Welcome To NeuGroup

Connecting Every Finance Professional Who Wants To Share And Learn

Welcome To NeuGroup

Connecting Every Finance Professional Who Wants To Share And Learn

Our Mission

To help our members in Corporate Finance and Treasury reach their full, professional potential. We assist our members and those who serve them to drive success for their companies, their customers, their teams, their peers and themselves.

Our Vision

To connect every finance professional who wants to share and learn with others seeking the same. Bring the best of these professionals into our leading membership network for knowledge exchange to be a source for solutions, advice to achieve greater success and for new insight and validation for the advancement of Corporate Finance and Treasury professions.

The Corporate Finance and Treasury Elite From the World's Most Iconic Companies
NeuGroup Process

Share Your Projects And Priorities And What You Would Most Like To Learn From Other Finance Professionals

Connect

NeuGroup helps you forge meaningful connections with fellow finance professionals who share similar projects and priorities or have useful experience with them.

Exchange

NeuGroup establishes trust to facilitate open and honest knowledge exchange and inspires you to share and learn to reach your full professional potential.

Distill

NeuGroup distills useful content from each exchange to drive success and focuses on new insight that is validated by our peer groups of leading finance professionals.

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NeuGroup Helps Our Members Drive Success For Themselves, Their Teams, Their Companies, Their Customers, Investors And Every Other Stakeholder In Reaching Their Full Potential

Our NeuGroups

NeuGroup currently connects 500+ corporate finance and treasury professionals from hundreds of the world’s most iconic companies for knowledge exchange in over 20 peer groups and distills insight from these exchanges to help them succeed.

Treasury Leadership Is Alive and Well in Texas

Insights from member meetups in Austin and Houston, distilled by NeuGroup’s founder and CEO.

By Joseph Neu

Treasury leadership is alive and well in Texas. That’s one big-picture takeaway from my trip to the state last week. I was there to talk with treasurers—and leadership was on my mind. Here are some themes that surfaced, divided into three sections:

Why are you a treasurer?
 I asked that question at a salon dinner for members hosted by NeuGroup in Austin. In addition to “why,” the answers also highlighted how each person rose to the position of treasurer.

Insights from member meetups in Austin and Houston, distilled by NeuGroup’s founder and CEO.

By Joseph Neu

Treasury leadership is alive and well in Texas. That’s one big-picture takeaway from my trip to the state last week. I was there to talk with treasurers—and leadership was on my mind. Here are some themes that surfaced, divided into three sections:

Why are you a treasurer?
 I asked that question at a salon dinner for members hosted by NeuGroup in Austin. In addition to “why,” the answers also highlighted how each person rose to the position of treasurer.

  • Quality treasurers beget quality treasurers. What’s interesting is that no one present set out to become a treasurer. Instead, they learned about its attractions and advantages after coming into contact with a high-quality treasury team led by a top-notch treasurer during some phase of their finance career (i.e., on the job and not in school)—either on the banking or corporate side.
  • Strategic, please. Most members in Austin were drawn much more to being a strategic treasurer than one with a more administrative role. Strategic treasurers develop a deep understanding of the business so their teams can enable it. On a lighter note, in many cases, nobody in the company really knows what you do, yet it sounds like you are a supersmart rocket scientist. That gives you some sway to do things that add strategic value.
  • An important stop for CFO. Members were split on whether they wanted to become chief financial officer, with a number saying yes to CFO aspirations and a few saying they would prefer to remain treasurer. All agreed that working with a CFO who had been a treasurer made their jobs easier, especially if the CFO lets the treasurer be the treasurer. A good working relationship between treasurer and CFO is essential.

Treasury KPIs: Are they bold enough? The topic of treasury key performance indicators (KPIs) came up while I visited treasurers in Houston. Here are some discussion points to help answer the question:

  • Be bolder about enhancing business revenue. Efforts to enhance the revenue of the business can always be bolder, according to some back-and-forth among treasurers. Yes, the skewing of treasury KPIs toward cost reduction metrics deepened after some teams sought to profit from financial transactions, e.g., derivatives. But if treasury can instead enhance the revenue and profitability of the businesses it supports, then why not reward the function with profit-oriented goals and objectives?
  • Promote treasury leadership more boldly. The other area to strengthen KPIs is around treasury leadership. In a recent podcast, I discussed the correlation between top-performing companies and treasury leadership with Ron Chakravarti, head of global treasury advisory at Citi Treasury and Trade Solutions. He co-authored a study by Citi GPS demonstrating that companies with superior financial performance have leading treasuries. This should help both inspire treasurers to set bold treasury leadership goals and make the business case for resources to meet bold KPIs.
  • Treasury performance aligned to investors. If your treasury is in doubt about what KPIs to prioritize, think about what investors want. Ron emphasizes that treasury KPIs should be aligned to what matters to investors and that starts with a philosophy and mindset that treasury is there to support top-line growth and profitability. Accordingly, each goal should align to thinking about the business and what it may need to grow.

Development and retention of treasury talent. My conversations in Texas also touched on the critical component of talent in treasury leadership. Three takeaways:

  • Teach treasury well. Treasurers continue to find it challenging to recruit, develop and retain treasury talent, particularly at less senior levels. Thinking back to the Austin discussion about why members are treasurers, it is imperative to teach treasury well to produce future treasury leaders. These leaders will also be attracted to a strategic treasury mindset, so teach that approach.
  • Connect staff with peers to grow knowledge. A big part of learning is found in sharing and learning with peers. In conversations with treasurers about joining NeuGroup, for example, their first reaction is often focused on how it will help their staffs develop professionally. Whether it’s with NeuGroup or another means, treasury leaders develop better with networks that source and validate new ideas and best practices.
  • Be a talent exporter. Great treasury organizations will invariably see top people leave to lead treasury at other companies. One sure sign of a leading corporate treasury is that many of the team’s graduates are treasurers elsewhere, making some treasurer meetups feel like one company’s alumni gatherings. This reality of top talent moving up and out is one reason CFOs who have been effective treasury leaders may try to retain top performers by helping them find compelling career paths within their own organizations, outside of treasury. Exporting talent this way counts, too. The problem is that love of treasury can be hard to undo!
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Unlocking Success: The Impact of Treasury Leadership

Citi global head of treasury advisory Ron Chakravarti on what separates the highest-performing corporate treasuries.

A recent Citi GPS study, Treasury Leadership: Does It Matter?, reveals that corporations scoring high on measures of treasury sophistication and automation showed the highest earnings-to-revenue ratios. In other words, the answer to the question posed in the study’s title is resoundingly “yes” when financial performance is what matters most.

  • In a NeuGroup video you can watch by hitting the play button below, Citi managing director Ron Chakravarti, who co-authored the study, describes some of the building blocks and attributes that are hallmarks of superior treasury leadership.
  • Mr. Chakravarti, who has spent over 17 years at Citi and is currently the bank’s global head of treasury advisory, helped analyze the results of a survey of hundreds of clients. Among the conclusions in the 88-page report: “There are fewer excuses for treasury underperformance as we move into 2024 and beyond”—in part because of what companies can learn from the study.

Citi global head of treasury advisory Ron Chakravarti on what separates the highest-performing corporate treasuries.

A recent Citi GPS study, Treasury Leadership: Does It Matter?, reveals that corporations scoring high on measures of treasury sophistication and automation showed the highest earnings-to-revenue ratios. In other words, the answer to the question posed in the study’s title is resoundingly “yes” when financial performance is what matters most.

  • In a NeuGroup video you can watch by hitting the play button below, Citi managing director Ron Chakravarti, who co-authored the study, describes some of the building blocks and attributes that are hallmarks of superior treasury leadership.
  • Mr. Chakravarti, who has spent over 17 years at Citi and is currently the bank’s global head of treasury advisory, helped analyze the results of a survey of hundreds of clients. Among the conclusions in the 88-page report: “There are fewer excuses for treasury underperformance as we move into 2024 and beyond”—in part because of what companies can learn from the study.

A carefully considered philosophy. In the video, Mr. Chakravarti also discusses the need to establish a philosophy of principles-led decision-making. It’s an approach that requires precisely outlined responses to various scenarios, but also trust in treasury team members to strategically adapt to new situations.

  • “You never know if you’re going to be right or wrong,” he says in the video. “You always want to have optionality. You want to think through the downside, and you want to make a decision that gives you optionality as much as possible—then you give people the latitude to be able to do that with good, principles-led thinking.”

Stay tuned. Later this month, the full conversation between Mr. Chakravarti and NeuGroup founder and CEO Joseph Neu will be featured in NeuGroup’s Strategic Finance Lab podcast, available on Apple and Spotify.

  • You’ll hear them discuss the full takeaways of the survey, as well as Citi’s methodology behind identifying which treasury teams are performing above average—and the data showing that great treasury leadership leads to exceptional financial performance.
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Talking Shop: Spend Authorization Limits for CFOs and CEOs

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].


Context: Delegation of authority policies are an important part of good corporate governance and critical for companies structuring and implementing financial controls and setting limits for spend authorization as well as payment approvals. Financial authority policies cover employees inside and outside of treasury and other finance teams, and at some companies they are wide-ranging.

  • “Our authority policy has more than a dozen sections covering all kinds of limits,” one member told NeuGroup Insights this week. “Treasury’s limits address things like authority to open bank accounts, move cash, authorize FX trades, issue debt, etc. Having all of these requirements is part of a healthy control environment and avoids issues that can arise like failure to segregate duties and also mitigates fraud risk.”

Member question: “At your company, what are the CEO and CFO spend authorization limits? I’m trying to help our chief accounting officer do some benchmarking on our financial authority policy to rightsize some limits.”

Editor’s note: NeuGroup’s online communities provide members a forum to pose questions and give answers. Talking Shop shares valuable insights from these exchanges, anonymously. Send us your responses: [email protected].


Context: Delegation of authority policies are an important part of good corporate governance and critical for companies structuring and implementing financial controls and setting limits for spend authorization as well as payment approvals. Financial authority policies cover employees inside and outside of treasury and other finance teams, and at some companies they are wide-ranging.

  • “Our authority policy has more than a dozen sections covering all kinds of limits,” one member told NeuGroup Insights this week. “Treasury’s limits address things like authority to open bank accounts, move cash, authorize FX trades, issue debt, etc. Having all of these requirements is part of a healthy control environment and avoids issues that can arise like failure to segregate duties and also mitigates fraud risk.”

Member question: “At your company, what are the CEO and CFO spend authorization limits? I’m trying to help our chief accounting officer do some benchmarking on our financial authority policy to rightsize some limits.

  • “As a reference point, at my company, the CFO must approve spend—a commitment to an external party—over $2.5 million; and anything over $20 million must go to the CEO.”

Peer answer 1. “All payment processing with SAP via banks and also budgeted spend needs dual approval. VPs outside finance have up to $250,000 authority. Finance VPs, who are CFO delegates, can approve and release via our bank up to $10 million.

  • “From $10 million to $20 million requires approval from the chief accounting officer and the CFO. The CFO can approve up to $40 million and would need second approval from the CEO.”

Peer answer 2: “All VPs have authority up to $1 million and there is authority below that level up to $250,000. From $1 million to $2 million requires a division president or the general counsel or a corporate VP or SVP and the corporate controller. Above $2 million requires the approval of the CEO or CFO and they have discretion up to $25 million, at which point it has to go to the board.

  • “For a company of our size, with revenue below $5 billion, limits of $25 million make sense (and this is a per expense approval) because anything bigger than that is probably going to have awareness at the board level.
  • “We want to be sure that the divisional teams have financial discipline on spending and understand that we need to consider what is best for the entire company, not just specific divisions.”

Peer answer 3. “The CFO can approve anything up to $2 million; and the CEO approves anything over that amount. Let me caveat that we are founder-led, which I think makes a difference in terms of limits based on other companies where I have worked.

  • “With lower limits, you run the risk of a bottleneck at the top. You’ve got to have a good process and a good connection to the top to get past potential bottlenecks.”

Peer answer 4: “Purchase orders, invoices and contracts of $10 million and up require CEO approval; above $1 million needs CFO approval. FP&A managers approve anything below $25,000; FP&A directors approve up to $100,000.

  • “Once invoices are fully approved, automatic payments only require one treasury approval for liquidity purposes. If payments have to be made manually, an accounting or treasury manager enters them and a senior manager in treasury, the CFO or I can approve without any limits.”
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Dealing with ‘Derailers’ in Board Presentations: Tips from a Pro

A former CFO of Merck offers tips for treasurers to stay on track if board directors lob off-topic questions.

When Peter Kellogg was CFO of Merck during the 2008 financial crisis, the greatest challenge he faced during board presentations came when directors peppered him with questions based on what they had read, seen or heard in the media or elsewhere. This is one example of what he calls “derailers”—questions about subjects that don’t affect the company directly, are not relevant to the topic of the presentation and can throw a presentation off-track.

  • These “understandable concerns” came largely from directors also on the boards of smaller, less stable companies. This required Mr. Kellogg to offer direct and clear responses to provide comfort and clarity about how the situation was different for a larger company like Merck.

Bad news, good news. The bad news is that periods of volatility, economic uncertainty and geopolitical risk—like now—often give rise to more derailers, requiring treasurers and CFOs to respond tactfully and steer the conversation back on track.

  • The good news is that he shared how to deal with derailers in a session of NeuGroup for Life Science Treasurers last month. His tips for successful presentations to boards and audit committees are based on a business career spanning more than 30 years during which he also served as CFO of Celgene, Biogen and Frito-Lay International. And he currently sits on the board of two life sciences companies.

Opportunity. In the meeting, one member called board presentations “just another chance to screw things up.” Mr. Kellogg, by contrast, sees them as opportunities for treasurers to send the right message and involve themselves in the company’s long-range plan (LRP).

  • “You’re representing the treasury function,” he said in the session. “You want to take the opportunity to lead with the idea that you’re a great operation, and that you’re a leader—you’re impacting the company, you’re involved in the LRP and you’re working with business development to enable key projects that could be important to the future of the company.”

Clean slides, direct language. During the session, Mr. Kellogg discussed the need to make board presentations easily understood by any audience, especially considering some directors may not have experience in treasury.

  • Keep slides clean. Decks cluttered with charts and statistics, which Mr. Kellogg calls “banker slides,” will only be a distraction, and could lead to further off-topic questions.
  • Avoid jargon. Terminology that a generalist audience wouldn’t understand is likely to make a board cringe, according to Mr. Kellogg. “It needs to be something that’s easily understood, you want to make sure they are able to stay on track.”

A former CFO of Merck offers tips for treasurers to stay on track if board directors lob off-topic questions.

When Peter Kellogg was CFO of Merck during the 2008 financial crisis, the greatest challenge he faced during board presentations came when directors peppered him with questions based on what they had read, seen or heard in the media or elsewhere. This is one example of what he calls “derailers”—questions about subjects that don’t affect the company directly, are not relevant to the topic of the presentation and can throw a presentation off-track.

  • These “understandable concerns” came largely from directors also on the boards of smaller, less stable companies. This required Mr. Kellogg to offer direct and clear responses to provide comfort and clarity about how the situation was different for a larger company like Merck.

Bad news, good news. The bad news is that periods of volatility, economic uncertainty and geopolitical risk—like now—often give rise to more derailers, requiring treasurers and CFOs to respond tactfully and steer the conversation back on track.

  • The good news is that he shared how to deal with derailers in a session of NeuGroup for Life Science Treasurers last month. His tips for successful presentations to boards and audit committees are based on a business career spanning more than 30 years during which he also served as CFO of Celgene, Biogen and Frito-Lay International. And he currently sits on the board of two life sciences companies.

In a video interview you can watch below, Mr. Kellogg dives into three key ways treasurers can send the right message during a presentation to the board.

Opportunity. In the meeting, one member called board presentations “just another chance to screw things up.” Mr. Kellogg, by contrast, sees them as opportunities for treasurers to send the right message and involve themselves in the company’s long-range plan (LRP).

  • “You’re representing the treasury function,” he said in the session. “You want to take the opportunity to lead with the idea that you’re a great operation, and that you’re a leader—you’re impacting the company, you’re involved in the LRP and you’re working with business development to enable key projects that could be important to the future of the company.”

Clean slides, direct language. During the session, Mr. Kellogg discussed the need to make board presentations easily understood by any audience, especially considering some directors may not have experience in treasury.

  • Keep slides clean. Decks cluttered with charts and statistics, which Mr. Kellogg calls “banker slides,” will only be a distraction, and could lead to further off-topic questions.
  • Avoid jargon. Terminology that a generalist audience wouldn’t understand is likely to make a board cringe, according to Mr. Kellogg. “It needs to be something that’s easily understood, you want to make sure they are able to stay on track.”
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She Told the CFO She Wanted To Be Treasurer One Day. Now She Is.

Advice on advocating for yourself from Sandra Ramos-Alves, treasurer of Bristol Myers Squibb.

Sandra Ramos-Alves was an assistant treasurer at Celgene when Bristol Myers Squibb bought it in 2019. By June of 2021, she was acting treasurer of BMS. And in October of that year she was named senior vice president and treasurer of the pharmaceutical giant that had acquired the company where she had worked for more than 14 years.

In a Strategic Finance Lab podcast episode you can hear by heading to Apple or Spotify, Ms. Ramos-Alves says she may not have her current position if she hadn’t taken the advice of an insistent mentor and mustered up the courage to set up a meeting with the CFO. At that meeting, she told him she was interested in being BMS treasurer “when the time is right.”

Advice on advocating for yourself from Sandra Ramos-Alves, treasurer of Bristol Myers Squibb.

Sandra Ramos-Alves was an assistant treasurer at Celgene when Bristol Myers Squibb bought it in 2019. By June of 2021, she was acting treasurer of BMS. And in October of that year she was named senior vice president and treasurer of the pharmaceutical giant that had acquired the company where she had worked for more than 14 years.

  • In a Strategic Finance Lab podcast episode you can hear by heading to Apple or Spotify, Ms. Ramos-Alves says she may not have her current position if she hadn’t taken the advice of an insistent mentor and mustered up the courage to set up a meeting with the CFO. At that meeting, she told him she was interested in being BMS treasurer “when the time is right.”
  • That experience taught her the importance of advocating for yourself and telling people what you want. Because someday, when an opportunity arises, they may deliver for you. “We all do own our careers,” she says.
  • She also tells NeuGroup’s Nilly Essaides that mutual trust and integrity are the foundation of her leadership style. Trust in her team allows Ms. Ramos-Alves to empower people to make decisions and only bring her in when needed. By not wading too deep into the details of every issue, she avoids being an impediment, she says.
  • Even better, the trust allows her to step away and spend time with her family—her top priority. That includes taking vacations and leaving her laptop at home. But she never completely disconnects, she admits. Her iPhone is always on.
Sandra Ramos-Alves
Treasurer, Bristol Myers Squibb

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FP&A’s Role in Making Finance an Indispensable Business Partner

General Mills CFO Kofi Bruce’s vision of FP&A and finance: NeuGroup’s Strategic Finance Lab podcast, episode 8.

In a world with growing volatility, uncertainty, complexity and ambiguity, also known as VUCA, so grows the importance of finance organizations that can accurately see what’s coming down the pipeline, understand how that will impact the company and how to adjust. And the skills FP&A brings to the table are critical to succeeding in that mission.

  • In the latest Strategic Finance Lab podcast episode, General Mills CFO Kofi Bruce joins Nilly Essaides, NeuGroup’s managing director of research and insight, to discuss the role FP&A teams must play at organizations navigating an increasingly VUCA world. You can hear their conversation by heading to Apple or Spotify.

General Mills CFO Kofi Bruce’s vision of FP&A and finance: NeuGroup’s Strategic Finance Lab podcast, episode 8.

In a world with growing volatility, uncertainty, complexity and ambiguity, also known as VUCA, so grows the importance of finance organizations that can accurately see what’s coming down the pipeline, understand how that will impact the company and how to adjust. And the skills FP&A brings to the table are critical to succeeding in that mission.

  • In the latest Strategic Finance Lab podcast episode, General Mills CFO Kofi Bruce joins Nilly Essaides, NeuGroup’s managing director of research and insight, to discuss the role FP&A teams must play at organizations navigating an increasingly VUCA world. You can hear their conversation by hitting the play button below or heading to Apple or Spotify.

Mr. Bruce’s vision of finance evolution features an FP&A team that connects information from across the enterprise, using its vantage point in the flow of information to develop foresight that produces insight that leads to action that supports business growth.

  • As Mr. Bruce says in the podcast, FP&A’s role isn’t to only understand what will happen, but also to share “what I think we need to get on right now, and some ways and some places we can start the conversation. That’s what makes a differential FP&A organization.
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Internal Audit Debate: Keep Reporting to CFO or Switch to CEO?

An IA expert says reporting to the CFO may divert IA resources disproportionally to finance vs other areas.

More than three-quarters of US publicly traded companies’ internal audit (IA) functions report administratively to the CFO, although a similar percentage of IA professionals see reporting to the CEO as ideal.

  • Presenting to a meeting of NeuGroup for Internal Audit ExecutivesRichard Chambers, a former head of the Institute of Internal Auditors (IIA) and a longtime IA practitioner, noted that seeming disconnect as one of several alarm bells IA professionals should consider.
  • IA reporting to the CFO does not violate audit standards, but it may hinder it from carrying out its function fully, or at least foster that perception.
  • “When IA reports to the CFO, there tends to be a much higher incidence of it doing work in financial reporting and finance-related risks,” Mr. Chambers said.

An IA expert says reporting to the CFO may divert IA resources disproportionally to finance vs other areas.

More than three-quarters of US publicly traded companies’ internal audit (IA) functions report administratively to the CFO, although a similar percentage of IA professionals see reporting to the CEO as ideal.

  • Presenting to a meeting of NeuGroup for Internal Audit ExecutivesRichard Chambers, a former head of the Institute of Internal Auditors (IIA) and a longtime IA practitioner, noted that seeming disconnect as one of several alarm bells IA professionals should consider.
  • IA reporting to the CFO does not violate audit standards, but it may hinder it from carrying out its function fully, or at least foster that perception.
  • “When IA reports to the CFO, there tends to be a much higher incidence of it doing work in financial reporting and finance-related risks,” Mr. Chambers said.

The numbers. According to the IIA’s 2022 North American Pulse of Internal Audit report , 76% of chief audit executives (CAEs) say they work administratively for their CFOs. In response, Mr. Chambers launched a poll on LinkedIn that drew 1,700 responses.

  • “My question was, ‘Ideally, where should IA report administratively within the organization?’ It wasn’t even a contest,” Mr. Chambers said, with 74% citing the CEO, 11% the CRO and the CFO at 9%.

Supporting the CFO line. One member said IA would be way down the list of priorities of his company’s CEO, who is effectively the head of sales and dealing with a host of macro business issues.

  • As is often the case, the company’s CFO once worked in IA and so understands it better than the CEO, he said. So while Mr. Chambers’ poll may reflect what’s best theoretically, in practical terms reporting to the CFO is a more practical model.
  • “The skill set of the CFO is better aligned with what IA is trying to do, and having an informed sponsor or stakeholder is much more effective than having someone at the CEO level,” the executive said.

Other perspectives. Each company is different. IA reporting to the CFO may be most appropriate in many cases, Mr. Chambers said, and IA’s tendency to retain responsibility for Sarbanes-Oxley (SOX) reporting can channel it toward the CFO. However, there are issues to consider.

  • Mr. Chamber’s biggest concern is that CFOs, who typically view themselves as the function’s caretaker, may unintentionally interfere with IA or be perceived as interfering within the organization.
  • And reporting to the CFO may also disproportionally steer IA resources to financial issues, when risks and the need for controls abound in areas ranging from supply chains to climate and cyber.

Enlightening the CEO. Mr. Chambers recalled working for a four-star command in the Army and similar criticism arising about generals, like CEOs, not having time to listen to audit.

  • “We had no choice, we had to do it, and lo and behold these generals found it was very enlightening to have audit working directly for them,” he said.
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Answering the CFO’s Call

A soaring dollar is threatening earnings; get ready for more CFO questions.

The dollar’s ascent is causing a lot of heartburn for CFOs and boards. A stronger greenback reduces the value of FX-denominated income. For many US companies, foreign income comprises a large chunk of total revenue; thus, the hit to earnings can be substantial. In recent NeuGroup peer group sessions, the topic of containing the impact of a stronger dollar on financial results has been prevalent and reached far beyond the confines of our two FX Risk Management Peer Groups. ”The rise in the dollar value has triggered a sharp focus on members’ risk management programs,” said NeuGroup Director Julie Zawacki-Lucci, who leads the FX groups. “Members are re-examining their hedging processes. Treasuries are under pressure to explain their results to senior management.”

A soaring dollar is threatening earnings; get ready for more CFO questions.

The dollar’s ascent is causing a lot of heartburn for CFOs and boards. A stronger greenback reduces the value of FX-denominated income. For many US companies, foreign income comprises a large chunk of total revenue; thus, the hit to earnings can be substantial. In recent NeuGroup peer group sessions, the topic of containing the impact of a stronger dollar on financial results has been prevalent and reached far beyond the confines of our two FX risk management peer groups. ”The rise in the dollar value has triggered a sharp focus on members’ risk management programs,” said NeuGroup Director Julie Zawacki-Lucci, who leads the FX groups. “Members are re-examining their hedging processes. Treasuries are under pressure to explain their results to senior management.”

Asked and answered. “Among our clients, we see CFOs asking a lot more questions,” said Chatham Financial’s Jason Peterson, “because the currency landscape is really impacting corporate earnings.” Treasury is in the hot seat. It must respond quickly and clearly to demands for information and report on the effectiveness of the hedging program and explain the correlation between the company’s currency exposures and EPS—by currency. The upshot is that treasuries need a more sophisticated end-to-end FX risk management solution, which provides greater flexibility and advanced reporting functionalities. 

Just having the right data is not enough. It’s critical that companies forge a strong partnership with their risk management technology solution provider. At one company, which derives over 50% of its revenue from overseas, a previous standalone tool became outdated, and the vendor ceased making upgrades. When seeking to replace the product, treasury wanted more than just another product. “We were looking for more of a partner with thought leadership and an industry-leading technology product offering,” said the FX manager. “We looked at multiple options outside of our prior system,” she said. “What we found is that Chatham is an organization that is chock-full of thinkers who are really knowledgeable, who can answer any question and have their fingers on the pulse of the market,” she added.

The need for speed. “You can’t tell the CFO or the board that you’ll get back to them in a couple of days,” Mr. Peterson said. Unfortunately, this functionality is absent from many of today’s TMS because they lack the reporting flexibility of a best-of-breed tool like ChathamDirect, which offers dynamic interaction with data. “BI reporting tools (Power BI) are embedded within our product,” he explained. “It’s a lot easier and faster to extract insight and reporting and drill down by currency. Having access to the information and the ability to cut through and produce visualization enables you to quickly answer critical questions that inform management decisions.”

The ability to run analytics and answer management questions at speed is in large part a function of ChathamDirect’s holistic solution. “With Chatham, we have an end-to-end trading solution,” said one member. “At the front end, Chatham Direct is fully integrated with FXall, our trade execution platform,” he said. “Then new trades migrate seamlessly into the solution to enable analytics and hedge accounting reporting.”

Overcoming legacy concerns. An important reason finance and treasury have sought one-stop solutions has been the difficulty of integrating disparate systems. “The market needs to reorient itself away from adopting all-in-one solutions that often lack optimal functionality in specific areas, in particular for risk management,” Mr. Peterson noted. With the advent of APIs, “today’s systems have a much easier time talking to each other.” For example, ChathamDirect provides real-time integration with the ERPs, trading portals, settlements and G/L hedge accounting—all by leveraging APIs.

As treasury knows all too well, the transition from an existing system to a new system can have important data implications. As one company migrated from its legacy solution “we had to move all existing trades to Chatham,” says the FX manager. “It was a nerve-wracking process. The company had to reformat the data and make sure every single trade, of the thousands on the system, got migrated. Chatham made the process less painful. “They were very instrumental in supporting this difficult process, because of their commercial and technology expertise. “We never felt that they were getting impatient.”

Improving the economics. Accurate forecasting is often the most challenging hurdle that risk managers face. Because of the current economic volatility, forecasts may be less reliable. As a result, many treasuries hedge a smaller portion of their exposure, in order to not run afoul of hedge accounting rules. Thus, they create the potential for a significant impact on earnings—with which most CFOs, boards and investors are uncomfortable. Much of the effect on the bottom line is driven by limited TMS hedge effectiveness measurement functionalities – often limited to the critical terms match (CTM). In contrast, ChathamDirect supports multiple hedge effectiveness methodologies. “As organizations reconsider their hedge programs, marrying the desired economics with the accounting constraints can be a challenge,” said Mr. Peterson. “Our regression and triple regression models enable treasury to protect a larger share of its cash flow exposures, from the typical 50%-60% for the near-month to up to 80%-90%,” Mr. Peterson said. “By increasing the hedge ratio and extending the effectiveness window, treasury can produce better economics for the organization.”

“While we still use CTM for hedge accounting, our understanding of the hypothetical derivative method is that it gives you more flexibility with the effectiveness of your hedges,” one FX manager explained. “We are starting to be a little bolder in looking at the program and improving it.” In a recent situation, the company found that it inadvertently over-hedged. “Chatham was helpful in allowing us to understand the guidance on this.”

Designed by practitioners, supported by practitioners. The expanded functionality and greater flexibility provided by ChathamDirect reflect the origins of the tech platform. “It was developed with deep corporate treasury expertise,” Mr. Peterson explained. In addition, because Chatham operates multiple hedge programs on behalf of Fortune 500 companies, it also has first-hand experience in addressing the challenges of corporate risk management programs; that knowledge informed the solution’s design. In addition, customers get more effective support when they need it, because staff is familiar with the process, not just the technology.

This capability was particularly important to one member who joined treasury’s FX group at the start of 2022; the relationship with Chatham Financial enabled him to quickly come up the learning curve. “I have never done FX before,” he noted. “But I’ve been able to schedule calls whenever I need to and leverage their expertise.” He added that Chatham acts as a resource not only from a system standpoint, but also a strategic perspective. “They speak the language and have practitioner experience.” The ease of communication “exposed me to different functionalities as well,” he said. Ultimately, “this is where the technology and your hedging strategy come together.”

This developmental aspect was also critical for another FX manager, who experienced significant turnover in her group. “Their willingness to bend over backward helped me sleep at night,” she said. The turnover complicated the team’s domain knowledge. “It was good to know that FX was in good hands.”

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Business Partnering Must Be a Full-Time Job

To prepare for increasing demand for business decision-making support, FP&A needs to review its business partnering model.

When the business landscape is foggy, FP&A shines. Facing a period of economic and market volatility, FP&A leaders are preparing to provide more hands-on support to the business: A recent survey of NeuGroup’s Mega-Cap and Large-Cap FP&A peer groups showed that 100% of members anticipate (or are already sensing) a rise in demand for help from business leaders.

  • Operational leaders are going to ask a lot more questions about how a recession will impact the bottom line. That impact will vary by line of business, so it’s essential that FP&A runs multiple scenario analyses.

To prepare for increasing demand for business decision-making support, FP&A needs to review its business partnering model.

When the business landscape is foggy, FP&A shines. Facing a period of economic and market volatility, FP&A leaders are preparing to provide more hands-on support to the business: A recent survey of NeuGroup’s Mega-Cap and Large-Cap FP&A peer groups showed that 100% of members anticipate (or are already sensing) a rise in demand for help from business leaders.

  • Operational leaders are going to ask a lot more questions about how a recession will impact the bottom line. That impact will vary by line of business, so it’s essential that FP&A runs multiple scenario analyses.
  • It also means FP&A will need to provide faster, better and more forward-looking insights to enable management to make smart business decisions about head count, cost reduction and investments.

Partnering best practices. Ensuring an effective partnering model is critical in today’s environment. A productive collaboration underlies “FP&A’s ability to help the company understand the challenges it’s facing and where it needs to pivot,” one member said. In group conversations and several in-session polls, NeuGroup identified three critical business partnering success factors:

  1. Dedicated partners. While finance organizations frequently talk about the importance of business partnering, not everyone is walking the walk. One way to gauge the true level of engagement is to see whether the function has full-time staff devoted to partnering with business units and other SG&A functions.
    1. A poll taken during a July 27th joint meeting of the FP&A groups revealed that 100% of respondents have dedicated business partners. By making business partnering a full-time job, FP&A can leverage its “intellect, horsepower and knowledge all across the board,” one member said. “If it’s a part-time job, it just doesn’t work because it gets less attention and doesn’t build the right level of credibility within the business,” said Nilly Essaides, NeuGroup’s managing director of research and insight.
  2. A clear engagement model. The other best practice is establishing a formalized interaction model between the business and its finance partners. NeuGroup research shows that most members have institutionalized collaboration between business and finance: 40% reported it is highly formalized.
    1. “You have to establish a process if you want there to be communication between and the business and the finance organization. ” Ms. Essaides said. This may include incorporating an FP&A review of all business cases, establishing a regular cadence of meetings, and ensuring there is an FP&A rep at all strategy meetings.
    2. Sometimes, the collaboration can start with a joint project. A recent cross-functional initiative to improve data visibility brought another member’s FP&A team closer together with other SG&A functions, which he said has increased the broader financial acumen of business partners.
  3. Support from the top. Successful collaboration with the business and other functions helps to provide a complete view of enterprise performance to the CEO. But for this to work, it’s crucial that FP&A is viewed as a strategic partner by leadership from the start.
    1. “Our CFO and CEO see how finance is strategic,” one member said.  “It’s hard to force yourself in [to business conversations] if operational leaders don’t want you in.” That is why strong buy-in from senior management is critical.

An added bonus. Effective collaboration between finance and the business is not only the best way to deliver FP&A expertise, but also a way to develop and retain FP&A talent. Because employees in these roles have an immediate impact on business decisions, they enjoy their work. “These roles have broad benefits and high job satisfaction,” said one member. “It’s not just number crunching; it’s a more strategic partnership, and it helps keep these employees engaged,” she said. “Partnering is the beauty of it all.”

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How Treasury Steps into the Strategic Limelight

Rising rates and a looming recession provide treasury with an opportunity to elevate its profile and and become a leader in board-level conversations.

Tough economic conditions have historically highlighted the critical role treasury plays as the champion of corporate liquidity. This happened during 2008-09 and will likely happen again if credit and cash flows begin to contract.

Rising rates and a looming recession provide treasury with an opportunity to elevate its profile and and become a leader in board-level conversations.

Tough economic conditions have historically highlighted the critical role treasury plays as the champion of corporate liquidity. This happened during 2008-09 and will likely happen again if credit and cash flows begin to contract.

This is not new territory for treasurers, many of whom have already evolved to serve new and broader constituents, becoming more strategic, consultative and less transactional in nature.

Treasurers are getting more involved in M&A transactions. They orchestrate the capital structure, and are working more closely with business partners on issues such as liquidity structures, legal entity setup and taxes. Yet, at many organizations, treasury is still pigeonholed as a back-office function.

Now is the time for all treasuries to become active members in senior-level discussions, so it’s imperative that they rev up efforts to develop strategic capabilities to better assist the C-suite. “Sometimes you have to step out and take on more responsibilities, talk to the CFO, find out how you can help and let them know you’re there,” said one treasurer at the in-person spring meeting of NeuGroup for Retail Treasury.

Five Steps to Creating a Strategic Capability

In conversations with dozens of NeuGroup members, most recently at the retail meeting in Minneapolis, treasurers shared important action items that can help the function develop into a true business partner and produce greater insight to support strategic decisions.

1. Grab a seat at the table. At some organizations, treasury is already involved in supporting board-level decisions. At many, however, that is not the case. Treasury should not wait to be invited. Instead, it should ask to participate in board discussions, which is different from providing data and analysis for the CFO’s presentation. Instead, it means being present and engaged in the conversations, explaining the business implications and sharing scenario analysis of the effects of higher rates, reduced inflow of cash, and the potential deterioration in AR quality.

2. Dismantle silos. There’s typically a natural tension between treasury and FP&A because both build a cash flow forecast but in different ways. FP&A usually takes a more high-level approach by pulling information from existing data sources like the ERP, whereas treasury takes a more granular approach with the objective of ensuring liquidity. To increase its sphere of influence, treasury should collaborate with FP&A to sync the forecasts, or at least spot and understand any discrepancies, to inform decision-making.

  • In an effort spearheaded by treasury to improve forecast accuracy at one member’s company, the treasury team has a quarterly meeting with the CFO and the FP&A team to align treasury’s cash- forecasts with FP&As longer-term forecasts, which the member said are more P&L-focused.

3. Determine the service-delivery model. Treasuries need to define a clear operating model vision: One approach is to adopt a generalist mindset, using rotations through other finance functions to build broader expertise. Another is to opt for a specialist model and develop deep subject matter expertise to support other parts of the finance function and the business. Both can work, but to work well it’s important treasurers make a conscious decision and drive their culture by recruiting the right talent, providing necessary training and establishing clear roles and responsibilities as well as a career path.

4. Speak the language of the business. Treasurers should put a stronger emphasis on developing soft skills such as storytelling and influencing. It’s one thing to understand a complex transaction and another to translate it to someone else in terms senior and business leaders can understand. To develop this fluency, treasury should engage with business unit leaders and understand their main pain points, e.g., tightening margins, and then provide context and narrative around data and analyses.

  • “As you shift to pushing more soft skills, it gets into, how do we avoid just telling people what we know? How do we influence and shape the next generation of treasury? It isn’t always easy, especially in a hybrid environment,” one member said.

5. Widen the path into treasury. Because few colleges offer treasury-specific tracks, treasury has traditionally hired junior staff from banks, recent finance majors and promoted internally. As the scope of the role expands, communication, critical thinking and intellectual curiosity are becoming core job requirements. Like other parts of finance, treasury should look beyond finance and business majors or practitioners and hire staff with nontraditional backgrounds, e.g., liberal arts, data analytics and technology. It should also expand its talent pool by offering remote or hybrid positions.

  • Finally, hiring managers should add some marketing “zing” to job posts, job fairs presentations and interviews, to highlight the exciting aspects of the role, e.g., working with business partners, predicting cash flows and getting engaged in designing the company’s capital structure.

A recession and spiking rates, combined with extreme market volatility, are tall challenges for finance organizations. However, they are also an opportunity to demonstrate the value finance and treasury can add to steer the company forward.

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Making the Devil’s Advocate an Angel on Your Shoulder

NeuGroup risk managers make space for contrarians to question decisions and combat overconfidence.

Rather than shunning contrarians for challenging conventional thinking, corporates need to make sure their decision-making processes always include a constructive devil’s advocate—someone who forces teams to consider all the ramifications of whatever action—or inaction—a company is contemplating.

  • This was among the key pieces of advice given by Michael Zuraw, head of enterprise risk management at ON Semiconductor, during a presentation on decision-making at a recent ERM-focused NeuGroup meeting. He said this best practice applies to all collaborative teams.
  • “Cognitive biases can occur at any link in the [decision-making] chain,” Mr. Zuraw said. “When you’re making a big decision, you need a contrarian thinker who says, ‘Why do we believe that? What if we’re wrong?’”

NeuGroup risk managers make space for contrarians to question decisions and combat overconfidence.

Rather than shunning contrarians for challenging conventional thinking, corporates need to make sure their decision-making processes always include a constructive devil’s advocate—someone who forces teams to consider all the ramifications of whatever action—or inaction—a company is contemplating.

  • This was among the key pieces of advice given by Michael Zuraw, head of enterprise risk management at ON Semiconductor, during a presentation on decision-making at a recent ERM-focused NeuGroup meeting. He said this best practice applies to all collaborative teams.
  • “Cognitive biases can occur at any link in the [decision-making] chain,” Mr. Zuraw said. “When you’re making a big decision, you need a contrarian thinker who says, ‘Why do we believe that? What if we’re wrong?’”

Designate the devil’s advocate. Mr. Zuraw recommends team leaders designate a team member to play devil’s advocate in meetings. “You need to be able to identify, and provide space for, the realist in the room,” he said.

  • “This is the one who’s going to do a check and keep you honest with yourself and is going to help you identify and recognize biases that can creep into your decision.”
  • One member had worked at a company whose culture discouraged contrarian positions, going so far as to not invite staff members who always added a wrinkle to the latest plan with an objection or contrary opinion.
  • To combat this, the company implemented an idea endorsed by Mr. Zuraw: A devil’s advocate rotation that allows everyone on staff to play the role. “So everyone learns the skill of asking those questions, and everyone recognizes that it’s not frowned upon, it’s a value-add to the process.”

Learn from mistakes. One member said his company had once passed on making an acquisition, a decision the team is still “haunted” by. The problem: a failure to consider the risk of not doing the deal left the corporate too hesitant to pull the trigger.

  • When opportunity arose again, a willingness to question themselves—as a devil’s advocate would—prepared the team to make a better decision, resulting in the company’s largest acquisition ever.
  • “It was an enormous risk,” the member said, but by considering all sides, he believes the company made the right decision. “We would not be able to be as effective and efficient for our customers without the acquisition,” he said.

An object in motion. Many teams with established processes have what one member called a “bias toward inertia,” where teams are set in their ways and have a resistance to making any changes—another reason to include contrarians unafraid to voice doubts and bring up any potential risk.

  • To further combat inertia and paralysis, Mr. Zuraw also recommends what he calls a “pre-mortem” meeting right in the midst of a process to take stock, challenge key assumptions and prevent overconfidence.
    • “Making no decision is as big of a risk as any decision you could make,” he said.
  • “I think the concept of a gray rhino is a good one, and that speaks to the need for a pre-mortem,” one member said. “There are natural disasters, but a lot of things that do happen people thought about [and] knew was on the horizon, but nobody spoke up.”
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Squeezed for Time: Internal Auditors Presenting to Audit Committees

How auditors make sure their voices are heard when their time before the AC is limited.

Internal auditors often get squeezed for time when it comes time to appear before the audit committee (AC) of the board of directors.

  • Given that reality, some members of NeuGroup’s Internal Auditors’ Peer Group (IAPG) have devised other ways to make sure their views are heard—or read—by members of the AC. Following are some takeaways on the subject discussed at a recent IAPG meeting.

How auditors make sure their voices are heard when their time before the AC is limited.

Internal auditors often get squeezed for time when it comes time to appear before the audit committee (AC) of the board of directors.

  • Given that reality, some members of NeuGroup’s Internal Auditors’ Peer Group (IAPG) have devised other ways to make sure their views are heard—or read—by members of the AC. Following are some takeaways on the subject discussed at a recent IAPG meeting.

Short shrift. NeuGroup members say their appearances before the AC may be limited to just 15-20 minutes. In one member’s case, the AC also is the finance committee—and finance presents first.

  • This means the audit report comes at the end of the session and becomes more of a quick overview “on themes and trends.” Thus, this auditor struggles to promote the continuous improvements the internal audit function has accomplished.

Readers make leaders. Another member says her AC is “very diligent” about reading the material audit sends the committee ahead of time. This includes reading the appendices, slides and other supporting documents. That gives her confidence the AC sees the audit function’s accomplishments.

  • Otherwise, the auditor said it is “hard to put all we’ve accomplished into 20 minutes,” adding that she still has to “speed talk” her way through the presentation.
  • Another member intersperses his report with bullets “here and there” showing what the audit team has accomplished.

Pole position. Some companies rotate the sequence of reporting. If yours doesn’t, consider suggesting it. Because if you’re at the beginning of the AC’s session, which can include financial reporting, cyber, tech and other operational issues, you can get more time.

Work-arounds. Several members said they have good relationships with AC members and can follow up with them after the meetings (or between AC meetings) to go into more detail about what the audit team is up to.

  • One lucky member said that audit meets with the AC beyond the typical quarterly meetings. She said she meets with the committee nine times in a year, which means at five of those meetings she can share more of what audit is doing.
  • Another member said they do “four plus 10-K” for a total of five AC meetings.
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Test Your Knowledge of Treasury! A Trivia Contest to Attract Talent

One treasurer uses a quiz to educate, promote communication and build interest in treasury among finance teams.

Treasury teams often struggle to attract talent when competing with more glamourous finance functions. Part of the problem is a lack of understanding of what treasury does.

  • To build awareness and interest in treasury and enhance communication with other finance teams at his company, one treasurer created a contest to test the knowledge of senior leaders.
  • He described the quiz at a recent meeting of NeuGroup’s Treasurers’ Group of Thirty, sponsored by Standard Chartered.

One treasurer uses a quiz to educate, promote communication and build interest in treasury among finance teams.
 
Treasury teams often struggle to attract talent when competing with more glamourous finance functions. Part of the problem is a lack of understanding of what treasury does.

  • To build awareness and interest in treasury and enhance communication with other finance teams at his company, one treasurer created a contest to test the knowledge of senior leaders.
  • He described the quiz at a recent meeting of NeuGroup’s Treasurers’ Group of Thirty, sponsored by Standard Chartered.

Treasury 101. As many as 40 contestants compete for a small prize by answering a multiple-choice questionnaire called Treasury 101 that consists of 20 to 25 questions on subjects including:

  • Treasury organization
  • Cash management
  • Strategic objectives
  • Corporate finance
  • Risk management
  • Insurance

Time’s up. After the contestants have selected an answer, the subject matter expert tells them which one is correct and spends a few minutes providing more color, the treasurer explained.

  • “For instance, ‘How many people work in treasury?’ We might say 20, and then show the staff’s geographical dispersion or an organization chart showing who they are and what everybody does.”
  • As for results, he said, “We tend to find that most attendees have very little knowledge of the treasury function in general.”

The serious objective of having fun. The treasurer said the contest has three objectives:

  1. “To educate others about who is treasury and what we do.
  2. “Establish interest in treasury and create a bench of potential talent who might be interested in a career in treasury.
  3. “Have some fun and interaction with other finance departments.”

Positive results. In addition to the game being well attended and well received by participants, the member said the contestants are always a little more knowledgeable and appreciative of treasury’s role in the company after the event.

  • “It’s generated a lot of interest,” he said. And though participants in the game tend not to get too many questions correct, many participants reflect on how much they learned about treasury and how much fun they had.
  • While the game is better organized in an office location where lunch or snacks can be offered, in the current climate, it also works well virtually.
    • Anyone who thinks they can win by turning to the internet should know “they will not find the answers on Google—that’s for sure,” the treasurer said.
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Differing Opinions About Audit Opinions

Internal auditors use a variety ratings or opinions for their reporting, despite a trend of not using them.

There is a growing trend of internal audit departments moving away from using audit opinions, or ratings, to rate the progress of a mitigation effort. The idea is to focus on the audit issue itself and mitigate it. Despite this trend, many auditees and audit committee members are happy with the current system and push back against suggestions to get rid of ratings.

Following an audit of a process, the auditee gets a rating or opinion on the progress they’ve made on fixing the process – the audit issue. Ratings methods differ; some employ colors.  Green generally means good while colors like yellow or orange mean “needs work” or “needs improvement;” red means things are bad and not being addressed at all. “I’ve never seen a red since I’ve been an auditor,” one member said at a recent virtual meeting of NeuGroup’s Internal Auditors’ Peer Group (IAPG).

Internal auditors use a variety ratings or opinions for their reporting, despite a trend of not using them.

There is a growing trend of internal audit departments moving away from using audit opinions, or ratings, to rate the progress of a mitigation effort. The idea is to focus on the audit issue itself and mitigate it. Despite this trend, many auditees and audit committee members are happy with the current system and push back against suggestions to get rid of ratings.

Following an audit of a process, the auditee gets a rating or opinion on the progress they’ve made on fixing the process – the audit issue. Ratings methods differ; some employ colors.  Green generally means good while colors like yellow or orange mean “needs work” or “needs improvement;” red means things are bad and not being addressed at all. “I’ve never seen a red since I’ve been an auditor,” one member said at a recent virtual meeting of NeuGroup’s Internal Auditors’ Peer Group (IAPG). 

In the meeting, members described their various rating scales – no two the same – and said in some cases they were asked to move away from them. One reason for this was that many of the functions being audited focused too much on the rating and not on the underlying issue. “The (audit) finding gets lost,” said one auditor. 

  • But auditors say they get pushback when they discuss moving away from ratings. “Execs like the overall rating because they don’t have to read the whole audit report,” said one IAPG member. Added another member, “Audit reports sometimes have too many pages. [AC members and executives] will read through them and then ask, ‘what’s important here?’ So the ratings and colors are needed.” 

And despite the industry effort to drop ratings, some IAPG members have actually added more rating categories to their scales. Several members who have three ratings for findings, typically along the lines of “satisfactory,” “needs improvement” and “ineffective” or “unsatisfactory,” have added more nuance. In a few cases they have split the middle rating, “needs improvement,” into “moderate improvement opportunity” and “needs significant improvement.” 

Language matters. Members also mentioned that there’s sometimes pushback over the language of ratings. 

  • For one member, the legal department made IA change the red rating “ineffective” to “major improvement needed.” This was because, in the case of a lawsuit, ineffective could be misconstrued and create a problem.
  • Another member mentioned that sometimes auditees, particularly millennials, take issue even if their mitigation efforts are good or get the top rating. In this member’s case, that rating is “satisfactory,” which to some ears sounds mediocre or worse. But the auditor said it’s not his job to say it’s anything more than that. 
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Closing a Quarter for SOX Can be Difficult in New, Remote World

An internal auditor describes what his company has done to successfully close a quarter when some physical tasks can’t be done.

Part of Sarbanes-Oxley, the internal controls act released in 2002, requires a corporate’s chief executive and financial officers to certify financial and other information contained in the issuer’s quarterly and annual reports. But what happens in a crisis? What if some of that info requires someone in place to record inventory or in-person meetings when employee movement is heavily restricted during the current pandemic?

An internal auditor describes what his company has done to successfully close a quarter when some physical tasks can’t be done.

Part of Sarbanes-Oxley, the internal controls act released in 2002, requires a corporate’s chief executive and financial officers to certify financial and other information contained in the issuer’s quarterly and annual reports. But what happens in a crisis? What if some of that info requires someone in place to record inventory or in-person meetings when employee movement is heavily restricted during the current pandemic?

Practice. One answer is the punchline to the joke, “How do you get to Carnegie Hall?” Practice, practice, practice. That’s essentially what one member of NeuGroup’s Internal Audit Peer Group has done over the past few years. The company developed a robust business continuity plan where SOX was a particular focus and has used it a few times over the years for natural disasters and has audited the plan several times. So with COVID-19, “We’re in pretty good shape,” the member said.

Take a photo. Despite the company being comfortable with remote working, there still are challenges to closing the quarter amid the global pandemic. This includes practices like obtaining “wet ink” signatures, getting people in place for inventory observation or cut-off testing for shipping.

  • In this case, the auditor said, the company “did what it could when it came to inventory.” Local managers took photos of inventory before they were told to leave the premises. And managers were able to obtain wet signatures while keeping in mind social distancing rules. Where this couldn’t be done, e-signatures like those provided by DocuSign were allowed.
    • In one of NeuGroup’s treasury peer group zoom meetings recently, one practitioner in Europe said his relationship banks were permitting DocuSign functionality for 90 days.
  • Preparation. The member’s company listed all the controls it thought it wouldn’t be able to use when people couldn’t access company buildings or managers had little access to each other.
    • “We identified the controls and have been able to postpone some reporting,” he said. “It’s going to be an interesting quarter, but I think we’ll be able to close with no problems.”
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Corporate Finance Ranks Most Concerned About 2020 Risks

What, me worry? Yes! Finance execs most worried about risks in the new year.

Corporate finance executives have jumped to the lead in terms of companies’ top executives concerned about the magnitude and severity of risks their organizations face in 2020, with economic conditions and regulatory scrutiny their top concerns.

What, me worry? Yes! Finance execs most worried about risks in the new year.

Corporate finance executives have jumped to the lead in terms of companies’ top executives concerned about the magnitude and severity of risks their organizations face in 2020, with economic conditions and regulatory scrutiny their top concerns.

On a scale of one to 10, chief financial officers’ impression of risk faced by their companies in the year ahead jumped to 6.5 from 6.0 in last year’s survey. That puts them in the lead from fifth place last year, out of seven categories of surveyed executives that comprised board members and six types of C-suite executives. Dr. Mark Beasley, professor and director of the Enterprise Risk Management Initiative (ERMI) at N. Carolina State University, noted that chief audit officers’ assessment of risk also increase noticeably from last year, and chief risk officers’ bumped up slightly, to 6.0 from 5.9.

Chief executives officers and boards of directors instead saw their concerns about risk lesson in this year’s study compared to last year’s.

The research was conducted by ERMI and consultancy Protiviti, and co-authored by Mr. Beasley and Ken Thomas, a managing director in Protiviti’s Business Performance Improvement practice. The survey received responses from 825 C-Suite executives and directors in companies across the globe. The top five concerns for CFOs were:

Economic conditions. Although the second concern overall, CFOs marked economic conditions starting to restrict some growth opportunities as their top concern, a big jump from last year’s survey when it was not even among the top 10 risks.

Regulatory changes and scrutiny. CFOs worry that an emphasis on regulations may increase and noticeably affect the manner in which their companies’ products and services will be produced or delivered. Mr. Beasley noted that the regulations extend beyond financial requirements to areas such as privacy, with European privacy regulations already in effect and those in California arriving in 2020, and increased government scrutiny of business models such as the big technology firms’.

Resistance to change. As innovative technology is deployed at an ever more rapid pace, CFOs are concerned about their organizations’ ability to embrace that change and remain competitive.

Top talent. Related to the previous concern, CFOs are concerned about their companies’ ability to attract and retain top talent in a tightening talent market, and consequently their ability to achieve operational targets. “How does [corporate finance] move from more production-type activities to more machine learning and other artificial intelligence technologies, taking people away from the analytics they used to spend time on and using that talent in the most efficient way,” Mr. Thomas said.

Cyber, of course. Pervasive across companies, cyber-risk concerns keep CFOs awake at night worrying about whether their organizations are sufficiently prepared to manage cyber threats that could significantly disrupt core operations and/or damage the company’s brand. Mr. Thomas noted that finance departments’ increasing use of technology-driven analytics ingests pulls data from multiple sources, heightening the risk. “Companies are moving to more tech-driven activities and operations that rely ever more on sources of data that can be impacted,” he said.

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Fitch Economist Olu Sonola Sees Mixed Bag for Corporates in 2024

Companies face cooling inflation but elevated wage growth amid a slowing economy with recession unlikely.

In a Strategic Finance Lab podcast you can listen to on Apple and Spotify, Fitch Ratings’ head of US Regional Economics Olu Sonola paints a relatively positive picture of the economic outlook in 2024, thanks in large part to the strength of the US consumer and declining inflation.

  • “The balance sheet of the US consumer is very, very strong,” he tells NeuGroup Peer Group leader Andy Podolsky in the podcast recorded in December 2023 and sponsored by Fitch.
  • This week, Fitch raised its annual real consumer spending forecast for 2024 to 1.3% from 0.6%, “reflecting the ongoing willingness and ability of consumers to draw down buffers of excess savings.”

Companies face cooling inflation but elevated wage growth amid a slowing economy with recession unlikely.

In a Strategic Finance Lab podcast you can listen to on Apple and Spotify, Fitch Ratings’ head of US Regional Economics Olu Sonola paints a relatively positive picture of the economic outlook in 2024, thanks in large part to the strength of the US consumer and declining inflation.

  • “The balance sheet of the US consumer is very, very strong,” he tells NeuGroup Peer Group leader Andy Podolsky in the podcast recorded in December 2023 and sponsored by Fitch.
  • This week, Fitch raised its annual real consumer spending forecast for 2024 to 1.3% from 0.6%, “reflecting the ongoing willingness and ability of consumers to draw down buffers of excess savings.”

Mixed picture. That said, Mr. Sonola forecasts that both consumer spending and US GDP growth will slow this year from 2023, with negative implications for corporate revenues, especially for companies whose customers are on the lower end of the income scale, he explains in the podcast.

  • And although inflation will slow, companies will not have the same ability to pass on higher costs, he said. Combine that with wage growth that Mr. Sonola says is “still elevated” as well as higher interest expense but lower investment yields and corporates will see an erosion of margins this year.
Olu Sonola, Fitch Ratings

Along with recession, NeuGroup members surveyed in 2023 cited high borrowing costs as one of the top risks for this year. Those fears have tempered as a so-called soft landing for the economy appears more likely. But don’t expect the Fed to cut interest rates in March, Mr. Sonola said. Fitch forecasts cuts in the middle of the year, with the federal funds rate declining 75 basis points to 4.75% by the end of 2024.

  • But he expects highly-leveraged companies with lower credit ratings will need to refinance debt sooner than investment-grade corporates, meaning they “are going to be much more exposed to a higher rate environment,” noting that rates remain significantly elevated compared to three years ago.
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Dollar-Denominated Bonds in Argentina Draw Corporate Interest

USD-denominated Bopreal bonds offer a way for subsidiaries in Argentina to pay debts owed to US-based parents.

The Argentine subsidiaries of some NeuGroup member multinationals are buying so-called Bopreal bonds that Argentina started selling late last year to help importers pay off debt—including money subsidiaries owe parent companies. The bonds are providing relief to corporates with cash trapped in a country with strict capital controls, hyperinflation and a heavily devalued currency.

  • Bopreals are dollar-denominated but can be purchased with Argentine pesos at the country’s official FX rate. They can only be used to pay outstanding invoices for goods delivered before December 12, 2023.

USD-denominated Bopreal bonds offer a way for subsidiaries in Argentina to pay debts owed to US-based parents.

The Argentine subsidiaries of some NeuGroup member multinationals are buying so-called Bopreal bonds that Argentina started selling late last year to help importers pay off debt—including money subsidiaries owe parent companies. The bonds are providing relief to corporates with cash trapped in a country with strict capital controls, hyperinflation and a heavily devalued currency.

  • Bopreals are dollar-denominated but can be purchased with Argentine pesos at the country’s official FX rate. They can only be used to pay outstanding invoices for goods delivered before December 12, 2023.
  • The bonds offer an attractive option to corporates with limited ways to get money out of Argentina. One of the more popular, called a blue-chip swap, carries an unfavorable, unofficial exchange rate and requires companies using it to wait another 90 days until accessing the country’s official FX market.
  • In recent NeuGroup sessions and online conversations, members have raised questions about Bopreals. To clear up any remaining confusion about these complex bonds, NeuGroup’s Argentina Crisis Community will meet in a virtual session on February 7 with experts from Banco Comafi to discuss upcoming auctions.

Buy, then sell. This week, one member based in Argentina bought Bopreals that will be used to make a payment to foreign vendors. The member plans to sell the securities in the secondary market.

  • In a recent NeuGroup session, Martin Merlo from Banco Comafi said he has seen the bonds sell for 60% to 70% of their original value in the secondary market. The other option would be holding the bonds until maturity, although members have indicated vendors are unwilling to wait years for payment.
  • One benefit of selling in the secondary market, according to members, is that a corporate can then access the blue chip-swap market starting April 1 to raise the remaining percentage of the invoice in USD, while remaining exempt from the 90-day required waiting period—a special exemption for the first series of sales.
  • So, if a corporate were to buy $1 million in Bopreal and sell the bonds, the amount they transfer to the vendor outside Argentina might only be $700,000. Because the vendor still wants the remaining amount, the Argentine entity could do a blue-chip swap to raise the remaining $300,000 without the 90-day penalty.
  • One US-based exporter had been told that accepting the bonds directly from the company’s customers was the only option for payment. But, following conversations with members, he now plans to suggest the buyers in Argentina sell the bonds on the secondary market.

Uncertainty ahead for invoices behind. Two more series of Bopreal bonds are on the horizon, with maturities in 2025 and 2026. The member said these will likely be aimed at smaller companies, as they carry less favorable conditions than the first series, including taxes and restrictions on secondary market sales. (The first series, exempt from the country’s 30% tax on outgoing cash, mature in 2027.)

  • “I don’t think you’ll get better conditions than what you will get now if you want access to dollars,” Mr. Merlo from Banco Comafi said.
  • A member responded, “If you don’t take advantage, those imports might be locked up for a long time.”
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Bangalore Bound: Pushing Processes to Centers of Excellence

Treasury at one company is migrating some processes to a COE in India, part of a larger transformation.

The increasingly popular move among multinationals to establish a treasury center of excellence (COE) in a low-cost country or region is a multifaceted endeavor that for one NeuGroup member company included thoroughly assessing processes to determine which ones remain in corporate treasury or regional treasury centers, which go to a managed service provider (MSP) and which belong in the COE.

  • Members of NeuGroup for Mega-Cap Assistant Treasurers heard a firsthand account of the company’s journey to complete a treasury process realignment by mid-2024 that includes a COE in Bangalore, India. The treasury team’s director of global operations described the steps taken so far, lessons learned and the treasury COE’s relationship with the corporate’s global business services (GBS) organization.

Treasury at one company is migrating some processes to a COE in India, part of a larger transformation.

The increasingly popular move among multinationals to establish a treasury center of excellence (COE) in a low-cost country or region is a multifaceted endeavor that for one NeuGroup member company included thoroughly assessing processes to determine which ones remain in corporate treasury or regional treasury centers, which go to a managed service provider (MSP) and which belong in the COE.

  • Members of NeuGroup for Mega-Cap Assistant Treasurers heard a firsthand account of the company’s journey to complete a treasury process realignment by mid-2024 that includes a COE in Bangalore, India. The treasury team’s director of global operations described the steps taken so far, lessons learned and the treasury COE’s relationship with the corporate’s global business services (GBS) organization.

Big picture. The development and expansion of that GBS organization and the more recent establishment of COEs are part of a transformation designed to limit transaction processing and provide deeper business insights to senior leadership throughout the enterprise, the member explained. This will be achieved in part through standardization and simplification of processes, and reducing work through automation and rationalization.

  • When asked by a peer about compensation cost savings, the member said there is value to realize in India. However, she made it clear that eliminating jobs is not the point of the COE. She expects treasury’s size to change over time, but more as a result of attrition, moving jobs and not backfilling positions. And in response to another member’s question, she said treasury is describing the movement of processes to the COE as a potential opportunity.
  • “We’re saying your job will look different in the future. Today you may be spending your time on operations. Tomorrow, we hope you’re spending your time providing insights to our organization. That’s how we’ve framed it and that’s been beneficial.”

COEs, SSCs and MSPs. As NeuGroup Insights noted earlier this year, the subject of COEs often prompts a debate about how they differ from shared services centers (SSCs) used by many corporates—a distinction that matters. The presenting member said, “We view COEs as more of a center of expertise where we can pull in higher-value, operational processes that introduce more risk; I think of SSCs as performing very rules-based, prescriptive processes.”

  • For many non-treasury functions, this company is pushing repetitive, transactional, rules-based processes out of corporate teams to a third-party MSP, not an SSC, as part of a realignment overseen by the GBS organization. But only 5% of treasury processes will be performed by the MSP, including global bank account reconciliation.
  • “Our MSP doesn’t have the expertise to support all the transactional processes” for treasury, the member said. “There are and will be cases where our COE is supporting both transactional and value-add processes.”
  • The scope of a COE may change over time. One member quoted in our earlier story said, “When we started our COE five years ago, it performed pretty simple work, like data aggregation and first-line analysis. Now we are using it to concentrate high-caliber talent who can develop advanced models, which serve finance in executing sophisticated analytics.”

Building the COE. Treasury designed a global standard taxonomy that involved documenting all its processes, requiring all treasury teams to allocate their work using the taxonomy. Workshopping sessions classified every process as either transactional, value-add or strategic. The final stage of the process is deploying structured, repeatable standard processes, tools and functional roles.

  • As a result of the assessment, treasury is moving these areas to the COE:
    • Manual treasury payments.
    • Treasury closing processes.
    • Back-office functions for derivatives.
    • Treasury system (tech) support.
    • Treasury reporting.
  • To run the COE organization, the member hired a senior manager with extensive treasury experience who is already based in India and works for the company. He will oversee treasury operations (payments, closing and back office) as well as treasury technology, which will handle tasks including level one and level two help-desk ticket support for activities including bank account management.
  • The senior manager will report to the member, who reports to an assistant treasurer. The COE reports to corporate and reports indirectly via a dotted line to the GBS organization. (Corporate treasury will manage governance, strategy and policies.)

Lessons learned. The experience of the GBS organization demonstrated for treasury the downside of lifting and shifting processes from corporate or business teams to a COE, MSP or SSC. “Ideally you would standardize and automate before you shift work to a managed service provider if at all possible,” the member said. “We are putting those standardizations and automations in place before we move forward to establish our center of excellence.”

  • Hiring in India is hard. “The sooner you can start, the better,” the member said. The challenge reflects intense competition for talent and the need to find people with very specific skill sets. Another issue: finding people willing to work North American hours. “No one wants the night shift: that’s where we lose people.”
  • To train new employees, the member is overseeing corporate and regional teams that are documenting “as-is processes” using process maps and detailed desktop procedures. “We want enough details in those desktop procedures so that when we transfer it, theoretically someone could perform the process by just having a desktop procedure in front of them.”
  • The team is also mapping what it sees as the standardized, global approach to the process it hopes to achieve in the future. “What will a global standard process look like when we realign it into the COE?”

Looking ahead. The AT from another company going through the COE process asked if the member, like him, was already facing questions from senior leaders about expanding the scope of the activities done by the COE. “It’s ‘why can’t you do your FX there, why can’t you issue CP out of there?’ The bar keeps getting raised as you start building out your capability,” he said.

  • The member envisions her company going through an optimization. “This is the beginning for us. But then we’ll review that taxonomy again. It will look different now that we’re evolving our organization; so we’ll take another review and see if there are any other opportunities. I think first, the leadership team wants to see this be successful. So we’re starting here, but I really do envision that evolving over the course of the next few years.”
  • Part of that process, she said, will be the establishment of metrics. “It’s going to be really important to manage our metrics so we’re working with the corporate team and regional treasury centers to develop service level agreements and KPIs and have those in place so that we’re really managing how the team is performing as we move forward.”
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Recession and Rates Rank High on Treasurers’ 2024 Risk Lists

New NeuGroup Peer Research reveals the risk of an economic downturn and high interest expense loom large.

As treasurers look ahead to 2024, the results of the NeuGroup 2024 Finance and Treasury Agenda Survey reveal two intertwined risks—headwinds which may also appear at odds with each other—looming on the horizon: the continuing threat of recession, paired with interest rates that may remain higher for longer. Normally, of course, economic weakness brings about lower rates. But the last few years have been anything but normal.

New NeuGroup Peer Research reveals the risk of an economic downturn and high interest expense loom large.

As treasurers look ahead to 2024, the results of the NeuGroup 2024 Finance and Treasury Agenda Survey reveal two intertwined risks—headwinds which may also appear at odds with each other—looming on the horizon: the continuing threat of recession, paired with interest rates that may remain higher for longer. Normally, of course, economic weakness brings about lower rates. But the last few years have been anything but normal.

Economic downturn ripple effect. So although more observers believe the Fed may be able to navigate a soft landing following the recent cycle of rate hikes in the US, members’ top risk headed into 2024 is the same as it was headed into 2023: economic downturn.

  • “I continue to see a great deal of uncertainty ahead that requires one to consider downside scenarios persistently in their thinking,” one member told NeuGroup Insights in an email. “The global economy is going through multiple major transitions and events are affecting economies in uneven ways and increasing overall fragility.”
  • NeuGroup senior executive advisor Paul Dalle Molle, who leads NeuGroup for Growth-Tech Treasurers, noted that fast-growing companies with credit ratings below investment grade are particularly vulnerable to the risks of tightening credit markets that would most likely accompany an economic downturn.

Perfect storm. A potential recession, or even persistent declines in consumer spending, could put higher pressure on working capital—an issue which could compound if interest rates remain high, keeping borrowing costs elevated as well (members’ No. 3 risk for next year).

  • Over half of survey respondents expected interest rates to stay high or continue rising (see chart)—an issue that could portend weaker earnings, margin pressure and intensified calls by stakeholders to cut costs. To be sure, volatile markets and the recent decline in rates have no doubt altered rate expectations for some members—for now.

Political fallout. NeuGroup members also expressed apprehension about political impacts, including geopolitical volatility and uncertainty around regulation.

  • Ongoing armed conflicts in the Middle East and Eastern Europe will continue to disrupt business in the new year. Other concerns mentioned by members include fallout from Argentina’s election of a president who promises to upend the status quo and another polarizing presidential election in the USA.
  • More restrictive regulation in the US on clean energy requirements may also follow in 2023, along with proposed tightening to Basel III and potential changes in Fed stress-test criteria in the wake of the banking crisis earlier this year.
  • “Fundamentally, I remain optimistic, but with a heightened sense of risk and urgency,” one member said. “For treasury, it’s a good moment to reflect on risk management. Take the time to review exposures, strategies and processes.”

The cyber element. We should note that members ranked cyber risk No. 2 in the survey. Earlier this year, a Deloitte poll showed that over one-third of corporates had faced a cyberattack over a 12-month period.

  • In recent meetings, a number of members have shared how they are stepping up cybersecurity procedures within treasury, because insurance for cyberattacks is often too expensive.
  • One member shared that his company has regular drills in which the entire office shuts down its computers and switches to using spare, encrypted laptops for the day.
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Currency Headache in Argentina: Chilling Effects of FX Controls

A new regulation makes some blue-chip swaps, used to move trapped cash out of the country, less attractive.

In the run-up to Argentina’s Oct. 22 general elections, the government body that regulates markets issued an official bulletin that has effectively limited outflows of Argentine pesos (ARS). In recent NeuGroup meetings, corporates and regional experts said the regulation increased the perceived legal risk of blue-chip swaps, a type of international asset trade where a multinational in Argentina typically uses local currency to buy sovereign bonds or shares of local companies with US listings and sells the securities offshore for dollars, often through a brokerage.

  • Blue-chip swaps offer corporates an option in FX markets in countries with tight controls on cash outflows—albeit at a much less favorable rate: Today, $1 translates to about 350 Argentine pesos (ARS) in official channels; the volatile, unofficial blue-chip rate hovers around 1,000 ARS. Some corporates are willing to accept the rate because these transactions are one of few ways to get trapped cash out of Argentina.
  • The new regulation requires five days of notice for any transaction above 200 million ARS—roughly $200,000 at the blue-chip rate. In a recent session of NeuGroup for Latin America TreasuryAlejandro Haro, CEO of Comafi Bursátil, the brokerage arm of Banco Comafi, said “this is a major change.”

A new regulation makes some blue-chip swaps, used to move trapped cash out of the country, less attractive.

In the run-up to Argentina’s Oct. 22 general elections, the government body that regulates markets issued an official bulletin that has effectively limited outflows of Argentine pesos (ARS). In recent NeuGroup meetings, corporates and regional experts said the regulation increased the perceived legal risk of blue-chip swaps, a type of international asset trade where a multinational in Argentina typically uses local currency to buy sovereign bonds or shares of local companies with US listings and sells the securities offshore for dollars, often through a brokerage.

  • Blue-chip swaps offer corporates an option in FX markets in countries with tight controls on cash outflows—albeit at a much less favorable rate: Today, $1 translates to about 350 Argentine pesos (ARS) in official channels; the volatile, unofficial blue-chip rate hovers around 1,000 ARS. Some corporates are willing to accept the rate because these transactions are one of the few ways to get trapped cash out of Argentina.
  • The new regulation requires five days of notice for any transaction above 200 million ARS—roughly $200,000 at the blue-chip rate. In a recent session of NeuGroup for Latin America TreasuryAlejandro Haro, CEO of Comafi Bursátil, the brokerage arm of Banco Comafi, said “this is a major change.”

Chilling effects. Mr. Haro, as well as a NeuGroup member who has executed a blue-chip swap in the last week, said a knock-on effect of the regulation is that demand has steeply declined in the blue-chip market. That has essentially imposed a soft cap of about $3 million per swap transaction, down from around $15 million before the regulation.

  • He added that earlier this year the blue-chip swap market could see up to $80 million total per day, compared to $30 million now.
  • At a recent NeuGroup meeting, one treasury manager said he had plans to execute a blue-chip swap worth multiple millions in USD the week before the election, with an eye on another, larger transaction later. The new requirement to submit notice, in addition to increased regulatory attention, caused the treasury team to put an indefinite hold on the plan.
  • This is not the first step Argentina has taken to limit the use of the blue-chip mechanism. Earlier this year, the central bank issued a new regulation on blue-chip swaps: Before a party can execute the transaction, it must prove it has not tapped the country’s official FX market for 180 days; after the swap, it can’t access that market for another 180 days.

Tangled legal knot. Gabriel Gomez-Giglio, the chair of Baker McKenzie’s Latin American banking and finance practice, noted in a recent interview that the new regulations, in concert with a number of other factors, including uncertainty around the Nov. 19 election run-off and ongoing price volatility in the country have “basically been a deterrent to conduct transactions.”

  • “Our clients are holding onto many more pesos,” he said, despite noticing rising demand from corporates to get cash out of the country. “It’s a vicious cycle.”
  • Mr. Gomez-Giglio, as well as Mr. Haro, noted that the regulation is unclear on how the five-day notice will be implemented, with no clarity on whether the day that notice is issued counts as one of the five days.

Moving forward. There are many parties simply executing daily trades up to the legal limit that don’t require five days of notice, about $200,000 USD—but it’s not ideal, as the blue-chip rate fluctuates often, according to Mr. Haro.

  • The member who canceled plans for blue-chip swap transactions is looking for alternate avenues for trapped pesos. “We have been in a holding pattern, investing our excess cash in a money market fund that holds deposit balances,” he said. “This provides some protection.”
  • He’s also looking into dollar-linked bonds, as are some of Mr. Haro’s clients. Others are looking into hard-dollar bonds, which are dollar-denominated and issued in Argentina. Parties purchasing these must use the blue-chip rate—but because this does not qualify as a blue-chip swap, it does not require five days of notice or the 180-day waiting period.
  • Because of the perceived legal risk of transacting amid increased scrutiny from regulators, Mr. Haro and Mr. Gomez-Giglio each said they have noticed many corporates adopting a wait-and-see approach until after the presidential run-off election later this month. Sergio Massa, the nation’s current minister of economy, who received the most votes in the general election, will face off with libertarian economist Javier Milei, who seeks an overhaul of the economic system, leading to a “dollarization” of Argentina’s troubled economy.
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Argentina: Trapped Cash, Election Tea Leaves, Chinese Currency

Dollar-linked investments are one way multinationals are preparing for a possible devaluation of the Argentine peso.

Multinational corporations closely watching Argentina’s primary elections on Aug. 13 for a preview of the general presidential election in October face significant uncertainty about the magnitude and timing of a possible devaluation of the Argentine peso. Many are seeking ways to hedge their exposure to the currency as they struggle to get trapped cash out of a country with capital controls, spiraling inflation, taxes on imports and a scarcity of US dollars.

  • “The big question mark in the market these days is what is going to happen with the official FX rate after the election,” said Alejandro Haro, CEO of Comafi Bursatil, the brokerage arm of Banco Comafi, which sponsored a recent meeting of NeuGroup for Latin American Treasury held in Buenos Aires. “We think there is a 100% probability of having a sharp movement in the official FX rate in the next year.”

Dollar-linked investments are one way multinationals are preparing for a possible devaluation of the Argentine peso.

Multinational corporations closely watching Argentina’s primary elections on Aug. 13 for a preview of the general presidential election in October face significant uncertainty about the magnitude and timing of a possible devaluation of the Argentine peso. Many are seeking ways to hedge their exposure to the currency as they struggle to get trapped cash out of a country with capital controls, spiraling inflation, taxes on imports and a scarcity of US dollars.

  • “The big question mark in the market these days is what is going to happen with the official FX rate after the election,” said Alejandro Haro, CEO of Comafi Bursatil, the brokerage arm of Banco Comafi, which sponsored a recent meeting of NeuGroup for Latin American Treasury held in Buenos Aires. “We think there is a 100% probability of having a sharp movement in the official FX rate in the next year.”
  • At the official exchange rate, the peso recently traded at about 280 per US dollar; the unofficial “blue-chip swap” rate that is less favorable for corporates sitting on pesos was about 590. The more than 100% gap between the rates is just one sign of the fear of devaluation and further depreciation.

Dollar-linked investments. That outlook is driving more corporates to seek hedges through buying notes and bonds in Argentina’s relatively small debt capital markets. The yields earned on dollar-linked debt help offset the loss in value of a corporate’s cash amid local currency depreciation.

  • “We are seeing huge demand these days from our corporate clients on dollar-linked instruments that are linked to the official FX rate, not the blue-chip swap rate,” Mr. Haro said. “It’s a small market but you can use it to invest some of your pesos.”
  • Comafi Bursatil believes dollar-linked, intermediate investments are attractive, he added, noting that shorter-duration instruments have negative yields. Mr. Haro mentioned a 90-day promissory note recently issued by an Argentine company yielding about minus 12%. “We think that is a very good alterative if you want to be hedged through the elections.” He also cited a local issuer rated AA+ that sold two-year, dollar-linked notes with a yield of minus 9%.
  • During the surge in demand for hedging in Argentina over the last two years, Mr. Haro said, issuers have continued to issue bonds at a 0% rate, but with some now “pushing tenors” to five years, a rarity in the country.
  • As Bloomberg recently noted (see chart below), Argentine companies in industries including energy and telecom have taken advantage of demand by investors for dollar-linked assets, using the opportunity to issue low-rate debt to refinance or raise new capital.

Putting cash to work. One company that presented at the meeting that is committed to putting local cash to work listed several actions for doing that, including investing in dollar-linked securities issued by the government that are held to maturity.

  • But the deteriorating economic situation in Argentina means “it’s been hard now to find alternatives to use all the cash,” the member said.
  • The corporate is also analyzing making dollar-linked loans to third parties as another way to deploy cash that offers a hedge against depreciation.

The China factor. Adding complexity and perhaps opportunity to the calculus facing companies managing risk is the economic role China is playing in Argentina. In addition to investments in Argentina, China is strengthening economic ties through a currency swap line the South American country has tapped to avoid defaulting on IMF loans.

  • Some corporates are discussing with advisors the possibility of converting pesos to Chinese RMB and then into dollars. “Now that there’s a deal with China, do we have to maybe go through China to get money out?” one member asked.
  • The inquiring member had previously been converting pesos to dollars using the official rate. But those transactions have not been approved in many months, leading to the decision to try to access the blue-chip swap rate. To do that, a corporate must show it hasn’t accessed the official market in 180 days, and then won’t be able to access it for 180 days following use of the blue-chip swap rate.
  • Doing what the member proposed would also require regulatory approval to invoice in Chinese currency. But all other things being equal, Mr. Haro said, “I think to get a payment abroad in Chinese currency will be of much higher probability than to get it in USD. So if that is something you can do, I think that is a good idea.”
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A Mutiny Fizzles, the Challenges Endure for Corporates in Russia

Companies face pressure to reduce bank balances at Raiffeisen Bank, higher bank processing fees and new sanctions.

The dramatic showdown that unfolded in Russia over the weekend threatened to further complicate the challenges facing multinationals still operating in the war-torn region amid sanctions and countersanctions. Some are members of the NeuGroup for Russia-Ukraine Crisis working group, including companies that transport food commodities and medical supplies. One member trying to get ahead of the potential fallout from the apparent mutiny requested a session which took place Monday.

Companies face pressure to reduce bank balances at Raiffeisen Bank, higher bank processing fees and new sanctions.

The dramatic showdown that unfolded in Russia over the weekend threatened to further complicate the challenges facing multinationals still operating in the war-torn region amid sanctions and countersanctions. Some are members of the NeuGroup for Russia-Ukraine Crisis working group, including companies that transport food commodities and medical supplies. One member trying to get ahead of the potential fallout from the apparent mutiny requested a session which took place Monday.

  • Members who participated in the discussion have not yet noticed any change in business conditions because of the recent events. But they addressed several new and ongoing concerns.
  • For example, one food company believes new plantings and grain in warehouses have declined and expects the “grain corridor” to be shut soon. The member said the outlook calls for a worsening of the global food situation in Russia and Ukraine, both important suppliers. Also, there are rumors of a new tariff on fertilizers which could exacerbate the problem.
  • What follows are takeaways from the session distilled by Paul Dalle Molle, NeuGroup senior executive advisor, who leads the working group and moderated the group’s 26th gathering.

Lower bank balances. With the withdrawal of most Western banks, and in particular Citibank, multinationals have been relying on two remaining institutions, Raiffeisen Bank and Unicredit. For some time, Raiffeisen has required clients to lower month-end cash balances; now the bank is asking for daily balances to be kept very low.

  • Members have been complying by moving funds held at Raiffeisen to other bank accounts at small, unsanctioned Russian banks or international banks headquartered outside the EU and US and still active in Russia.
  • This process is familiar to members who faced the same requirements from Citi as it wound down operations in Russia.

Brokerage accounts? To keep balances low, banks have suggested companies open brokerage accounts so excess cash they hold at the bank can be swept nightly from the operating account on the bank’s balance sheet to the brokerage account managed by the bank.

  • This is a well-known and typical procedure throughout the world, only now being applied to Russia because banks are under so much pressure to reduce their Russian reserves.
  • However, even if members are OK in principle with this procedure, none present have opened the accounts because the required documentation was daunting—they decided the benefits were not worth the time and expense.

Declined payments. Members reported recent changes in how Raiffeisen is processing payments, declining those less than EUR 50,000, and rejecting some larger payments for unclear reasons. So far, it appears Unicredit is processing all payments normally.

Few exit ramps. Members report that, as usual, the only money exiting Russia is for intercompany trade invoice settlements verified through the normal bureaucratic process; there are no dividends nor capital repatriations.

  • There are rumors that Russia will impose a 10% or even a 50% tax on these types of payments, but so far members say all payments are coming through correctly. Processing fees from banks, however, have increased.
  • Members are still unable to repatriate funds from Ukraine.

Sanctions. Some recent new Western sanctions have forced companies to update their list of approved counterparties again and to interrupt or change previous sales already in process.

  • One member reports that new sanctions on raw material imports by their Russian affiliate will delay or diminish their production of goods that are otherwise compliant with sanctions.
  • Another noted that Russia has passed a new law allowing it to seize Western assets. Earlier this month, the Financial Times reported the Kremlin secretly ordered legislation to enable Western assets to be appropriated at reduced prices and is discussing even more draconian measures to fully nationalize companies, citing people familiar with the deliberations.

Russian share shortfall. Mr. Dalle Molle cited a report by Reuters this week that Deutsche Bank had uncovered a shortfall in the Russian shares that back depositary receipts the bank had issued before the Ukraine invasion.

  • The report says Deutsche Bank attributed the shortfall to a decision by Moscow to allow investors to convert some of the DRs into local stock.
  • This may not affect corporates operating in Russia directly but underscores global investors’ challenges in recovering trapped investments in the country’s companies.
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SVB, Stress Tests and Stigma: Bank Treasurers on Lessons Learned

Liquidity, collateral, the Fed’s discount window and regulators spark talk following the collapse of Silicon Valley Bank.

The banking crisis of confidence sparked by the collapse of Silicon Valley Bank (SVB) in March has pushed many members of NeuGroup for Regional Bank Treasurers to revisit, review and—in some cases—rethink aspects of liquidity stress testing and contingency funding plans. Among the most discussed topics: where collateral is pledged, communication with regulators and the stigma of using Federal Reserve borrowing programs like the discount window.

Liquidity, collateral, the Fed’s discount window and regulators spark talk following the collapse of Silicon Valley Bank.

The banking crisis of confidence sparked by the collapse of Silicon Valley Bank (SVB) in March has pushed many members of NeuGroup for Regional Bank Treasurers to revisit, review and—in some cases—rethink aspects of liquidity stress testing and contingency funding plans. Among the most discussed topics: where collateral is pledged, communication with regulators and the stigma of using Federal Reserve borrowing programs like the discount window.

  • Bank treasurers shared lessons they have learned and other post-crisis insights at their spring peer group meeting sponsored by Morgan Stanley in May. Bank treasury team members discussed liquidity stress analytics at a session later in the month. Following are some key takeaways from the discussions.

Liquidity and concentration risk. For one member, SVB’s implosion underscores the need to pay special attention to concentration risk and set deposit size limits when performing liquidity stress testing on large depositors. That’s because a sudden decision by big depositors to withdraw funds could have an outsized impact on the bank—as happened at SVB. In response, this bank treasurer used SVB as a tool to amp up his stress testing.

  • “If you haven’t done it, it’s worthwhile for your liquidity stress test to stick in the balance sheet of one of the banks that failed,” he advised. “We said if we had SVB’s deposit base, what would our liquidity framework have required us to hold in liquid assets?”
  • His bank designs its liquidity stress testing around the requirements of Federal Reserve Board Regulation YY, which the member said puts significant focus on an institution’s concentration of funding sources.

Contingency funding plans: know what to do. Bank treasurers and their teams need to have absorbed and repeatedly practiced the steps laid out in contingency funding plans and playbooks long before a crisis emerges. Planning and practice can’t take place once trouble arrives. For some members, the goal is to make the execution steps so ingrained that they don’t need to consult the plan.

  • “If you have to look at your contingency funding plan in a moment of crisis, you probably aren’t prepared to execute it,” one bank treasurer said.
  • In the wake of the stress caused by SVB, this treasurer looked at his bank’s contingency plan and realized “we pretty much did everything; and part of that is because we’re always testing, we do regular exercises, we’ve kind of developed muscle memory around our contingency funding plan. We know what to do.”
  • That included immediately positioning the bank to make use of the Bank Term Funding Program the Fed established in response to the crisis by pledging securities, although it didn’t access the BTFP for funds. The BTFP values collateral assets like Treasuries at the full price paid, not the current market value.
  • For another treasury team, using so-called tabletop exercises to simulate emergency scenarios as well as reacting to an actual event where contingency funding wasn’t ultimately needed also proved useful post-SVB.
    • In that chaotic period, contingency funding and daily meetings for reporting became necessary. “The value was convening all of the working groups, pulling those teams together and having them at the ready,” a member on this team said.

Closing times and collateral choreography. NeuGroup member banks came away from the SVB experience with a deeper understanding of the importance of being able to tap liquidity from a variety sources at different times of the day—and the ability to move collateral to get that liquidity quickly.

  • “Know where the collateral is and know the cutoff times,” one treasurer advised, referring to when various funding facilities close up. Another member said, “It became clear to us that we don’t spend enough time thinking about intraday liquidity and temporal mismatches.”
  • Timing is part of the challenge and knowing where to go if the bank suddenly needs liquidity. “You start worrying about when desks are going to close,” one member said, echoing a common theme, particularly about when Federal Home Loan Bank windows close.
  • One treasurer said his team has “regular communication with our [Federal Home Loan Bank] and they’ve educated us on what we can expect to get at certain times of the day; we can’t call them up and borrow our whole line, and we don’t expect to be able to.”

Go to the Fed window? The SVB crisis changed one treasurer’s view of turning to the Fed’s discount window if necessary. Since March, his bank has dramatically increased the number of loans pledged at the Fed after learning “they are much more willing to work with you on electronic collateral” than he was aware.

  • “At the end of the day, you hope to never have to go to the Fed, but if you have something late in the day, it’s really the only option,” the treasurer said. And “if you don’t have some collateral and you have something that happens late, you’re kind of out of luck.”
  • This member said there should be no stigma attached to going to the discount window late in the day if the bank pledges to repay the Fed as soon as its Home Loan Bank opens in the morning.
  • Other members said the stigma will stick unless the Fed takes concrete action to destigmatize use of the window. If you use it, one member said, “regulators will be on you.”

The value of repo. One member recommended his peers position themselves to use the repo markets to access liquidity in times of crisis. But adding this arrow to their liquidity stress quiver may require that bank treasurers help educate regional bank regulators, he said. “A lot of midsized banks don’t actively use repo, so regulators of these banks aren’t as familiar [with repo] as large bank regulators,” he said.

  • He noted that “when we put securities as [hold to maturity], the first consideration is establishing repo lines that use them as collateral to turn into sources of funding.” His bank has repo traders, part of an operational team with “lots of experience pledging securities.”
  • He also recommended that peers who have not already done so look into the General Collateral Funding (GCF) repo program run by the Fixed Income Clearing Corporation. It allows anonymous borrowing “as long as you have collateral,” the member said. “We did a test during this [crisis] period and we borrowed against all the collateral we have there, which is probably 10% of assets, in like 15 minutes.”
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Russia Pain: OFAC Answers NeuGroup Members’ Sanctions Questions

Compliance officers at the Office of Foreign Assets Control offer insights on bank sanctions and licensing issues.

At a meeting this week of NeuGroup’s Russia-Ukraine Crisis working group, a compliance officer from the Office of Foreign Assets Control acknowledged that the significant reduction in unsanctioned banks available to work with multinational corporations in Russia presents obstacles to companies authorized to do business in the country under US and other sanctions regimes, including firms supplying medicines.

Compliance officers at the Office of Foreign Assets Control offer insights on bank sanctions and licensing issues.

At a meeting this week of NeuGroup’s Russia-Ukraine Crisis working group, a compliance officer from the Office of Foreign Assets Control acknowledged that the significant reduction in unsanctioned banks available to work with multinational corporations in Russia presents obstacles to companies authorized to do business in the country under US and other sanctions regimes, including firms supplying medicines.

The session, moderated by NeuGroup senior executive advisor Paul Dalle Molle, began with introductions of two OFAC officers, information about sanctions objectives and tools and the five key components of an effective corporate sanctions compliance program:

  • Management commitment
  • Risk assessments
  • Internal controls
  • Testing and auditing
  • Training

Bank frustration. One of the main pain points facing multinationals still doing business in Russia is what Mr. Dalle Molle described as “the structural frustration of having business that is allowed under the sanctions but which companies can’t get done because there are no banks available to assist them.” The banking issue affects corporates authorized to export products including medicine, medical devices and agriculture commodities.

  • “That is something that we acknowledge is a difficulty,” the OFAC officer said. “You get a recent action notice that says a bank you’ve been transacting with is suddenly designated and you can’t do business with them. I understand that is very jarring, very impactful.”
  • However, in response to a member who asked, “can OFAC share a sense of the likelihood of having more banks sanctioned/join the [Specially Designated Nationals] list,” the officer said OFAC will not “preview” that it plans to designate an entity, in part because that could allow it to take actions that undermine the purpose of putting the bank on the sanctions list.
  • But he noted that, “in a lot of our designations, of banks in particular, we’ve published general licenses that authorize a gamut of wind-down activities” that may ease the burden on corporates affected by putting a bank on the sanctions list.

General license renewals. Another member asked if OFAC intends to continue to renew General License 13D, which allows transactions, including tax payments, through the Central Bank of Russia that are otherwise prohibited. GL13D is currently in its fourth iteration and expires June 6, 2023. “And if they stop renewing, what advance notification might they expect to give to allow businesses to appropriately wind down or exit from Russia?” the member added.

  • “It isn’t guaranteed that this authorization will be renewed until the end of time,” another OFAC officer at the session said, noting that the agency will consider the full facts and circumstances of the situation at the time of the expiration.
  • The officer encouraged members to write to the agency with their concerns about this issue because feedback from the public is among the factors considered in making decisions like this, they said. If GL13D is not renewed, companies could apply for a specific license, which is issued on a case by case basis, the officer said.
  • The member who posed the question said if the general license is not renewed, it’s “effectively impossible to do business in Russia at that point because you can no longer pay taxes to the central bank.” In advance of OFAC’s decision, the company has to do considerable work to plan for a wind down.
  • “The more runway to get those renewed earlier is helpful to avoid a lot of panic or work internally, even if you can’t give us permanent guidance on it.” The officer said they would take the member’s views back to colleagues at OFAC.

Seek help and guidance. The extra time and cost to obtain a specific license within a sanctions regime makes applying for them a last resort for many companies. One of the OFAC compliance officers said when applying for a specific license companies should consider applying for interpretative guidance as well.

  • “Get our interpretation whether you actually need a license for something, whether it is authorized or if you’re unsure if you’re interpreting the regulations the right way,” they said.
  • The officer encouraged members to make use of OFAC’s email and feedback hotlines to ask questions. “If you’re unsure, please email us.” For a list of ways to contact OFAC, click here.
  • For corporates that do need to apply for a specific license, the officer recommended including as many details as possible about transactions and the parties involved. The more details you provide initially, the less back-and-forth you may have with the OFAC licensing office.

Harmony. In the last question of the session, a member asked, “Does OFAC have any plans to engage with EU counterparts to create a general license for humanitarian transactions to allow for the use of banks under asset freezes in the EU? One of the most challenging issues on the financial transaction side for us is these divergent requirements.”

  • A compliance officer said OFAC has amended numerous general licenses across different sanctions programs to harmonize with changes in the UN’s asset freeze procedures. “The EU, the UK and the US are really trying to harmonize as much as possible,” they said.
    • “We understand that this can create very challenging issues when you’re looking at jurisdictional issues. I hope in the future that you’ll see more of an effort to harmonize things on the humanitarian authorization front.”
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Reimagining the Regional Treasury Center’s Strategic Role

Post-pandemic thinking on the role of Asian regional treasury centers, often based in Singapore.

By Joseph Neu

I was excited to return to in February for the first time since 2019 to address NeuGroup for Asia Treasury, a group launched in 2011 to connect member companies to this vital region. While much has changed in a dozen years, Asia in 2023 remains crucial for MNC growth plans, so the group’s bridging mission remains more important than ever.

Post-pandemic thinking on the role of Asian regional treasury centers, often based in Singapore.

By Joseph Neu

I was excited to return to Singapore in February for the first time since 2019 to address NeuGroup for Asia Treasury, a group launched in 2011 to connect member companies to this vital region. While much has changed in a dozen years, Asia in 2023 remains crucial for MNC growth plans, so the group’s bridging mission remains more important than ever.

  • When I met with members before the pandemic, I wanted to help them navigate a more strategic role for MNC regional treasury. Since then, NeuGroup has pivoted further to embrace strategic finance professionals who move beyond SG&A support roles to become valued business partners.
  • It is my mission now to see regional treasury centers (RTCs)—especially those in Asia—join this pivot. The roles and responsibilities of RTCs must elevate to deliver more value. Treasury operations and low-value transactional work belong elsewhere—ideally in the hands of machines.
  • The good news is that discussions with members suggest that RTC roles will be more customer- and supplier-facing—aligning them with the strategic finance focus.

Innovation that drives growth. Singapore has gained in strategic significance for MNCs as a gateway to Southeast Asia—becoming even more expensive as a result; the economics support the continuing trend toward local hires vs. expats doing “study abroad programs.” The city-state, meanwhile, has continued to successfully position itself as a finance and innovation center, including for liquidity structures, especially payments.

  • Chinese tech and other companies are setting up shop to support their international businesses and leapfrogging traditional cross-border structures.
  • The Monetary Authority of Singapore, the central bank, is supporting numerous projects to unlock value from the (regulated) digitalization of payments across borders. Among these, Project Ubin, has resulted in experimentation with blockchain-based payment rails for programable money.
  • In 2021, DBS, JPMorgan and Temasek formed a special tripartite technology company “to reimagine and accelerate value movements for payments, trade and foreign exchange settlement in a new digital era.”
  • Not all programmable money has to live on a blockchain, yet what banks are learning from experimentation with digital currency is showing up in the fiat world, segregating firm funds from those of ecosystem “marketplace sellers” and integrating bank accounts and digital wallets.
  • Separating real solutions from hype is a role for Singapore-based RTCs. Speaking to experts there will help MNCs do this.

RTCs should be bridging all this innovation to drive business growth.

  • Technology-enabled treasury operations with programmable money will free up time to do this.
  • The data from digitalization of transactions will make forecasting and planning that better serve business ecosystems less time-consuming.

RTC incentives no longer tax driven. The other major change from 2011 is that tax incentives are no longer a driver of treasury center location. OECD corporate minimum tax and BEPS have taken tax incentives further off the table in 2023—if not eliminated them as an RTC consideration.

  • Today, financial infrastructure, policy and government support are what matters. Grants to support strategic finance investment, including the training and development of future-oriented, strategic finance professionals have replaced incentivized tax rates.
  • Cost and quality of living also count in our post-pandemic world. This is why Thailand is making a bid to attract start-ups and finance types who would rather not have to fly to play at the beach.
  • Tax structures, of course, never fully go away, so check with your tax department to see if there isn’t something they can design that still works from a cash perspective.

Agility centers. The final lesson from the pandemic being applied at RTCs is how to remain agile and promote agility out to the periphery and back to the center. Indeed, promoting agility from the regional center may be the answer to unlocking the most growth and innovation in Asia.

  • Supply chains are shifting and MNCs need to be agile to keep them both resilient and sustainable. Let RTCs support these shifts from a finance perspective.
  • Shared services are transforming with the opportunities empowered by technology. What was once a RTC coordinating role with a low-cost center might become one for higher-value activities with a center of excellence.
  • Finally, RTCs can educate local monetary authorities and other government policymakers to adjust policies to better promote direct investment and become more agile in how they manage their balance of payments.

The mission. Working with our members and their partners in the region, NeuGroup remains committed to:

  • Supporting MNCs in Asia.
  • Making regional treasury centers more strategic and agile.
  • Connecting members with all finance-business partner activities in the region.
  • Bridging those finance-business partner activities in Asia with those HQ is planning to bring into the region.
  • Making the career paths for finance professionals in the region more rewarding.
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"Collaborating with NeuGroup has proven to be an effective means not only to communicate our added value to the treasury community but also to gain insights around the challenges treasury professionals are facing and how we can best position our franchise to be part of the solution. We appreciate that NeuGroup consistently engages with us like a partner with a long-term perspective."

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Sidney DillardLoop Capital • Partner

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"...it's a very collegiate group where we trust each other immensely and there is never a meeting that I leave without picking up at least two or three nuggets of really crucial information for me and how I operate and run my business."

Joachim WettermarkSalesforce • Executive Vice President, Treasury & Finance Operations

"One of the things I truly appreciate is the ability to benchmark with my colleagues. That information can really only be garnered from conversations with my colleagues here at Tech 20."

Odette GoLam Research Corporation • Vice President and Treasurers

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"I have joined the Tech 20 group and benefit from that because I can get a lot of my industry peers together at one time and can discuss topics, challenges and how to come up with solutions and that helps me get all this knowledge all together as support to my career."

Randy OuAlibaba (China) Co., Ltd • Treasury Vice President

"I've been attending benchmarking meetings with the NeuGroup since 2001. I find the meetings super valuable because I'm able to benchmark with colleagues and our frank discussions under Chatham House Rules helped me to see around the corners."

George ZinnMicrosoft Corporation • Vice President and Treasurer

"I always love coming to the NeuGroup sessions with my peers...I belong to the Tech20 group I learn a lot from the other treasurers and I always have takeaways for my team."

Kirsten NordlofAutodesk, Inc. • Vice President of Tax, Treasury and Risk Finance
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