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By Bryan Richardson
The NeuGroup’s Global Cash and Banking Group seeks to determine what world-class cash management means.
The NeuGroup’s Global Cash and Banking Group is looking to determine what world-class cash management means. The group’s survey is underway and here’s what’s been learned so far...
August 04, 2010 -
By Joseph Neu
As has been noted frequently in International Treasurer, the silver lining in the financial crisis for treasury is that it has put a spotlight on its importance in keeping firms viable—i.e., funded, liquid and on top of market volatility—during tough conditions. Unfortunately, being in the limelight only helps so much.
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By Joseph Neu
“I came back to the same house, but the neighbors are really different.” This is how Gary Bischoping described what it was like to return to Dell’s treasury to become treasurer after several years in a business-finance-related role. His comment largely underscores the key conclusion from the Eurofinance 13th Annual Conference on International Cash and Treasury Management in Miami last month. The financial and economic crisis may not have changed the job of treasury, but it has made treasury’s role more vital, since its key service providers—in particular for capital, liquidity and vital banking services—have been severely impaired, if not put out of business by the crisis.
May 27, 2009 -
By Anne Friberg
Cost cutting in hard times usually prompts MNCs to consider further consolidation of treasury. At last October’s EuroFinance in Barcelona, however, a comparison of two fundamentally differently organized companies, Tetra Laval and Nokia, revealed that the Best-In-Class label doesn’t necessarily apply to the most completely centralized treasury. Thus, the impulse to consolidate everything may not be the right one.
January 21, 2009 -
Treasurers are forever struggling to hire and retain talent. “It’s a lot harder to attract talent into support roles than, for example, an investment bank’s training program,” noted the director of FX and investments at one large tech MNC.
Indeed, the topic of how and who to hire into treasury has been a repeated theme at NeuGroup peer group events. At a meeting in October, treasurers of large multinationals looked at the transformation of the finance organization via shared-service centers. If the finance organization is moving through technology (ERPs) and offshoring toward a very efficient transaction-processing model, “treasury is more likely to become a ‘center of excellence’ for strategy, vs. execution,” noted one pharma treasurer. As such, “we will have an even harder time fitting into general rotational development programs because we won’t have time for staff to train on the job. They will need to add value from their first day on the desk,” he said.
October 22, 2007 -
The pressure to hire and retain top talent is rising, but treasurers still have a hard time convincing senior management that treasury should have a bigger share of the bonus pool.
Staffing the treasury group has always been a challenge: The financial acumen and skill-set of the best treasury practitioners can often yield higher compensation at banks or buy-side firms. Over time, this challenge has only grown:
1) As treasury’s role expanded from the transactional to the strategic, the quest to find and retain good people has become more difficult;
2) In specific treasury areas, for example, investment management, the role of treasury is becoming more buy-side-like; however, the comp packages have not kept pace. “We cannot compete for the same talent with money managers,” said the treasurer of one cash-rich company; and
3) Finally, a period of robust economic growth has put a strain on the job market overall. The unemployment rate in October, at 4.4 percent, was the lowest since 2001. With employees’ out-of-pocket expenses on healthcare and pensions rising—and the value of ESOs declining—corporate treasury’s ability to hire and retain the best has fallen farther behind.
November 21, 2006 -
The growing complexity of some aspects of US GAAP (e.g., FAS 133, FAS 115), combined with the rising levels of excess cash on corporate balance sheets is encouraging more treasuries to outsource knowledge- and system-intense aspects of their work.
In contrast with the overall trend in financial outsourcing, this form of treasury outsourcing focuses not on low-value and non-core functions. Rather, it concerns activities that require heavy investment in specialized knowledge and systems, which resource-strapped treasuries cannot afford.
July 18, 2006 -
What if companies could forget about hedge accounting and simply mark to market (or fair value) all hedges and underlyings (see story)? What if they could recognize the declining value of their debt in earnings? And what if companies could forget about trading, available for sale (AFS), and held to maturity (HTM) classifications—and related impairment considerations—and simply recognize offsetting gains and losses across an investment portfolio?
If the FASB has its way, such “what-ifs” will soon become a reality. Next month (and in the wake of a June public roundtable) the Board will redeliberate an Exposure Draft that it released in January, which covered the first phase of a such an option.
The proposed Statement would allow an entity “to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and financial liabilities on a contract-by-contract basis, with changes in fair value recognized in earnings as those changes occur.” A second phase will consider additional, including some nonfinancial, assets and liabilities.
Such a radical departure from current accounting guidelines however, is more than many firms can imagine. The project was sparked by a convergence project with IAS 39 (see IT, 4/5/04), which offers a similar alternative. But as was the case with IAS 39, the Fair Value Option is meeting considerable resistance.
A laundry list of cons
There are several concerns about moving to Fair Value, according to the FASB Staff’s analysis of the comment letters on the Exposure Draft:
• It will impair comparability, enabling economically similar transactions to be accounted for differently;
• It does not provide a reliability threshold, such as limiting to reliably measurable fair values or verifiable fair values, to curb abuse (This is the subject of another, concurrent project the FASB is undertaking to bolster fair value measurement guidance in order to avoid Enron like mark-to-model abuse; see IT, May 2006);
• It should not be issued until the proposed FASB Statement on fair value measurement is finalized;
• It might result in the entity recognizing gains or losses in earnings for changes in its own credit worthiness. This is a particular sore point for rating agencies like Moody’s, which noted: “Distressed companies may be motivated to measure their debt at fair value at transition so as to appear more solvent and less leveraged, and to avoid triggering debt covenants.”
• It will increase volatility in earnings;
• It would be better reported as a disclosure item rather than on the face of the financial statements;
July 18, 2006 -
By Joseph Neu
While the overwhelming consensus among treasurers points to building their business advisory role and becoming a more strategic function (see IT, May 2006), there is a practical challenge in giving up on certain tactical projects that seem to be never-ending and soak up attention. In other words, it is very easy for treasury functions to get stuck on tactical.
The tactical pull
It is hard to blame treasury professionals if they stick with what they know—and what they know how to measure. It is even harder to do this in an environment where control is paramount. Thanks to SOX, tactical issues have become perhaps overly important...
June 22, 2006 -
By Joseph Neu
T he underlying goal of any enterprise’s strategic functions is twofold: support overall growth and enhance the profitability of the firm’s lines of business. Hence it follows that for treasury to be recognized as a strategic function it must make these goals its own.
Redef
May 25, 2006 -
Introduction: The Impact of Centralization on BCP and Bank Fees
In January 2006, more than 20 members of the Global Cash and Banking Group convened for the group's 4th semi-annual meeting. Sponsored by ABN AMRO, the group discussed a range of issues including:
• Centralization of bank and treasury structures;
• Business Continuity Planning (BCP);
• Bank fee and statement analysis.
Yet as the discussion unfolded, a single, clear theme emerged: Both BCP and bank-fee analysis are strongly influenced by treasury's continued effort to centralize bank account and organizational structure.
What members learned was that fewer and deeper bank relationships simplify the task of negotiating and monitoring bank fees across accounts and geographies; while that’s good in theory, in practice even a single bank is often unable to deliver a centralized, itemized billing statement outside the US.
Members also determined that as treasury packs more power into HQ and/or regional hubs, it gains greater visibility into key processes that might require a backup. At the same time, centralization further concentrates treasury’s operational risk exposures.
Both trends are only going to become more pronounced, as treasury continues to centralize: “Centralization is addictive,” noted one GCBG member. “The more you have it, the more of it you want.” As a result:
1) Treasury will be undergoing pressure to firm up its BCP framework; and
2) Treasury will put its banks under even greater pressure to report fees on a global and standardized basis so as to avoid any surprises and view the relationship as a whole.
April 20, 2006 -
When employee stock options (ESOs) were “free” (read: no P&L impact), they were given out generously to senior execs and rank and file employees at fast-growth firms. However, as the Financial Accounting Standards Board’s (FASB) decade-long effort to force companies to expense ESO became a US GAAP reality this year, the cost (be it fair or not) of ESOs began to hit the P&L, causing many firms to reconsider their approach to equity-linked compensation. It did not help that, during the same time, a stock market slump meant that many employees’ options were deeply underwater.
Thus, just as FASB made options appear more expensive, ESOs were losing their allure with employees. No wonder then that more treasurers report being involved in efforts to overhaul the equity-linked comp structure at their firms. A 2005 NeuGroup Peer Group survey of 30 tech treasurers revealed that 75 percent were directly involved in discussions to overhaul their companies’ equity-linked comp. The same survey revealed that 60 percent of treasurers had only recently been called upon to help HR solve the ESO quandary.
“Treasury and HR specialists find themselves increasingly working together to devise new pay packages that achieve similar objectives, but cost the company less,” reported Stephen O’Byrne, the president of Westchester, New York-based Shareholder Value Advisors.
Tweaking the ‘wealth ratio’
Ideally, according to Mr. O’Byrne, equity-linked comp achieves two purposes: (1) It aligns the interests of high-level execs with those of shareholders; and (2) it provides an incentive to rank and file employees to stick with the company until their options vest.
For years, ESOs were considered a very efficient way to provide a performance incentive for top management (vs. restricted stock, for example). That’s because ESOs are more sensitive to company performance than the underlying stock. If the stock price changes by 10 percent, the value of a typical ESO (ATM, with an expected life of six years) changes by about 16 percent. The ratio of the percent change in the incentive security value to the percent change in stock value is called the “wealth leverage.” The wealth leverage of a typical ESO is about 1.6, compared to 1.0 for a stock grant.
In addition, Mr. O’Byrne pointed out that because of US GAAP, until FAS 123R came along, ESOs appeared more cost effective than stock because their value was not taken out of the company’s earnings. FAS 123R leveled the playing field, however. Under FAS 123R, companies must expense the value of the options they grant their employees. That value is equal to the grant-date expected value of the shares that ultimately vest.
If the option has a vesting period based on service, e.g., three years, and the employee completes the service period, the accounting expense is equal to the grant-date expected value, even if the option is never exercised and expires out of the money. “For a typical company, the grant-date expected value, which is based on the Black-Scholes or binomial option value, is about 47 percent of the exercise (and market) pri
April 20, 2006 -
By Joseph Neu
Peer group discussions over the last weeks confirm conclusions reached last year (see IT, 11/15/2004) that treasury efforts to centralize should not leave local and regional treasury functions without core capabilities. While distributed treasury infrastructure may not always be the most efficient, it offers greater survivability.
The centralization trend. A prominent trend with MNC treasuries reviewing their regional infrastructure is to assign a “dominant affiliate” in each country to have its staff coordinate local treasury activities at the local level (see chart below). Some also assign a finance manager at a dominant affiliate to coordinate regional treasury activities as a precursor or alternative to a regional treasury center.
And yet, the temptation to remove or forgo the regional center is growing for many firms. Indeed, one MNC active in NeuGroup peer groups is pulling back regional treasury activities from Europe and Latin America into its North American headquarters. This leaves the important question of how best to shift responsibilities for the personnel left in the region.
Shifting responsibilities. A key aspect of this firm’s approach is that it is not reducing headcount, but rather reallocating it. Treasury operations and execution-related activities are being moved back to HQ to take advantage of centralized infrastructure, systems, processes, controls and expertise. But in shifting execution and management of treasury activities to HQ, the company has reassigned in-region headcount to a business interface role—e.g., to help with activities like cash flow forecasting, exposure identification, local bank relationship management and sales support .”It pays to have boots on the ground,” notes the firm’s global cash manager.
Retain legacy BCP benefits. While retaining local insight and relationships is often critical to treasury’s ability to add value to the businesses, there is an added benefit: such legacy resources can also be considered part of treasury’s business continuity planning (see main article). As treasuries review business continuity plans, or face the need to implement them, a consistent shortcoming is the failure to account adequately for loss of contact with individuals assigned to critical tasks, such as approval authority to release payments. Too often, treasuries are scrambling in a crisis to find someone who even knows how to release a payment.
For this reason, it seems prudent to retain capabilities to do things like approve and release payments with proper segregation of duties outside HQ, or any single global treasury center; this works even if day-to-day responsibilities for these activities are reassigned during centralization.
February 22, 2006 -
This is the time of year for treasurers to solidify their agenda for the next 12 months, and while there may be no single, defining challenge on this year’s “to-do” list 2006 is not going to be about business as usual.
Instead, the respite from having to put out major fires (e.g., SOX), combined with a general improvement in business conditions and record-high levels of cash, are allowing treasurers to resume a trend began pre-SOX: playing a strategic role in their company’s business.
January 20, 2006 -
Forward-looking statements about the future of treasury tend to be large on vision and short on practical to-do items. Thus in identifying the trends that are likely to shape treasury to 2010 (and beyond), it is important to set out what steps can be taken this year to prepare.
January 20, 2006 -
By Nilly Essaides
Treasurers account for a very small portion of investor relations professionals, and few IR officers report into the treasurer, but the treasurers who do report that the area is ripe for increased treasury role.
Empirical data shows that treasurers play a very small role in corporate investor relations: For example, only a handful belong to NIRI, the National Investor Relations Institute (see table below). In addition, very few of NIRI’s members report into the treasurer (see table on next page), according to data provided to International Treasurer by Lynn Meloche, NIRI’s director of member services.
“This has been consistently the case,” confirms Lou Thompson, NIRI’s President CEO and a veteran of the IR industry. He notes that during the many years when he addressed breakout sessions on IR at Association for Financial Professionals meetings, there were only a handful of treasury participants who were actively involved in IR.
September 26, 2005 -
By Nilly Essaides
Treasurers account for a very small portion of investor relations professionals, and few IR officers report into the treasurer, but the treasurers who do report that the area is ripe for increased treasury role.
Empirical data shows that treasurers play a very small role in corporate investor relations: For example, only a handful belong to NIRI, the National Investor Relations Institute (see table below). In addition, very few of NIRI’s members report into the treasurer (see table on next page), according to data provided to International Treasurer by Lynn Meloche, NIRI’s director of member services.
“This has been consistently the case,” confirms Lou Thompson, NIRI’s President CEO and a veteran of the IR industry. He notes that during the many years when he addressed breakout sessions on IR at Association for Financial Professionals meetings, there were only a handful of treasury participants who were actively involved in IR.
September 26, 2005 -
Since the start of its implementation in the fall of 2004, the Sarbanes-Oxley Act, a.k.a. SOX, has been called many things—onerous, overarching, overkill, come to mind—yet it’s rarely if ever been called a benefit. At least not until now. (In these pages, the silver lining of SOX has been occasionally highlighted; see IT, 5/25/05).
Post mortem
In forcing companies to pay more attention to control and compliance systems, the 2002 law has in fact helped managers learn more about their businesses, expose key weaknesses and most importantly, boost performance.
The study, Compliance and Technology: A Special Report on Process Improvement and Automation in the Age of Sarbanes-Oxley, prepared by CFO Research Services in collaboration with Price-waterhouseCoopers and Virsa Systems, is primarily a report on how and what companies are doing to automate SOX compliance.
September 25, 2005 -
By Nilly Essaides
Fast-accumulating corporate cash piles and a rejuvenated business outlook have sparked an M&A boom as well as a surge in treasury’s interest in how it might be more strategically involved in the pre- and post-acquisiton process.
Corporate America has more cash than ever before and is under increasing pressure to use it. For many multinational companies, growth means acquisitions, and the best prospects are often outside the US.
M&A market data certainly support this view. According to consultancy Treasury Strategies Inc. (TSI), last year saw $880 bn in new M&A deals, and “the growth trajectory in corporate cash and economic growth signals that 2005 will be an even stronger year,” says Stephen Baird, project manager at TSI, and the leader of a recent web seminar on treasury’s role in M&A. “M&A is back in the headlines, and the megadeals are back in style,” he says.
Less scientific, perhaps, but highly indicative, there’s also anecdotal evidence to suggest that this pressure to grow is increasingly pulling treasury in—and on a more strategic level.
July 20, 2005 -
By Nilly Essaides
As treasury expands its view into the end-to-end cash process, the focus on working with the tax department—always key—is becoming more so; how are treasuries ensuring that they remain in sync with the tax group?
There’s no question that treasury and tax must work hand in hand. This has always been the case. However, the urgency—and propensity—for tax and treasury collaboration is on the rise.
Whether tax reports into treasury or not (mostly not), treasury practitioners at multinational companies must work closely with their tax departments on various core aspects of their job: Netting (whether cashless or not), intracompany lending, pooling, etc., all involve intricate tax structures, often anchored in a tax-advantageous location such as Belgium, Ireland or Switzerland.
Deciding what’s allowed and what’s not, and where to set up the treasury center, are tax-heavy decisions and tax is thus heavily involved.
But while treasury has always seen the benefits (and the necessity) of working with the tax department, treasury practitioners often complain that their tax counterparts do not feel as compelled to bring treasury into their process.
Meanwhile, only a handful of treasurers report that they also oversee tax; thus, for the most part, this is a cross-functional link without the benefits of an official reporting authority.
July 20, 2005