many good Treasurers to learn via the dialectical method and then engage other internal areas more effectively.

The work of studying the business is a major event at the beginning of the time a Treasurer serves at an organization. However, it must be viewed as an ongoing process and not merely as an isolated event. At the end of this chapter we make mention of ongoing intellectual curiosity, which would encompass knowledge about the business but would also involve other areas, including Treasury. To begin the process of understanding Treasury, a formal time to assess the department is necessary.

Assess Treasury

Understanding Career Stages

The prerequisite to assessing Treasury is to refresh your mind on the career stages for Treasury professionals. Rick Moss, SVP and Treasurer of Hanesbrands, divides up the Treasury career into two stages. “The first is the foundational stage where you build up your technical skills. There is exposure to many different areas of expertise within your profession. Some people do themselves a disservice by avoiding some of the less glamorous areas of treasury.” He makes further points about the need to interact successfully with others at the same level during this building phase of a career track to Treasurer. “If you can’t deal with the technical questions, you will not have the credibility to address the really big questions. The foundational phase is really important and some people try to rush through it too quickly and do not have a firm enough footing.” Excellent Treasurers need to be generally well rounded from a business standpoint and must have more detailed understanding of their organization’s activities and environment.

Moss identifies the second half of the Treasurer’s career as the strategic phase. Having the proper foundation laid is of critical importance for success to be sustainable at this level. Some people try to rush this process too quickly and “. . . do not get as firm a footing as they need to. There is something to be said for broad experience . . .,” Moss points out. If you are contributing to the organization as a strategic business partner, ensuring strong knowledge about the particular business you are in is important. And having at least a fundamental knowledge of marketing, sales, human resources, and so on will allow the Treasurer to relate to her colleagues within the context of their particular organization. By understanding the business and the organization, the groundwork is laid for understanding needs of others in senior management. For the Treasurer to add insight and value to the organization in terms of analytical rigor and business acumen, and to help to better identify and manage risks, several activities are appropriate. These include an in-depth assessment of Treasury and interviews and assessments of other areas. These assessments will be instrumental in the risk identification and risk management activities understanding of the organization and will need to be done at the time of taking on the title of Treasurer and at periodic intervals afterward.

Start Your Assessment

Depth perception is far more effective and easier when using two eyes. The same is true for assessing Treasury and other departments. The second eye can come from a source other than the Treasurer. This could be from a highly experienced practitioner from within Treasury, Audit, or the ranks of senior Treasury consultants.

Begin your assessment by looking at the Treasury department first. Jeff Wallace, the Managing Partner of Greenwich Treasury Advisors, makes the case for using the audit staff and existing documentation as a starting point of an assessment process, “Have internal audit review Treasury’s internal controls. It is a good way to become familiar with the controls and the operations. Sarbanes-Oxley documentation is another good source of material to help you understand Treasury.” Supplement that information with other documentation related to Treasury, including policies, strategic planning documents, system maps, Treasury reports, and relationship plans.

The documentation and assessment are intended to capture the current state of Treasury processes and systems. The dialog with the Treasury staff will help you to better understand the status of personnel as well as gain a sense of what the mission and vision statements really mean to this organization. Having this baseline understanding will allow you to further refine your vision for the future and make the plan to connect the current state to that aspirational future view. Treasury assessments can be made by the Treasurer alone or with an outside consultant.

The documentation portion will need to include a financial inventory component. The financial inventory will include cash, bank accounts, debt, investments, intercompany loans, and hedges. Many inventories will also include cross-border flows, volumes, and more detailed information on bank accounts, signers, and counterparties. Depending upon the complexity of the company, the level of historical decentralization, recent activities, and acquisitiveness and control mindset, this effort can range from manageable to very challenging. Keeping this data current and organized will usually require the use of various automation tools to build this control into the process. Chapter 14 provides some additional information on this process and how to minimize the amount of rework and version control problems that can arise.

Not performing an assessment when taking over the Treasury group or every three to five years is akin to skipping your annual or biannual physical. While getting the physical is never pleasant and you may have some uncomfortable moments, it is always better to get the feedback earlier in the process while you have time to work on it.

As you complete the review of Treasury, you will find that it provides a good basis for understanding the other business areas more deeply. Assessing areas outside of Treasury can occur at various levels of depth. While one may choose to start at a surface level to gain a sense of context, there are pros and cons to this approach. The benefit of this approach is that it will be less time-intensive for all parties involved. The negative aspect is also practical. You do not always have a second chance to assess an area. Going in the first time and gathering only a high-level perspective may create friction when you attempt to go back for a more thorough assessment. Either approach may achieve the benefit desired if the Treasurer has thought through and communicated the plan and approach to the other departments.

For a less-detailed review or assessment, normally the Treasury group will perform this function on a solo basis. When a more detailed assessment is appropriate, engaging experienced resources is always beneficial. The resource should have experiences that include assessments, Treasury, the order-to-pay process, and the order-to-collect process. Other levels of experience may be needed based upon what you hope to accomplish. This may include additional depth related to systems or accounting.

Treasurers must be ever vigilant in managing risks, and part of any Treasury-driven assessment should help accomplish this effort. These risks may exist within Treasury, in another business area, or in the dangerous space between departments where handoffs exist.

Identify Risks

Anyone moving into the role of Treasurer understands that she is responsible for managing a variety of risks. When taking on this role, it is important to identify as many risks as possible right from the beginning of your tenure as Treasurer. Your assessments are a crucial way to rapidly identify various risks that exist within your organization and it serves to provide a baseline perspective that coincides with your assumption of this role. The risks are many. Exhibit 2.2 shows a sample of risks that a Treasurer will ensure are inventoried and managed. The boxes at the top identify some of the traditional risks that Treasurers manage. The risks in the table below the traditional risks highlight some risks that organizations have experienced during the recent market turmoil.

EXHIBIT 2.2 Risk Chart

Operational Risks

“In hindsight, major operational problems are obvious. Treasurers who avoid understanding Treasury operations put themselves and their organizations at an unnecessary disadvantage,” says Wallace. By using your assessments as a way to understand the areas of Treasury you can improve, you have the perfect opportunity to identify operational risks. The risks that have been identified may require a range of responses to address them in groups or individually.

Internal Control