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.

Testimonials

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.

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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Stories and Foresight Built on Data: What a CFO Wants From Treasury

A seasoned CFO shares thoughts on automation and how treasury can elevate itself to become a strategic partner.

The path of treasurers who are determined to walk the walk of becoming strategic business partners by devoting more time to value-adding activities and less to tactical tasks runs through automation that frees up bandwidth for intense data analysis.

  • In making that point at a recent meeting of NeuGroup for Mid-Cap Treasurers sponsored by HighRadius, Jeff Martini, interim CFO of Bishop Lifting Products, said it’s critical that treasury teams become “data guardians” who leverage data to tell stories that lead to action, helping senior leaders achieve their goals. “Treasury’s role is to allow me to make an informed decision,” he said.

A seasoned CFO shares thoughts on automation and how treasury can elevate itself to become a strategic partner.

The path of treasurers who are determined to walk the walk of becoming strategic business partners by devoting more time to value-adding activities and less to tactical tasks runs through automation that frees up bandwidth for intense data analysis.

  • In making that point at a recent meeting of NeuGroup for Mid-Cap Treasurers sponsored by HighRadius, Jeff Martini, interim CFO of Bishop Lifting Products, said it’s critical that treasury teams become “data guardians” who leverage data to tell stories that lead to action, helping senior leaders achieve their goals. “Treasury’s role is to allow me to make an informed decision,” he said.
  • “It’s about treasury being able to internalize a data model,” he added. “Being able to hold that model in their heads, understand where the data is moving, how to access it, and how to report, taking away the right stories. You have to understand where the pinch points are, and what you can do differently.”
  • Mr. Martini, who has 20 years of experience as a CFO, began his career in accounting, which he said is similar to treasury, in that a crucial skill is being able to tell a bigger story through transactions. Top treasurers, he said, are able to “back away from the business and see the full landscape.”

Tech fluency. Getting to a place where treasury can focus on seeing the stories in the company’s transactions, Mr. Martini said, requires freeing up time for technology-fluent team members and giving them the right tools.

  • As he pushed automation at his company, he turned to HighRadius for a tool that streamlines processes and makes data more visible, aiding treasury’s ability to extract insights.
  • “I helped to eliminate the spreadsheet-only system and set up a data pipeline up front using HighRadius,” he explained. “The work flow was exclusively Excel, and the analytical stuff is still stuck in Excel, but we’ve gone about 60% away from that.”
  • “You have to have an awareness of your team’s skillset,” before giving them tools and access to data, Mr. Martini advised. It can be beneficial to limit which team members have access to large data sets, which may slow them down.
    • “People aren’t getting value just by touching data,” he said, stressing that only employees who have the skill to dig into data should be touching it.

Sharing is caring. Although it may seem counterintuitive to let go of some of treasury’s responsibilities to elevate its role as a strategic partner, Mr. Martini said that freeing up time to dig into data is the priority, making collaborating with other functions essential.

  • “If I notice treasury is collaborating with other functions within the company, and even sharing some responsibilities, that’ll get my attention very quickly,” he said, including allowing FP&A or a shared service center or center of excellence to take some responsibilities off treasury’s hands.
    • “To earn treasury’s seat at the table, it’s about having a mindset of what is going on with the business and acting in the best interest of the entire organization,” he said.
    • “It shows treasury has a strategic understanding of the business and internalizes its complexity. Knowing that can take a huge load off the office of the CFO.”
  • One treasurer at the session said Mr. Martini’s advice rings true. “When we bring accounting or FP&A together with treasury and can collaborate and explain something we’re doing together to the CFO, it works like magic,” the treasurer said. “The mindset of needing to share is important.”  

Areas of expertise. Mr. Martini identified three primary areas in which treasury can provide value to a CFO:

  1. “The number one through number five jobs of a CFO are to never run out of money,” he said. “So anything that can be done to help de-risk and look ahead, from managing capital structure to being able to tell the story of the transactions” is crucial. “As a CFO, uncertainty is the name of the game. So as uncertainty goes up, so does value of trust” in treasury.
  2. Second “is the certain skill of being able to answer a question. It’s not just answering the question but finding the question behind the question. If a CFO asks a question, knowledge is more than just the direct answer, it’s being able to interpret the question” and connect the dots to the context behind it.
  3. The third aspect flips the script: asking the CFO useful questions. “I want to be asked questions that can be helpful,” Mr. Martini said. “Tell me what it is that I can be [for treasury], what are the organization’s broader needs that I’m not seeing? What does the treasurer see that I don’t?”
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Sharpen the Focus: Fostering More Productive FX Meetings

Approaches to more productive meetings include highlighting world events, more detailed program updates and updating dashboards.

After a recent quarterly risk meeting, a senior leader gave this advice to one FX risk manager to improve the productivity of future meetings: Highlight only new developments and events, come with any specific asks and leave anything else to pre-meeting reading materials.

  • Up to this point, much of the two-hour meetings consisted of a comprehensive update on everything the FX team had done in the previous month, including reviewing many specific hedges. That often left little time to propose any new initiatives or changes in strategy that would need to be approved by leadership.
  • But drastically cutting down the bulk of the meeting, the member said, presented a dilemma, one that resonated with other members at a summit for NeuGroup for Foreign Exchange sponsored and co-hosted by Chatham Financial: “What else can we talk about?”

Approaches to more productive meetings include highlighting world events, more detailed program updates and updating dashboards.

After a recent quarterly risk meeting, a senior leader gave this advice to one FX risk manager to improve the productivity of future meetings: Highlight only new developments and events, come with any specific asks and leave anything else to pre-meeting reading materials.

  • Up to this point, much of the two-hour meetings consisted of a comprehensive update on everything the FX team had done in the previous month, including reviewing many specific hedges. That often left little time to propose any new initiatives or changes in strategy that would need to be approved by leadership.
  • But drastically cutting down the bulk of the meeting, the member said, presented a dilemma, one that resonated with other members at a summit for NeuGroup for Foreign Exchange sponsored and co-hosted by Chatham Financial: “What else can we talk about?”

What’s new? Sometimes, the member said, pressing current events or updates on new hedging programs help to fill the entire time—but you can’t always count on that. Breaking down the impact of Covid, supply chain disruption and the crisis in Eastern Europe has occupied most of the time in recent risk meetings, “but you don’t always have a black swan event to respond to,” the member said.

  • Some members responded that the best use of this time is to dig deeper into currency updates and analyze the performance of hedging programs. Not content with only understanding the sources of unexpected FX gains or losses, also known as “noise,” one member shared that he takes an extra step, documenting causes of noise using reason codes.
    • “We delve into the results in the key drivers, which requires being prepared for and understanding sources of noise,” he said. “Then, we can share if we are over-hedged or under-hedged, which the board appreciates.”
  • Since many members said that their teams only track hedging performance through Excel, preparing analysis and charts to visualize it can be very time-consuming. “We perform reconciliation and noise allocation, then identify high-risk currencies and prepare decks before we meet,” he said. “It can be a challenge to perform as much work as we can ahead of time.”

Dig into currencies. To address the challenge, one member set up automated dashboards for each currency in Power BI, which he said has been very beneficial in meetings with leadership, and essentially eliminates any prep time for reports by currency.

  • “Like many others, our FX risk management policy focuses on reducing volatility,” he said. “What is very important is that we do active, monthly monitoring looking at FX results.”
  • Power BI pulls FX data from the company’s TMS and ERPs covering gains and losses on monitored currencies, their related balance sheet exposures and the company’s published monthly FX rates for each currency, as shown in the charts below.
  • “We have a dashboard in Power BI that key people have access to, and then we have a pack of dashboards that export so we can present at board meetings, but also can be a historical record,” he said.
    • For now, more detailed analysis of hedging performance is still done in Excel, but the member said he is working to improve this process in a similar fashion.

Making use of extra time. If there is still time remaining after in-depth results and currency updates, one member said he comes prepared to present on concerns that may not yet be on leadership’s radar.

  • “If there is something we’re seeing as an issue in treasury, leadership may not have as nuanced of a view of it as we do, and we want our voice to be heard when they are talking with a distributor,” he said.
  • The member recently started using a vulnerability chart of the 10 top EM currencies that the company has exposure to, and plots each currency based on its vulnerability and cost to hedge. In the chart below, currencies (unidentified) are plotted by vulnerability, cost to hedge and exposure. The dotted red lines show how the company can set limits on when hedging becomes too expensive, or when a currency becomes too vulnerable.
  • “We’re trying to drive conversation with the business and be seen as a vital partner,” he said.

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AI-Enabled Analytics Drives Faster, Better Decision-Making

Author Larry Maisel says advanced analytics fueled by AI helps finance teams explain why something happened, what may happen next and what action to take to prepare for it.

NeuGroup managing director Nilly Essaides recently interviewed Larry Maisel, an analytics expert and president of DecisionVu, about his recently published book, AI-Enabled Analytics: A Roadmap for Becoming an Analytics Powerhouse. The book, co-authored with Robert J. Zwerling and Jesper H. Sorensen, focuses on how to leverage advanced analytics to drive unbiased and actionable insights that add value to enterprise performance.

Author Larry Maisel says advanced analytics fueled by AI helps finance teams explain why something happened, what may happen next and what action to take to prepare for it.

NeuGroup managing director Nilly Essaides recently interviewed Larry Maisel, an analytics expert and president of DecisionVu, about his recently published book, AI-Enabled Analytics: A Roadmap for Becoming an Analytics Powerhouse. The book, co-authored with Robert J. Zwerling and Jesper H. Sorensen, focuses on how to leverage advanced analytics to drive unbiased and actionable insights that add value to enterprise performance.

Essaides: In your book, you make a fundamental distinction between analytics and analysis. How are they different, and why is it important for finance professionals to understand that difference?

Maisel: Analysis is arithmetic on data, simple multiplication and division functions that yield informative results. A finance example would be identifying the variance between budget and actuals. Analytics, on the other hand, is mathematics on data, or the use of statistical, algorithmic and other technique, which can produce insight, foresight and actionable information. So, analysis will tell me that I am under budget by 5%. Analytics, by contrast, will tell me about the drivers of underperformance; it will also provide insight into making decisions in order to take action.

Essaides: Given how far AI has evolved, should today’s finance professionals worry about being replaced by AI-enabled analytics?

Maisel: Not at all. AI is absolutely complementary. It is critical that decision-makers understand the right balance between analytics and human judgment and not lose that perspective. In doing the research for the book, I learned from the work of others, like Daniel Kahneman and Amos Tversky. These two long-time collaborators studied and introduced the concept of a two-system brain, and how that duality affects our decision-making regarding risk and uncertainty. System one is instinctive and based on gut feel. System two is slow, prodding and analytical. We use system one all the time, like when we go to the grocery store and pick a particular product off the shelf. In those cases, system one has an advantage. But when we come to business and making important decisions about our operations or about events, we need to be on guard against system one, because system one has biases, which may cause us to make decisions that might not be the best.

One example Kahneman and Tversky introduced is representativeness bias. That means that we assume things that look like others we’ve experienced before will remain the same going forward. That way of thinking incorporates preconceptions and therefore bias. To address business decisions, scenario analysis needs to recognize that bias; we need to apply mathematics to the data (i.e., analytics) to identify potential outcomes.

Essaides: Can you give us examples of how bias-free analytics can be applied to make decisions in the finance organization?

Maisel: You can think of it in treasury and FP&A as it relates to cash forecasting. Integral to the forecast is your ability to look at accounts receivable and predict the likelihood of which accounts will be paid within which period of time. That’s where AI-enabled analytics can help, by examining time series of data and performing trend analysis.

The sweet spot of advanced analytics is really in the transformation of FP&A from the reporter persona to an advisor persona that tells me not what happened, but why it happened, what may happen next and what action to take to prepare for it. As one of my CFO friends told me: “I don’t want to know something. I want to be smarter about something.” The whole point is to make the CFO more impactful, and the use of advanced analytics goes a long way toward building the CFO’s capabilities to work with the operations and be engaged and welcomed. Using this advantage, treasury and finance executives have an incredible opportunity to go beyond finance and impact strategic decisions.

Essaides: Finance organizations may be hesitant to adopt AI tools because they believe staff does not have the required skills. How concerned should they be?

Maisel: Today’s leading-edge AI tools rely on low- or no-code, with the algorithms already embedded in the solution. That means you don’t have to be a data scientist to make an impact. The tool we offer comes with built-in algorithms, so finance analysts don’t have to write and calculate a formula, for example, to identify correlations, as you would in Excel. It’s more straightforward. You don’t have to be an Excel “jockey” to test for correlations against different dimensions and drive down different paths of data, for example by product, customer or geography. What you need is the skill to be analytical and to be able to interpret what the data is revealing to you.

Essaides: We often hear our members complain about the attitude and response time of their IT organizations when they ask for a new tool. Is that getting better?

Maisel: I have a great deal of respect for CIOs, as many of them are beginning to welcome easy-to-use advanced analytics tools because they understand IT’s role is to bring that technology to the business in a way that contributes to its competitiveness and performance. I see a lot more collaboration between IT and their business partners. In the past, finance executives were often told this was not their domain, and implementations were very cumbersome. In today’s world, agility and quality of data are both very important, and you can achieve that by ensuring the CFO and the CIO work in collaboration. IT is really evolving from being the application guardian into the guardian of data.

Essaides: Your book’s subtitle is a “Roadmap for Becoming an Analytics Powerhouse.” Can the office of the CFO become that powerhouse, i.e., provider of analytics services to the rest of the company?

Maisel:  From the CFO’s perspective, one critical step is to assign or hire an analytics champion, who would be an advocate for finance analytics capabilities within the company, as well as make sure the right talent is recruited or identified. A big part of the champion’s role is to ensure the organization has the right processes and tools, and that the analytics culture becomes embedded within the corporate DNA by demonstrating success. The key is to demonstrate how analysis contributes to profitability or improved performance.

In the book, we describe a hypothetical telecom company that was trying to understand the key drivers of its revenue performance. They started by mapping any causal factors that may influence financial results. Our role would be to work with them to run AI-enabled analytics in order to isolate the set of drivers that truly move the needle on performance. This way, you can validate and measure the impact of different elements, for example churn, by identifying critical trends and come up with corrective actions. In the case of churn, for example, this may be allocating more resources to reduce billing errors.

Essaides: For a CFO, treasurer or of head of FP&A, what are some of the things they should be thinking about to reach this new advisory role?

Maisel: The first thing is to identify a proof-of-value area within the company or within finance, for example sales analysis, where finance can apply AI-enabled analytics to support the sales forecast or work collaboratively with marketing to improve demand forecasting.

When you do the pilot, as the executive sponsor, you should make sure you provide sufficient budget and the right resources with the bandwidth to execute a successful project. You also need to make this a priority, so this does not become the flavor of the month. You have to demonstrate your conviction to stay with and focus on the project in order to prove its value.

If the pilot does not produce the expected results, learn from that experience and do another pilot in another area. The value is accumulative to the organization. Over time, as well as through market surveys, we have found that if you apply advanced analytics, compared to mere analysis, you can produce tangible value.

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Turn Down the Volume: Cutting Through ‘Noise’ in FX Hedging

NeuGroup members share their common sources of unexpected volatility in cash flow and balance sheet hedging programs.

One goal of a foreign exchange hedging program, one FX risk manager said at a recent NeuGroup meeting, is to minimize the risk that senior executives will face questions during quarterly earnings calls about the impact of currency on results. But uncertainty sparked by global issues like the war in Ukraine, inflation and fallout from the pandemic means this isn’t always possible.

NeuGroup members share their common sources of unexpected volatility in cash flow and balance sheet hedging programs.

One goal of a foreign exchange hedging program, one FX risk manager said at a recent NeuGroup meeting, is to minimize the risk that senior executives will face questions during quarterly earnings calls about the impact of currency on results. But uncertainty sparked by global issues like the war in Ukraine, inflation and fallout from the pandemic means this isn’t always possible.

  • Those issues can be one source of unexpected FX gains or losses, often called “noise” by treasury teams. And noise can highlight hedging challenges and invite questions from senior leaders who seek the source of the noise. “On a month-to-month basis that’s what we have to spend a lot of our time explaining to leadership,” one member said.
  • Members at the meeting, a summit for NeuGroup for Foreign Exchange 1 and 2 sponsored and co-hosted by Chatham Financial, said noise often comes from market volatility, forecasts that aren’t timely or accurate enough, or simple human error.
  • Attributing the noise to a source reveals if it’s an external factor the corporate can’t control, or may help identify errors and process improvements that can be remedied.

Cloudy crystal ball. Cash flow hedging relies on forecasted exposures of foreign revenues and expenses over a company’s planning and hedging horizon. Forecasts that miss the mark are the biggest source of noise, according to a survey at the meeting (see chart below).

  • Increasing uncertainty since the start of the pandemic has caused forecasting to be far less reliable. One member said that even when volatility leads to increased sales, it makes life harder for the FX team.
    • “As we looked at our updated cash flows when Covid first happened and sales were expected to decrease, we started to be over-hedged, so we pushed out positions to make sure we were not,” he said. “In the end, we actually flourished from a sales perspective, but the unknown of Covid led us to be too conservative,” leaving the company under-hedged.
  • FX impact, cited by 22% of those surveyed as the largest source of cash flow hedging noise, stems from movement in exchange rates that hasn’t been hedged or modeled as an acceptable risk. “How do you differentiate between what the market is doing and the things you’re choosing to do from a hedging strategy perspective?” Chatham Financial’s Amanda Breslin asked the group.
    • “Many companies choose to hedge a subset of their exposures based on risk tolerance, cost to hedge, reliance on correlations or forecast visibility. Outcomes that deviate from the assumed degree of residual risk are where we see companies exploring the sources of additional noise.” She added that FX teams need to understand “from a hedge perspective, are they targeting the right ratios, currencies and tenors? It gets quite messy.”

Missing the match. For balance sheet hedging programs, the sources of noise identified by members are a bit broader, which can make solving the issue more complex. The common sources are mismatches in notional value, timing and currency rates (see chart below).

  • Mismatches in notional are similar to deviations from forecasts in cash flow hedging, as they can occur when forecasted exposures are fully hedged but the company’s actual balances are higher or lower than the forecasted amounts, or when currency exposures go unregistered and remain unhedged. Almost half (48%) the members surveyed identified this as their primary issue, which can also be caused by errors in bookkeeping.
    • “We identify errors, which have a huge impact on our balance sheet exposure notional,” one member said. “When we go to the ERP system, often times, [local teams that execute FX transactions] book the balance in a certain FX currency, but actually balance in a functional currency which is not part of the exposure.” Because of this, she said the forecast is often incorrect, resulting in a balance sheet that is either over-hedged or under-hedged.
  • For other members (26%), a mismatch in rates can cause a cacophony. This issue can arise when the spot rate used to revalue derivatives comes from a market rate, while exposures are remeasured using a company balance sheet rate. “If someone is using the wrong exchange rate, we’re creating a lot of noise,” one member said.
  • An equal share of members say the biggest source of unexpected results is a mismatch in timing. “We have data coming in from multiple ERPs and multiple systems,” one member. “I’ve seen a lot of companies, a couple days before the end of the month, start generating some forecast exposures to get an idea of what they think the balance sheet will look like.”
    • He continued that companies often do pre-balance sheet hedging to get the process started and then when the data becomes available, often five or six days into the month, will make additional hedges on top of that. “That presents a lot of issues,” he said. “You’re going to have timing mismatches, you’re going to have notional mismatches, you’re going to get some noise.”

Communication to turn down the volume. One FX head shared a simple approach to track a source of noise and tackle it, going one step further than simply being prepared to explain its origin.

  • “The first step is just having a conversation,” he said. Each month, the member meets with controllers for each currency and has a “kumbaya” moment to break down any noise and where it stems from.
    • “We talk about what the previous exposure was, what the upcoming one is going to be, and try to figure out why there were issues with the prior forecast,” he said.
  • After identifying the reason for the unexpected volatility, the team tracks the source using “reason codes” for recurring causes, creating a historical log that tracks the origins of noise. “Now we can identify whether it was a revenue mismatch, whether there was something wrong on the cost side or something wrong with tax, and these reason codes are specifically tied to the P&L impact of that mismatch,” he said. “It allows us to very quickly look back to see exactly what caused the problem and why, so we know who to talk to.”
  • Another member added that beefing up tracking of these noisemakers can be very valuable when meeting with leadership, which the member ran into when faced with an issue hedging deferred income, which “always comes out at a different rate than the prevailing monthly rate” due to a reliance on forecasting.
    • One senior executive who recently joined the company confronted the member’s team, expressing concerns about an unexpected $9 million loss due to this issue.
    • “But I showed him the data, and I said, ‘A forecast cannot be perfect, and that’s a big driver.’ And after that he said, ‘well, you know what, I’ve never felt so good about losing $9 million,’” the member said. “You just need to be able to translate what is happening in a way the business understands.”
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No Walk in the Park: Overcoming Resistance To Embrace a Cash Culture

One treasurer’s rocky quest to shift his company’s focus from P&L to cash.

When one NeuGroup member saw an opportunity to elevate treasury’s role within the company while focusing its overall view of cash, he took it—but the journey was no walk in the park.

  • He encountered some resistance from leadership and the FP&A team, but was able to work with them to reconcile two methods for cash flow forecasting and take a more active approach to cash management.
  • The member, the treasurer at a high-growth tech firm, addressed how to overcome these internal obstacles, which he said are common to treasurers working to build a cash culture and move away from a P&L focus.

One treasurer’s rocky quest to shift his company’s focus from P&L to cash.

When one NeuGroup member saw an opportunity to elevate treasury’s role within the company while focusing its overall view of cash, he took it—but the journey was no walk in the park.

  • He encountered some resistance from leadership and the FP&A team, but was able to work with them to reconcile two methods for cash flow forecasting and take a more active approach to cash management.
  • The member, the treasurer at a high-growth tech firm, addressed how to overcome these internal obstacles, which he said are common to treasurers working to build a cash culture and move away from a P&L focus.

Destroying the ivory tower. The member said treasury tends to land in a unique kind of corporate silo that he called an “ivory tower;” not only separate from the rest of the company, but seemingly elevated above it.

  • For him, this led to tension with other divisions even before he embarked on his cash mission. “It is a big issue when treasury is not connected to the company’s [operations], management and the board,” he said.
  • “When treasury is only focusing on operational matters, like cash positioning, it is not ideal,” the treasurer said. He felt treasury was performing very well on the day-to-day operations side but was restricted by not being involved in the long-term cash or capital structure planning.
  • “In our case, we also had a high debt leverage, so we needed to have full control of the company’s cash model,” he said. “FP&A was in charge of that but wasn’t really doing it. So we had to transform the company’s culture.”

Hard work pays off. When the treasurer was first brought in to help manage strategic cash planning (also known as the indirect model for long-term cash forecasting), he said FP&A was hesitant to let go. Being able to strategically manage these relationships was key to the project’s success, he said.

  • To soothe relationships, treasury now shares the responsibility, working alongside the FP&A team. “We work with external functions on a weekly basis, we have weekly reviews with teams and corrective action items, but we do not manage these functions,” he said.
  • Now, treasury is part of the company’s process for strategic cash planning three years out, as well as the short-term forecast, which he said allows for better alignment between the two types of forecasting and a more holistic cash framework.

Internal discord. When another member said her CFO had expressed concern about a disconnect between the long-term cash flow forecasting and treasury’s short-term forecast, she similarly suggested allowing treasury to assist with both forecasts to bring them into harmony. It didn’t go over well, so she looked to her peers on how to overcome this resistance.

  • The member who successfully completed this transformation suggested his approach to these situations: using a “treasury road map” to illustrate his vision to leadership. It breaks down, area-by-area, the approach the company took two years ago, how it is performing now and a vision for the next two years.
  • “Just being able to have these conversations is good,” though they’re not always easy, he said. “I think, and this is key for me, if you’re transparent and have a regular review of projects, then that works.”
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No Sale: Convertibles at Great Prices Fail to Impress IG Corporates

Companies rated investment grade expressed reluctance to issue convertible bonds, despite favorable conditions.

It can be a nonstarter to raise the topic of convertible bonds with treasurers at investment-grade companies that can already issue debt with very low interest rates and don’t want their stock diluted when investors convert bonds to equity.

  • But many NeuGroup members whose companies have high credit ratings, including some at a recent meeting of NeuGroup for Capital Markets, say all their banks have pitched convertibles. And some treasury teams are also getting questions internally from CFOs and board members.
  • One member, echoing others, said 0% coupons and conversion premiums in the range of 50% to 70%, along with updated FASB accounting standards (see chart) that could simplify the process, makes convertible bonds “more attractive, but it’s an odd gamble when rates [for straight debt] are below 3%.”

Companies rated investment grade expressed reluctance to issue convertible bonds, despite favorable conditions.

It can be a nonstarter to raise the topic of convertible bonds with treasurers at investment-grade companies that can already issue debt with very low interest rates and don’t want their stock diluted when investors convert bonds to equity.

  • But many NeuGroup members whose companies have high credit ratings, including some at a recent meeting of NeuGroup for Capital Markets, say all their banks have pitched convertibles. And some treasury teams are also getting questions internally from CFOs and board members.
  • One member, echoing others, said 0% coupons and conversion premiums in the range of 50% to 70%, along with updated FASB accounting standards (see chart) that could simplify the process, makes convertible bonds “more attractive, but it’s an odd gamble when rates [for straight debt] are below 3%.”

Ideal conditions. One member with experience issuing convertibles before his company became investment grade said the most difficult part of the process was documentation, so the simplification by FASB is significant.

  • The FASB changes come amid market factors that have historically been good for convertible bond issuance:
    • Low interest rates
    • High equity prices and high valuations such as PE (pricing/earnings) ratios
    • High volatility levels
  • These condition have sparked a flood of companies with non-investment grade ratings, or no ratings, to issue convertibles. The Financial Times, citing Refinitiv, reported that in January and February, companies raised almost $34 billion, 68% more than in the first two months of 2020.

Dilution. The big downside to convertible instruments, NeuGroup members said, is dilution of a company’s common stock, which potentially makes the shares less valuable to shareholders.

  • “If the stock price goes to 10% above my strike price, my upper bounds, I’m diluting myself $4 billion, is that really worth 20 basis points of savings?” one member asked. “Your base is much higher because your company has doubled the wealth, but you still have to explain why you’ve taken $4 billion of dilution.”
  • The same member said, “As much as banks love to pitch convertibles because they can charge [more than for straight debt deals], some of our closest banks have been honest and been like, ‘You’ve heard about convertibles a lot I’m sure, but we don’t recommend them for investment-grade companies.’”
    • Another member added, “Some [banks] said, ‘If your stock goes up by a hundred percent, are you really still going to be worried about dilution?’ Economically, yes, I will.”
    • “I’ll echo those thoughts,” another member said. “Although there is great headline attractiveness, 50 basis points is not worth the risk of dilution.”

Pair convertible with a buyback? One member raised the intriguing idea of pairing a convertible issue with a stock repurchase plan to offset or hedge the dilution of additional stock. The member, however, said he’s still too skeptical of convertibles to embrace the strategy.

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Treasury’s Key Role as Corporates Support Black Communities

Treasurers weigh investments, deposits and transactions that will benefit Black communities.

Treasury teams within the NeuGroup Network are playing a key role at companies that are stepping up efforts to support Black communities and Black-owned financial institutions.

  • NeuGroup members discussed their initiatives and options at a recent Virtual Interactive Session (VIS) that followed a webinar in which Netflix detailed its commitment to allocate 2% of cash holdings—initially up to $100 million—into financial institutions and organizations that directly support Black communities in the US.

Treasurers weigh investments, deposits and transactions that will benefit Black communities.

Treasury teams within the NeuGroup Network are playing a key role at companies that are stepping up efforts to support Black communities and Black-owned financial institutions.

  • NeuGroup members discussed their initiatives and options at a recent Virtual Interactive Session (VIS) that followed a webinar in which Netflix detailed its commitment to allocate 2% of cash holdings—initially up to $100 million—into financial institutions and organizations that directly support Black communities in the US.
  • Director of treasury Shannon Alwyn told VIS participants that Netflix approached this project—an idea from someone in HR which treasury executed—by asking, “How can we make a difference in the normal course of business—how to do something without really doing anything—to make this more than a moment?”
  • Part of the answer to that question involved moving a portion of non-operating cash from one set of banking partners to other financial institutions.

The Netflix plan. Netflix is taking a first step by putting $35 million into two vehicles:

  • $25 million will be managed by the Local Initiatives Support Corporation (LISC), which will invest in Black financial institutions serving low- and moderate-income communities and Black community development corporations.
  • $10 million will go to Hope Credit Union in the form of a so-called transformational deposit to fuel economic opportunity in the South. This is a two-year CD with a 30-day call option in case Netflix needs the liquidity.

Big Picture. In general terms, companies looking to make an impact have three pillars to consider:

  1. Depositing cash into banks that directly serve Black communities.
  2. Using Black-owned institutions for financial transactions such as bond issues or stock buybacks.
  3. Direct investment of debt, equity or contributions in kind (e.g., technology, training and building housing).

There are obstacles to making investments that benefit communities. Investment policy constraints are among the biggest.

  • Most firms need peer benchmarks to ok carve-outs for depositing significant amounts of excess cash with smaller institutions and to approve equity investments that are said to have much more of a multiplier effect than loans financed by bank deposits.

Inspired by Netflix. A treasurer who attended the Netflix webinar and the NeuGroup VIS said his company, inspired in part by Netflix, is now looking to support Black-owned community development financial institutions (CDFIs) via options that include:

  • Making deposits directly into minority depository institutions (MDIs) that serve Black communities. This requires due diligence, partly because of the relatively small asset size of many Black-owned banks.
  • Using an intermediary similar to LISC that can help spread the company’s investment across a bigger group of Black-owned MDIs. “That’s what everyone is grappling with—trying to get adequate scale and diversification and some level of diligence,” the treasurer said.

Other paths to progress. The treasurer is also looking into options discussed by other companies who spoke at the VIS. They include:

  • A structured fund similar to one described by a member from a large technology company.
    • That tech company also uses the Certificate of Deposit Account Registry Service (CDARS) with a CDFI in New Orleans.
    • And the company makes use of the Insured Cash Sweep (ICS) service that involves hundreds of institutions.
  • A separately managed account (SMA) used by another company. The account is managed by RBC’s Access Capital, which helps financial institutions comply with the Community Reinvestment Act.
    • The SMA’s fixed-income investments include highly-rated issues from GSEs that support single-family loans and small businesses. The treasurer exploring his options called this “an elegant solution.”

Investment policy changes. The treasurer said it’s highly likely his company will need to amend its investment policy to accommodate whatever decisions senior management ultimately make. That will require approval by the CFO; the finance committee and the board will be notified.

  • During the Netflix webinar, Ms. Alwyn said, “We actually did have to get an exception to our investment policy for a certain portion of our cash in order to be able to do this. Because it is honestly taking on a quite a different risk profile than we’re used to. We decided that we need to take on a little bit more risk if we want to create change.”

Advice for peers. Ms. Alwyn said the company had to “carve out a specific portion” of its non-operating cash to devote to this initiative and “we kept that small.” She suggested that other treasury teams contemplating similar moves may want to think about:

  • Ratings from external agencies.
  • Duration requirements.
  • What size bank you’re willing to do business with.
  • “Getting comfortable with what level of risk you’re willing to take on as a company.”
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Juneteenth and Beyond: NeuGroup Member Companies Take Action on Racial Justice

Treasurers at major retailers discuss what’s been done so far and what lies ahead.

Calls for major societal change in the wake of the killing of George Floyd have sparked many corporations, including NeuGroup member companies, to take a range of actions in support of change and racial justice. For some, those actions included the observation of Juneteenth, which commemorates the end of slavery in the US.

Treasurers at major retailers discuss what’s been done so far and what lies ahead.
 

Calls for major societal change in the wake of the killing of George Floyd have sparked many corporations, including NeuGroup member companies, to take a range of actions in support of change and racial justice. For some, those actions included the observation of Juneteenth, which commemorates the end of slavery in the US.

  • At a NeuGroup virtual meeting for retailers last Friday on changing regulation and business norms post-crisis, a member from a major American retailer described his company’s quick decision to make Juneteenth (June 19) a company holiday.
  • Noting that the company doesn’t typically move as quickly, he credited its fast action to its cross functional crisis leadership team which is approaching the company’s reaction to recent events as it would a crisis such as a hurricane or COVID-19.
  • The company kept stores open but paid time and half to hourly workers on Juneteenth; other, eligible workers had the option to take the day off with full pay; and the company’s headquarters offices were closed.
  • “As we pivoted to this issue, we had to decide if we wanted to follow or lead,” the member said. “We wanted to lead.” 

Education and sincerity. One participant, who is African American, encouraged others on the call to better educate themselves on matters of slavery and black history, noting that few on the call knew the meaning of Juneteenth until recently.

  • This treasury professional said that what matters is sincerity and action, not talk, taken to address underlying problems. She said there is a difference between “what you know is expedient and what is taken to heart, what is sincere and what is a press release.”

 A good start. Another participant noted the pride he felt in seeing how both his current and former employers have tackled the issue of race head-on, including the CEO of the company where he works now urging conversation and learning. “I couldn’t be prouder of how people have responded,” he said.
 
Accelerated change.  In the last few weeks, the national conversation shifted from COVID-19 to racial justice crisis, focused on diversity and inclusion and black lives.

  • That, observed NeuGroup founder Joseph Neu, highlights the extent to which COVID-19 has forced business thinking to be open to accelerated change and the urgency for companies and finance teams to embrace a faster pace of change for good.

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Treasurers Rise to the Challenge of Managing Teams Remotely

One treasurer shares how he keeps staff united and upbeat—and offers his take on leadership during a crisis. The COVID-19 pandemic has forced many treasurers to confront the challenges of managing finance teams remotely.

  • At a recent NeuGroup virtual meeting of mega-cap companies, one treasurer shared his approach to keeping his team cohesive, as well as an observation about how people perform during a crisis.

Together apart. To build a sense of togetherness and maintain unity when everyone is in a different place, the treasurer created a virtual “war room” where every morning each of his direct reports speaks up and updates the group on critical information including domestic and foreign cash levels.

One treasurer shares how he keeps staff united and upbeat—and offers his take on leadership during a crisis.

The COVID-19 pandemic has forced many treasurers to confront the challenges of managing finance teams remotely.

  • At a recent NeuGroup virtual meeting of mega-cap companies, one treasurer shared his approach to keeping his team cohesive, as well as an observation about how people perform during a crisis.

Together apart. To build a sense of togetherness and maintain unity when everyone is in a different place, the treasurer created a virtual “war room” where every morning each of his direct reports speaks up and updates the group on critical information including domestic and foreign cash levels.

  • He holds another war room call at the end of the day to learn, for example, about any cash shortfalls and ask his direct reports about the calls they’re holding with their teams and how the broader treasury group is functioning.
  • He also sends an email update to the entire treasury staff at the end of the day to reinforce the feeling that they are members of a team. He includes a fun fact about himself (first concert, favorite food, etc.). And he has received positive responses by sharing how he spends his workday.
    • “They are very interested in what your day looks like,” he said, adding that he would likely share some of what he got from the NeuGroup meeting that day.

Fun stuff. To keep things light and spirits high during an extremely tough time, the treasurer had people wear something fun for St. Patrick’s Day. (Another member jokingly suggested having an “ugly sweater day.”)

  • Every Friday, as part of the end-of-day call, the team has a virtual happy hour. The overall goal, he said, is to create a “good environment” in the virtual workplace.  

Crisis response. In mid-March, two weeks or so into working from home, the treasurer had observed that some members of his team had not yet stepped up as leaders or started thinking outside the box as they navigated “unchartered waters” created by the pandemic.

  • “Most people tend to do what they are comfortable with during a crisis, rather than hit it head on,” he said. “Top leaders tend to shine during a crisis.”
  • To help maintain focus and motivation, the treasurer does a weekly review, listing the major accomplishments from the treasury/risk team.
  • He also pays tribute to individuals who hit milestones, like a work anniversary, or who go “above the call of duty.”
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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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The Fed Won’t Derail the Economy, UMB Tells Assistant Treasurers

The bank’s positive forecast addresses concerns about rates, inflation, growth and unknowns ahead.

UMB, the regional commercial bank, presented a surprisingly upbeat economic forecast for this year to assistant treasurers in a recent meeting, suggesting less likelihood they will face difficult choices to help guide their companies through a recession or skyrocketing inflation.

  • “On our side,” said an assistant treasurer attending the meeting of NeuGroup for Large-Cap Assistant Treasurers, “it’s fear of the unknown,” given the Fed failed to foresee the inflation spikes “and no one seems to understand what’s going on.”

The bank’s positive forecast addresses concerns about rates, inflation, growth and unknowns ahead.

UMB, the regional commercial bank, presented a surprisingly upbeat economic forecast for this year to assistant treasurers in a recent meeting, suggesting less likelihood they will face difficult choices to help guide their companies through a recession or skyrocketing inflation. 

  • “On our side,” said an assistant treasurer attending the meeting of NeuGroup for Large-Cap Assistant Treasurers, “it’s fear of the unknown,” given the Fed failed to foresee the inflation spikes “and no one seems to understand what’s going on.”
  • Addressing those unknowns, the bank’s director of research and fixed income, Eric Kelley, told the group that UMB forecasts GDP growing by 3.4% in 2022 (see chart), lower than last year but still high historically, and inflation will drop significantly over the next few months based on technical reasons alone.

Rate hike fears overblown. The Federal Reserve’s “dot plot,” illustrating board members’ votes on a time chart, indicates the central bank will raise the Fed Funds rate to 2.75% and perhaps 3% this year, and another quarter-point or two in 2023, then pause.

  • “Not enough to derail the economy; not even close,” Mr. Kelley said, and “The Fed believes that’s their new neutral rate, and it will be good enough to slow down economy.”
  • The market sees a slightly higher increase this year, at 3.25%, still historically low, Mr. Kelley said, adding that recent volatility in the bond and stock markets has stemmed more from the unexpectedly rapid nature of the rate hikes than longer-term concerns.

Deceptive headlines. US GDP decreased by an annualized negative 1.4% in Q1, but behind the headlines and excluding exports and inventory builds—both volatile components—the economy actually grew at 2.8%, Mr. Kelley said.

  • “I was surprised how that print did not cause much market turmoil,” noted a meeting participant, adding that Fed Chairman Jerome Powell effectively conveyed that context in his press conference.

Factors powering growth. A housing glut and bust prompted the Great Recession, but today’s housing market and the economic activity it generates show no sign of weakening, despite mortgage rates jumping more than 200 basis points this year, to around 5.25%.

  • A member asked where UMB sees mortgage rates topping out, and Mr. Kelley noted they tend to follow the 10-year Treasury which the bank forecasts increasing to 3.5% or possibly 3.75%.
    • “That should put mortgage rates in the high 5s, maybe 6%,” Mr. Kelley said, adding that could impact first-time homebuyers but not overall housing demand, given historically low housing inventory that is unlikely to meet demand anytime soon.
  • Another factor powering growth is resilient households, bolstered by today’s strong job market and the accompanying higher wages.
    • “We’re in a bit of a housing bubble in San Francisco,” commented a meeting participant, “But people are still buying up houses and spending.”
  • Assuming no more major surprises this year, UMB expects the S&P to end the year net positive, up 3% to 7%.

Inflation falling. Dramatic inflation numbers have prompted the Fed’s rapid rate increases this year and much of the volatility in the securities markets, but those numbers won’t last.

  • On the technical front, year over year price comparisons between the first months of 2022 and 2021, when much of the economy was in lockdown, resulted in annualized inflation reaching 8.5%. But prices began rising significantly last summer as the economy opened, reducing that month-to-month spread.
    • “By year end, inflation should drop by at least 100 basis points, maybe 200, just because of the math,” Mr. Kelley said.
  • In addition, factors that have fueled inflation, including supply chain challenges and wage increases, are moderating, he said, adding that the Fed closely monitors the US 5-year/5-forward TIPS breakeven inflation rate, and it shows inflation resting in the agency’s comfort zone of 2.3% to 2.5%.
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Russia Reality: Paying Taxes to Shield Staff From Criminal Liability

Fear of criminal liability motivates corporates to pay taxes in Russia—but banks are rejecting some tax payments.

The threat of criminal prosecution of their employees in Russia is one reason some US-based companies continue to make tax payments in Russia. Meanwhile, several US companies report that Russian tax payments made by entities outside the US have been rejected by a US-based bank.

  • These takeaways emerged at the most recent NeuGroup session where members discuss the challenges facing finance teams at companies that continue to do business in Russia, have frozen operations there or are exiting the country.
    • None of the companies present said they have stopped making tax payments.

Fear of criminal liability motivates corporates to pay taxes in Russia—but banks are rejecting some tax payments.

The threat of criminal prosecution of their employees in Russia is one reason some US-based companies continue to make tax payments in Russia. Meanwhile, several US companies report that Russian tax payments made by entities outside the US have been rejected by a US-based bank.

  • These takeaways emerged at the most recent NeuGroup session where members discuss the challenges facing finance teams at companies that continue to do business in Russia, have frozen operations there or are exiting the country.
    • None of the companies present said they have stopped making tax payments.

No tax holidays. “We discussed how to negotiate with the authorities there in terms of a tax holiday,” one member said this week. “And the result of the negotiation was that if you don’t pay those excise taxes promptly and on time and in full, our representatives in Russia, executives, will be under criminal liability. So we made the choice to pay those taxes,” he said.

  • “We’re actively keeping our taxes paid for the same reason—criminal exposure to our employees,” another member responded. “We’ve discussed it, but we’ll be paying our taxes.”
  • Those statements came in response to a member who asked if any companies had decided not to pay taxes. She said someone on the tax team had raised the issue and, after some back-and-forth, the company had come to the same conclusion as its peers about legal liability. The member “wanted to find out what everyone else is doing” and bring that information back to the tax team.

Rejected payments. After NeuGroup senior executive advisor Paul Dalle Molle said that it appears that “everybody is rigorously paying” Russian taxes, one member quickly added, “So long as the banks will allow us to pay”—an allusion to one bank that members say has rejected Russian tax payments from entities based outside the US.

  • Three members said one US-bank had rejected Russian tax payments made by entities based the UK, Ireland and Switzerland. One of the members said the explanation he heard is that the bank’s Office of Foreign Assets Control (OFAC) license allows it to process tax payments for US entities only.
  • Another member notes that value-added tax (VAT) payments go to the Russian central bank, which is a sanctioned institution. That could create a need for the bank to get approval from OFAC.
  • One member said a different US bank located in London had successfully paid Russian taxes from a ruble account for a Swiss entity owned by his US-based company. “So it may depend on the bank itself or what license it has. We may be purely lucky,” he said.
  • As a result of all this, members are building in long lead times for tax payments. Even if payments are approved, delays are common as bank compliance checks can be laborious.
    • Mr. Dalle Molle observed, “ When banks do sanctions checks on proposed tax payments, some appear to weigh more heavily the domicile of the remitting entity, while other banks weigh more heavily the ultimate country of ownership of the entity’s parent.”
    • He also noted that tax payments are being made successfully both from outside Russia into Russia, and with domestic Russian transfers. Many companies need to do both because of how their businesses are structured.

Other takeaways. Members discussed a range of other topics during the session, producing these takeaways:

  • Treasury teams are seeking clarity from compliance and legal teams on new OFAC sanctions that prohibit US persons from providing accounting, trust and corporate formation, and management consulting services to any person in Russia.
    • “Treasury services seem to be out of scope for this. But accounting support, so control or FP&A services, may be in scope. We’re waiting for our legal team to come back on this,” one member said.
  • Members report slow or no progress in opening accounts at Chinese banks in Russia as more US banks retreat or fall under counter-sanctions.
    • One member said the two Chinese banks his company approached early in the crisis were “very reticent to do anything.” But given current circumstances and a dearth of Russian banks that are unsanctioned, “we may try to do another attempt.”
  • Several companies have stopped all FX hedging in Russia, citing high costs. And while some corporates continue to engage in balance sheet hedging, none are hedging cash flows.
    • “For cash flow hedge purposes, it’s very expensive and there is uncertainty,” one member said.
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Slim Down: A Bank Tells Corporates to Cut Account Balances in Russia

Settling intercompany invoices emerges as the best option for some members to quickly reduce deposit balances in Russia.

A major US bank used by scores of NeuGroup member corporations in Russia has recently been making strong recommendations to some of them—in conversations, not in writing—that they find alternatives to the bank as the war with Ukraine enters its third month and the bank further reduces its exposure to Russia.

  • This development sparked discussion among members about contingency plans and how to reduce deposit balances at this week’s NeuGroup session on the fallout for finance teams from sanctions, counter-sanctions and the decision by hundreds of companies to suspend operations or leave the region altogether.

Settling intercompany invoices emerges as the best option for some members to quickly reduce deposit balances in Russia.

A major US bank used by scores of NeuGroup member corporations in Russia has recently been making strong recommendations to some of them—in conversations, not in writing—that they find alternatives to the bank as the war with Ukraine enters its third month and the bank further reduces its exposure to Russia.

  • This development sparked discussion among members about contingency plans and how to reduce deposit balances at this week’s NeuGroup session on the fallout for finance teams from sanctions, counter-sanctions and the decision by hundreds of companies to suspend operations or leave the region altogether.
  • Despite the growing exodus, some corporate ties to Russia remain strong. In a poll to begin the session, 96% of member companies responding said they are still paying staff in Russia—a key reason corporates need banking services in the country.

Reducing balances, cutting credit. The big US bank is advising corporates to reduce their deposit balances in Russia, in one case requesting a member company cut the amount it holds at the bank in half in the next week or so. A member at a different company said, “What I heard is that for companies that have a lot of cash sitting there, they’re trying to really get their balances down.”

  • The bank asked another company in a recent conversation about its plan to reduce balances and exposures, which the corporate shared with the bank.
  • Members agreed that one of the best options to reduce balances—the only one for some companies—is the settlement of intercompany invoices. One company transferred several hundred million dollars out of Russia by one affiliate paying another for overdue invoices.
    • The member said the large US bank was “really helpful” and processed the transaction very quickly, motivated by the bank’s desire to reduce its exposure to Russia.
  • Several members said their uncommitted lines of credit in Russia have been cancelled or frozen by the bank. “It didn’t really affect us because we didn’t plan on using it anyway,” one member said about a cancelled line of overdraft protection.

Outlook is day by day. The bank’s inability to predict whether it will at some time in the future be subject to sanctions or counter-sanctions means its ability to do business in the country could change “from one day to another,” according to one member.

  • Others had heard a similar message, with one member saying the bank is communicating clearly that what it can do today may change tomorrow. “They are very, very careful to caveat that this is as of today. And this could change at any time.”
  • For another member, change is coming by the end of June, when his company’s primary bank is planning to leave Russia, news he got a few weeks ago. His backup bank, he said with slight laugh, is the big US bank other members had spent much of the session discussing.

Other banks? In one breakout session, members expressed interest in possibly opening accounts at Rosbank, the Russian bank Societe Generale sold to Interros Capital, controlled by billionaire Vladimir Potanin, a Russian oligarch. He has been sanctioned by Canada, but he and the bank have not been sanctioned by the EU or US—a situation members are following closely.

  • The member contemplating the exit from Russia of both his primary and backup bank summed up the situation facing corporates that plan to stay in Russia. “Companies are going to have to figure out what local Russian banks they’re comfortable with and try to form some strategic partnerships,” he said. “And then cross your fingers that they don’t become sanctioned banks.”
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Talking Shop: Does Anyone Have Credit Insurance in Russia? 

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].


Member question: “We are assessing the risk of losing the insurance that is currently applied to our receivables that were outstanding at the time of the conflict as they are still outstanding.

  • “Our specific interest is in any actions that your team perceives that, if taken, could give the insurance company the ability to cancel the insurance that is being applied to pre-conflict outstanding receivables.”

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].


Member question: “We are assessing the risk of losing the insurance that is currently applied to our receivables that were outstanding at the time of the conflict as they are still outstanding.

  • “Our specific interest is in any actions that your team perceives that, if taken, could give the insurance company the ability to cancel the insurance that is being applied to pre-conflict outstanding receivables.”

Peer answer 1: “We have credit insurance covering our receivable account. It is split between Credendo and Atradius. The insurance providers are squeezing coverage and lowering limits; however, we still have it.”

Peer answer 2: “We are shipping parts to Ukraine; however, the value of the shipments is below the deductible from our provider of credit insurance. We have informed them as a matter of courtesy, and they have confirmed that they will continue to provide coverage; however there are some pre-conditions.”

Peer answer 3: “We have credit insurance covering local and cross-border third-party sales into Russia. Our risk management team manages credit insurance.”

NeuGroup Insights reached out to Aon and Willis Towers Watson, which help companies buy insurance and advise them on risk management. A Willis Towers Watson executive said for coverage of shipments made to Russia before the conflict, an insurer would generally only be able to cancel a policy if the premium had not been paid or because of fraud or misrepresentation by the buyer.

  • He added, “I’m surprised that others are stating that they continue to have coverage; we aren’t seeing that in the market. There will be no new coverage moving forward. In order to protect the coverage in place for the outstanding shipments, the policyholder will need to perform their duties under the policy and the best way to do that is consistent communication between the broker and the insurer, followed by documentation of a call, to ensure they are taking the right steps.”

An Aon executive who consulted with colleagues wrote, “We have not heard any negative news about monies in process (claim settlements, audits, return premiums) that have been held up or canceled due to the conflict.” Also:

  • “Capacities got reduced as well as scope of coverage driven by an increased amount of companies choosing prepay options.  
  • “Traditional markets (Hermes, Atradius, Credendo, Coface) no longer offer capacities for new business.
  • “Russian local markets (SOGAZ, Sberbank and Soglasie) offer capacities but their financial security cannot be assessed at this point. All companies have been removed from the market security list. Some of them are under sanctions.  
  • “It is estimated higher losses are what to expect in coming months/year. But it is still difficult to say as the trade activity may go down too.”
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Adding a Sanctions Checklist to a Crisis Management Playbook

Treasurers navigating the twists and turns of the deepening crisis in Ukraine took time out to hear about some best practices in crisis management.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle

Financial fallout from Russia’s invasion of Ukraine has put new focus on how multinational corporations plan for and manage geopolitical crises. And while all big companies devote resources to enterprise risk management and business continuity planning, not all of them entered this crisis with extensive experience with sanctions, counter-sanctions or self-sanctions.

  • That’s led finance teams at some NeuGroup member companies to revise, update or start creating playbooks, frameworks and checklists that will help them memorialize what they’ve learned so they can better plan for future crises that involve sanctions and counter-sanctions.

Treasurers navigating the twists and turns of the deepening crisis in Ukraine took time out to hear about some best practices in crisis management.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle
 
Financial fallout from Russia’s invasion of Ukraine has put new focus on how multinational corporations plan for and manage geopolitical crises. And while all big companies devote resources to enterprise risk management and business continuity planning, not all of them entered this crisis with extensive experience with sanctions, counter-sanctions or self-sanctions. 

  • That’s led finance teams at some NeuGroup member companies to revise, update or start creating playbooks, frameworks and checklists that will help them memorialize what they’ve learned so they can better plan for future crises that involve sanctions and counter-sanctions. 
  • Here are some insights and takeaways from one treasurer’s experience integrating sanctions into his company’s crisis management playbook.

Leverage existing playbooks, scenario planning and early warning systems. Companies with significant investments in high-risk emerging markets need to review those risks on a regular basis. The presenting treasurer’s company had extensive experience with financial crises in volatile markets and benefited from having a solid playbook, scenario planning and effective early warning systems that are updated by region two to three times a year. 

  • In this crisis, the system warned the company of trouble ahead, giving senior leadership time to manage risk. That included, in part, making sure that their regular dividend was processed promptly, before Russia invaded Ukraine. The early warning system constantly monitors a region’s macroeconomic health using indicators that include:
    • Country credit ratings
    • Credit default swap spreads
    • GDP
    • Employment data
    • Budget deficits
    • Inflation rates
    • Foreign currency reserves
  • The company’s “crisis market playbook” provides local business managers with tactics to respond to a crisis through three vectors that underscore and prioritize the importance of cash:
    • How to recover margins? Use price increases, productivity gains, cost reductions.
    • How to preserve liquidity? Employ internal lines of credit, credit from banking partners, faster collections, slower payments, reduced investments.
    • How to protect balance sheet assets? Exchange rubles for USD as soon as possible to mitigate devaluation risk; establish balance sheet exposure limits; repatriate cash in excess of working capital needs. Among other factors, the company’s experience in moving money in and out of Russia after years of doing business there paid off.

Streamline channels of communication and concentrate crisis decision-making. Managing a crisis effectively requires clear guidance from the CEO, who needs to announce the principles that will guide the company and identify and empower the leaders who will make decisions. 

  • This company immediately instituted three daily meetings with cross-functional members, and treasury participates in all three, chairing one. 
    • The business management meeting (with regional CEO and CFO, business heads, country heads) is empowered by the CEO to centralize all business decisions related to the crisis countries. This meeting produces business decisions every day.
    • The cash flow meeting (includes tax, controller) is responsible for planning payments and liquidity. Because cash is key in a crisis, the company looked to accelerate cash flow where possible and instituted daily forecasting.
    • The sanctions meeting (legal, government relations, others) is responsible for providing a complete understanding of all the sanctions, their effect on the company and what must be done to be compliant. The corporate relied very heavily on external advisors, even though this treasurer did discover his company had a good reservoir of sanctions understanding in its EMEA legal team.

Adding sanctions to the mix. The sanctions meeting is the new element in this company’s crisis management playbook. Its extensive planning had focused on financial crises, but the war (and the sanctions that followed) is a political crisis that has financial consequences. In the playbook, “sanctions” is now a sub-category, like devaluation and liquidity, to which managers must manage. 

  • The hardest thing about integrating sanctions into daily crisis management is their sheer number and complexity. They come from multiple jurisdictions, bear different terms, and are applied to hundreds of different institutions, people, and assets. 
  • This is further complicated by the need to interpret the company’s own policies (“self-sanctions”) such as “no new investments.” Sanctions compliance requires an extreme attention to detail that has no precedent. For this, the corporate depends on the robust data sets and systems developed primarily by legal and banking partners.
  • Countersanctions also significantly complicate matters, particularly when they are in direct conflict with sanctions. 

Technology tools. Some companies, however, such as those in the commodities space, have their own in-house versions of screening tools that have been developed not only for sanctions but also for anti-money laundering purposes. Members mentioned using Bridger Insight and Kyriba to screen for sanctioned names.

  • So far, the Russian sanctions have proved too numerous and too complex even for these robust systems to handle quickly, so even these more sanctions-sensitive companies rely ultimately on their banking and legal partners for compliance.
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Ripple Effects: ADP’s Russia Exit Fuels Search for Payroll Options

The payroll processor’s pullout is another snag facing corporates. Others: collecting receivables, payment delays, supply chain woes.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle

News that payroll processor ADP had notified one NeuGroup member company that it will cease payroll operations in Russia on June 30 generated plenty of discussion at our most recent weekly Russia crisis session. One treasurer called the information “pretty shocking.” Most multinationals continue to pay Russian staff even if the companies have suspended operations, meaning they still require payroll processing and payment services.

The payroll processor’s pullout is another snag facing corporates. Others: collecting receivables, payment delays, supply chain woes.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle

News that payroll processor ADP had notified one NeuGroup member company that it will cease payroll operations in Russia on June 30 generated plenty of discussion at our most recent weekly Russia crisis session. One treasurer called the information “pretty shocking.” Most multinationals continue to pay Russian staff even if the companies have suspended operations, meaning they still require payroll processing and payment services.

  • An ADP spokeswoman did not confirm the date of the company’s pullout from Russia. But in a statement, ADP said, “We have suspended all new sales of ADP services in Russia. We have a relatively small percentage of existing multinational clients, headquartered outside of Russia, with employees in Russia. While there are complexities to the work we do, we can confirm we are in the process of transitioning our operations out of the country while working closely with each client to limit any impact to their business and their employees.”

What now? It is theoretically possible that ADP could provide the processing from outside the country, but so far ADP has not provided any such guidance. So, members are looking for alternative processors. The most mentioned alternative is ABU, whose website says it is a partner of ADP in Russia. Another company named: Accace, a Slovakian company active in Russia.

  • One possibility is to separate the processing from the payments. One member mentioned that the former KPMG business in Russia and Belarus (which will change its name once its exit from the KPMG network is complete) can make the payroll calculations but not payments. He said sending domestic wire transfers in Russia to make payments did not appear to be a scalable solution.
  • Clearly, multinational companies want to outsource both payroll processing and payments to one supplier; making wire transfers themselves is the least preferable option.

Cross-border collections are very difficult. Several members have reported they have long-overdue receivables from customers and former partners in Russia that simply stopped paying after their companies announced exits. One member’s former partner even opened a bank account at a non-sanctioned bank to make the final payments under their contract. However, the funds are not forthcoming, and the partner blames the new bank for long bureaucratic procedures.

  • Other members believe that unpaid receivables are common in high-risk emerging markets when commercial relationships end. All of these are in the cross-border category, so the multinational company has very little recourse and low hopes of enforcing its claim.

But most domestic RUB collections are being made, sometimes slowly. Members report, so far, that most Russian customers are paying their domestic RUB obligations to the domestic subsidiaries of multinationals, even if there are some delays. Russian regulators have been allowing commercial transitions and payments to take place much as before, even as they are increasingly restricting dividends and especially intercompany loans.

Funds transfers are increasingly delayed or rejected. One member recounted a blocked payment caused by misspelling the name of the beneficiary, an issue that was ultimately resolved. Members also report that large banks have big payments backlogs as they make extra efforts to scrutinize the names and ownership of the sanctioned people, companies, institutions and assets.

  • Despite high-tech solutions at big banks, all exceptions or suspected inspections get careful human analysis, and delays are inevitable. Some payments are indeed rejected, but most are sanctions compliant and get processed. A few Western banks have declined to make legitimate, sanctions-compliant transactions out of an excess of caution, but these frustrating situations have mostly been resolved.

Supply chain problems and supply chain finance problems are stopping some in-country activity prematurely. One company’s production facilities could not get the needed inputs for logistical reasons, so its plant shut down even before the company had announced suspension of activity in Russia. Another company‘s supply chain finance supplier stopped processing transactions, so suppliers have halted shipments.

Members increasingly fear cyberattacks as punishment for suspending Russian business. NeuGroup is planning to dig more deeply into this problem in future sessions. One member offered to share her company’s global ransomware report (not specific to Russia or Ukraine) with other members for background. So far there are few reported attacks. Members speculate that this is thanks to the intense forewarning by US and EU officials that may have allowed companies to improve their defenses. Also, Russian hackers have their hands full attacking Ukrainian targets and fighting off the well-known efforts of Ukrainians and others to help Ukraine.

Tax audits as a counter-sanctions weapon? One member with substantial activities in the country is receiving regular inquiries from local tax officials regarding dividends, withholding taxes and other transactions. Another member reported last week that there are weekly inspections to make sure that the company’s premises are still open and staff are working.

Semi-official counter-sanctions? According to one member, a large US tech company that suspended retail and wholesale sales in Russia is being sued by a local consumer protection organization.The claim is that by ceasing operations in the country, the company effectively stopped servicing customers, violating local law. The member fears the company’s assets being frozen and seized to pay consumer claims.

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High Hopes for a High-Tech Platform to Revolutionize Nordic Payments

Treasury teams frustrated by complexity in cross-border payments see reason for optimism as the ‘P27’ clearinghouse moves ahead.

Nordic countries are on the cutting edge of digitizing their economies by embracing new technologies and creating near-cashless societies. But until recently, they had ignored the myriad legacy technologies supporting cross-border payments systems that NeuGroup members say are needlessly complex. Sending money from one nation to another requires jumping through too many hoops, with each country using its own currency and payment infrastructure.

  • Now, though, to the delight of treasurers and their bankers who crave simplicity, that’s changing—an exciting development rooted in an initiative with a relatively bland name: P27. It’s a reference to the 27 million inhabitants of the Nordic region, which collectively form the 12th largest economy in the world.

Treasury teams frustrated by complexity in cross-border payments see reason for optimism as the ‘P27’ clearinghouse moves ahead.

Nordic countries are on the cutting edge of digitizing their economies by embracing new technologies and creating near-cashless societies. But until recently, they had ignored the myriad legacy technologies supporting cross-border payments systems that NeuGroup members say are needlessly complex. Sending money from one nation to another requires jumping through too many hoops, with each country using its own currency and payment infrastructure.

  • Now, though, to the delight of treasurers and their bankers who crave simplicity, that’s changing—an exciting development rooted in an initiative with a relatively bland name: P27. It’s a reference to the 27 million inhabitants of the Nordic region, which collectively form the 12th largest economy in the world.
  • At a recent meeting of NeuGroup for European Treasury, members said they are keeping a hopeful eye on P27, which is backed by banks and governments of Sweden, Denmark and Finland. It promises to establish a single clearinghouse to process all payments within the region.
  • “This is a way for the Nordic countries to build one payment infrastructure in one ecosystem to deal with all account-to-account payments in the euro [for EU member Finland], the Swedish krona and the Danish krone,” P27 Nordic Payments chief strategy officer Martin Georgzén told NeuGroup Insights.

Rolling out. After a few delays, the project secured its last approvals in 2021, and is scheduled to launch a service for Swedish mobile payments this year. Mr. Georgzén said the objective of the company, which is owned by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank, is for “the biggest banks in each of these countries to develop one platform to take care of instant payments and batch payments, and also close down all old systems at the same time.”

  • The platform’s standards are aligned with SEPA, the EU’s payments system that Finland-based accounts can already use to make payments to accounts in the EU. This will mean that Denmark and Sweden will be in sync with SEPA’s standards for files and other protocols.
  • Though Norway helped lay the groundwork for P27, the nation withdrew from the project in 2019, and will continue to rely on its own clearing system, NICS.

“An enormous project.” The mechanics of the project will require all banks in the three nations to change their connections, customer by customer, account by account, one solution at a time. “And this all needs to happen at about the same time,” Mr. Georgzén said. “We are quite far in this work and we intend to start with the mobile wallet payments in Sweden later this year, and migrating from old accounts early in 2023,” he continued.

  • Following the completion of the project in Sweden, Mr. Georgzén said P27 will continue “currency-by-currency, system-by-system until we migrate fully to the new platform. When you think about this, this is an enormous project.”
  • The company has released no other information about the timeline of the service’s rollout.

Building atop payment infrastructure. Once the standardized payment platform is implemented and all accounts in the three nations are, ideally, on an even playing field, Mr. Georgzén said he believes there will be a great deal of opportunity to innovate on top of the platform.

  • Following the initial rollout, P27 envisions a second layer on top of the single clearing platform, in which users could opt into using tools offered by the company for fraud management and digital invoicing, among other applications (see chart).
  • Standardizing payments would also create a broader base for fintechs to build a third layer, offering unique solutions that could be adopted by any user in Denmark, Sweden or Finland.
  • “Think of it like the internet,” Mr. Georgzén said. “Banks can build, fintechs can build, anyone can build on top of the solution,” he said. “You need a solid base, and that’s what we can create.”
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Amid Turmoil, Keeping Steady With Portfolio Investment Strategies

Few corporate investment managers plan to make meaningful changes to their cash investment strategies, despite an unexpectedly hawkish Fed and continued war in Ukraine. 

A just-completed NeuGroup survey sponsored by Clearwater Analytics, Going Out the Curve: Benchmarking Investment Strategies, reveals most corporate investment managers have made no significant changes to their portfolios in response to recent market shocks. As the chart below shows, only 7% of respondents say they are making significant changes. Some, though, are going further out on the yield curve to take advantage of rising rates.

Few corporate investment managers plan to make meaningful changes to their cash investment strategies, despite an unexpectedly hawkish Fed and continued war in Ukraine. 

A just-completed NeuGroup survey sponsored by Clearwater Analytics, Going Out the Curve: Benchmarking Investment Strategies, reveals most corporate investment managers have made no significant changes to their portfolios in response to recent market shocks. As the chart below shows, only 7% of respondents say they are making significant changes. Some, though, are going further out on the yield curve to take advantage of rising rates.

“We know that corporate treasury is conservative and focused on driving corporations,” said Cody Lott, director of corporate treasury solutions at Clearwater Analytics. “Historically, we have seen that our clients do not move out of deposits until money market fund yields are noticeably higher, but once they are, they make the transition quickly. We also know that deposit yields trail MMF yields through hikes, so it would appear that this crossover could happen sooner rather than later.”

Monitoring the situation. “With the situation in Europe, we basically put a pause on new investments,” said a member of NeuGroup for Cash Investment at a focus session held to discuss preliminary findings. “We didn’t unwind anything, but we are doing more due diligence and keeping a closer eye on our allocations and our different partners,” he said. “We don’t have any long positions that we had to be super concerned about because our average duration is pretty short.”

  • For most of the survey participants, the outbreak of the war had little direct impact on their holdings. “As we have done with other market shocks, when the conflict started, we went to our external investment managers and asked them to take a look at our portfolio and assess what impact there could be from the Russia-Ukraine war,” another member said.
    • “We have a very conservative portfolio, and our holdings didn’t have much direct exposure, maybe secondary, but it wasn’t enough that we were all that concerned and would take much action.”
  • One member said his company had some holdings in one of the aircraft leasing companies that may incur significant losses stemming from leases to Russian airlines. But beyond that, “We’re really looking at what the knock-on effects are going to be.”

It’s a localized shock—for now. Most members view the crisis in Europe primarily as a localized event, versus, for example, the wider market shocks of the pandemic. “With the pandemic, there was a lot more impact and exposure to our portfolio in general, and we took a lot more action, because it was so broad to the market,” one said.

  • After the coronavirus outbreak, another member said, “We asked our portfolio managers to stop all investments and just allow securities to mature and cash to build up and sold off some assets, for example some [mortgage-backed securities]. We actually took cash back because we were concerned about liquidity.”

An ops story. Instead, with Russia, the primary impact is operational. “We have operations in-country. So we have had to make some adjustments of how our cash operations take place; we’ve publicly announced that we’re going to put a halt on manufacturing operations in the country. As far as investments, I do not have any specific investments that are impacted by the Russian sanctions.”

The uncertainty spectrum. The war in Europe added another element of uncertainty, especially after the Fed came out with a surprisingly hawkish announcement on March 16. The 25 basis point hike was not a surprise; however, Fed chair Jerome Powell’s tone and promise of seven more potential rate hikes was. “It is a very aggressive path of rate hikes that we are not used to, at least in the last two decades,” Subadra Rajappa, head of US rates strategy at Societe Generale, told NeuGroup Insights days after the announcement.

  • “The question here is whether this Fed will be a Fed that moves rates, or a Fed that signals hawkishly to provoke the market to price in higher rates,” Mr. Lott commented. “As we saw with the last hike, and through the last hike cycle, most Fed decisions lose sting because markets move yields before meetings. We have to remember why rate movements matter, and with the term ‘recession’ back in the vocabulary of most, the next few months will be critical.”
  • Speaking with members of NeuGroup for Tech Treasurers on March 17, Tom Porcelli, RBC’s chief US economist, said “monetary policy is a blunt tool, and core inflation is driven by forces that are outside the Fed’s control; so why so aggressive?” He added, “It’s about expected versus actual inflation, and expectations are showing signs of becoming somewhat unhinged. The Fed is playing catch up. The problem is there are already challenges dotting the landscape. The decision this week adds on another layer of risk. “
    • Mr. Porcelli also noted that The median number of rate hikes in ’22 went from three to seven, when there weren’t really indications that the Fed would be this aggressive. It drives home the fact that they want to crush inflation as much as they can. Powell’s narrative is that they are going to do whatever it takes, even if it means growth falters.”
  • “Going back a month or so, I think there was some more certainty about how many hikes at and what levels we will see them happening, in response to inflation,” said one member. “But I think the war in Ukraine throws in some more uncertainty around that. The impact of all these unprecedented economic sanctions is still unknown. Prior to the war, there was a pretty clear path, but now I think it’s a little bit cloudy.”
  • Will the Fed deliver on its promise? At the March 16 session of the cash investment group, one member said he doubts there will be more than four hikes. “At the expense of growth does not mean at the expense of a recession.” He added, “The volatility following the announcement signaled fears of an overzealous Fed.”

Extending duration. Prospects of faster-rising rates, however, are convincing some members to push out maturities to benefit from the yield pick-up. “We’ve been busy buying bonds for the last month-and-a-half, as we expected, but I’m actually looking at extending it a little bit further,” one survey respondent shared. “Most of my duration is kept under two years. So, I won’t pick up 100% as we’re going along, but a lot of that expectation is already priced in the issuances today.”

  • The cash investment manager at another organization said he doesn’t view all cash as likely to be redeemed within in a one-year time frame. So, “depending on the purpose, we’re able to go longer.” This manager is looking to do that by buying floating-rate securities to both benefit from rising rates to avoid some of the mark-to-market volatility.
  • Floaters were popular with another company. We’ve also been increasing our allocation to floating rate notes,” the investment manager said. “Some of the feedback we’ve gotten is that the pricing on those can be pretty rich right now as a lot of people look to get into them. So, where we find value and it makes sense, we are increasing our allocation.”
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New Territory: An Expert’s Take on ‘Unprecedented’ Russia Sanctions

Attorney Adam M. Smith, a former senior advisor to the director of OFAC, shares insights and perspective on sanctions.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle

At this week’s NeuGroup Russia session, members heard insights on sanctions and the road ahead from Adam M. Smith, a partner at Gibson, Dunn & Crutcher’s Washington, D.C. office, who is a leading expert in sanctions compliance, international trade law, embargoes and export controls. Mr. Smith served as the senior advisor to the director of the US Treasury Department‘s Office of Foreign Assets Control (OFAC) and the director for multilateral affairs on the US National Security Council.

Attorney Adam M. Smith, a former senior advisor to the director of OFAC, shares insights and perspective on sanctions.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle

At this week’s NeuGroup Russia session, members heard insights on sanctions and the road ahead from Adam M. Smith, a partner at Gibson, Dunn & Crutcher’s Washington, D.C. office, who is a leading expert in sanctions compliance, international trade law, embargoes and export controls. Mr. Smith served as the senior advisor to the director of the US Treasury Department‘s Office of Foreign Assets Control (OFAC) and the director for multilateral affairs on the US National Security Council. 
 
Unprecedented response. Before addressing the specific concerns of corporate treasury executives and fielding questions on a variety of topics, Mr. Smith said members should keep in mind the unprecedented nature of the current situation, highlighting these points:

  • Never have sanctions been imposed against a country with an economy and a state infrastructure as large and sophisticated as Russia’s.  
  • Never have so many countries, 46, joined together so swiftly to sanction a country that is perceived to have broken generally accepted behavioral norms.
  • Never has European enforcement been so immediate and unhesitating.
  • Never have so many multinational companies, over 400, so quickly condemned a country and announced their exits or suspensions of activities there.

“We are experiencing an impressive, historic response in what can already be considered a multilateral ‘victory’ by countries and companies which are united in a sense of moral outrage,” Mr. Smith said. “How well all this will work in the long run remains to be seen, of course; but the response of Western democracies and multinational companies has been impressive.”

Friend or foe? One member raised a question about Russia’s decrees regarding “friendly” and “unfriendly” countries: Assume a company is ultimately owned and controlled by an entity headquartered in an unfriendly (US/EU) country, and does a transaction that is compliant with US and EU sanctions. Would that transaction also be compliant with Russian counter-sanctions if routed through one of the corporate’s subsidiaries in a friendly country? 

  • Mr. Smith pointed out that he is not a Russian counsel and that companies must consult their Russian advisors on such matters. Based on his frequent dialogue with Russian attorneys, he knows that the latter are also living with many unknowns, chief among them whether these counter-sanctions will be interpreted strictly or loosely by the Russian authorities, depending on how they serve Russia’s interests.
  • That said, his expectation is that over time, the Russian authorities are likely to interpret the decrees as looking to the ultimate country of ownership and control rather than to the country of a subsidiary.

Cautious banks. As at every session, members have asked many questions about banks, with some complaining that they seem to be excessively cautious, declining to help US or EU corporate clients with legitimate transactions that do not violate sanctions. Mr. Smith acknowledged this thorny issue, but his views contained a note of optimism. 

  • “There are over 250 banks in Russia. While the biggest ones are sanctioned, most are not,” Mr. Smith observed. “Over time, it should become clear to banks and companies which transactions are compliant with both sanctions and counter-sanctions, and it should be possible to avoid sanctioned banks.
  • “Let’s keep in mind that the way that sanctions are designed by the US, EU and others implies a willingness for some private sector international economic trade with Russia to continue, especially for oil and gas, agricultural goods, food, medicines, medical devices, minerals and other commodities.”
  • This also allows multinational companies to fulfill their payment obligations to staff, suppliers and for local taxes, he added. There are already OFAC general licenses for some activities, e.g., oil & gas exports, and there may be specific licenses forthcoming, he said.

Fear of imprisonment. When members raised the possibility that top Russian managers of multinational companies could be jailed if plants shut or operations halt, Mr. Smith said he has also heard this mentioned by some US and Russian contacts.

  • However, he is not aware of any actual instances of this happening, noting that only Russian counsel is qualified to provide an informed view.

Fear of nationalization. Mr. Smith recognizes that there is a real possibility that Russia will nationalize foreign-owned banks and companies. However, he once again sounded a cautiously positive note about the situation.

  • “So far, it seems that the Russian oligarchs and business professionals are recommending that their government not make wholesale nationalizations, for many reasons. The Russian authorities will do, of course, what they believe to be in the best interests of their country, but this reaction from the Russian professional community leads me to believe that selective nationalizations are much more likely than wholesale ones.”

Breach of contract. Companies must consider how “self-sanctioning,” the voluntary nature in which companies announced their exits from Russia or their suspension of activities there, affects their ability to recover value from their ceased operations. 

  • According to Mr. Smith, since no laws compel multinationals to leave, it would seem difficult to litigate against breach of contract lawsuits or to claim against force majeure clauses in contracts and with insurers.  Of course, every situation is unique, and every situation requires scrutiny by counsel.

Expert perspective on OFAC. Mr. Smith closed this session with some general comments on OFAC. He said Multinational companies need to keep in mind that OFAC is an extremely small agency, comprised entirely of professionals (no political appointees). Also:

  • Specific Licenses are difficult to get, don’t become public information unless disclosed by the grantee and often take a long time, although OFAC can act urgently in a true emergency. 
  • OFAC is not interested in the business cases or business effects of a proposed Specific License, but is concerned in their humanitarian effects and in the policy arguments being proposed.
  • He also said that OFAC is not trying to “play gotcha” and punish companies when minor violations occur in an otherwise vigilant, systematic attempt to comply.

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Russia Sanctions and Exits: Devil’s in the Details

Members discuss bank guarantees, clients that are in no hurry to pay and good news on intercompany funding—at least for now.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle

The war in Ukraine is now, sadly, one month old. With this milestone we also note an evolution of the concerns of NeuGroup members. They have more clarity on their companies’ decisions regarding Russia (to exit, suspend operations, stay), sanctions, counter-sanctions and local laws, as well as on the specific needs of their local staff. At this week’s Russia meeting, a few new issues surfaced, as well as wrinkles on familiar topics. Here are some highlights.

Members discuss bank guarantees, clients that are in no hurry to pay and good news on intercompany funding—at least for now.

Editor’s Note: NeuGroup is running weekly special sessions on the Russian-Ukrainian crisis. Senior executive advisor Paul Dalle Molle, a former banker with extensive European experience, leads the discussions.

By Paul Dalle Molle

The war in Ukraine is now, sadly, one month old. With this milestone we also note an evolution of the concerns of NeuGroup members. They have more clarity on their companies’ decisions regarding Russia (to exit, suspend operations, stay), sanctions, counter-sanctions and local laws, as well as on the specific needs of their local staff. At this week’s Russia meeting, a few new issues surfaced, as well as wrinkles on familiar topics. Here are some highlights. 

Open bank guarantees and letters of credit. Companies that have stopped operations may end up halting work for which they signed contracts, raising potentially challenging issues that one member raised. A corporate might be able to negotiate amicably and come to an agreement with Russian suppliers and customers, but that is not likely. 

  • The most probable scenario is that companies will eventually see drawings under bank guarantees and letters of credit, and a subsequent commercial dispute. What happens if a sanctioned bank is involved in that situation? How will such disputes be resolved under a sanctions and counter-sanctions regime? Going forward, this is likely to be a big source of headaches for multinational corporations (MNCs).

Customers who say they’re unable to pay. Members report that customers are less likely to feel pressure to pay for products already received after a company has announced it is no longer shipping product to Russia. That’s happening now.How will MNCs collect on these receivables? As time goes on, these will be increasingly categorized as bad debts and eventually written off, adding to the total cost of stopping operations. The short-term effect is that corporates will collect fewer rubles to use for paying suppliers, staff, rent and taxes, making their working capital situation worse. 

Domestic intercompany cash pools are working normally again, thanks to Russia’s Presidential Decree No. 126. There is unanimity among members on this point based on discussions with banks, accountants and lawyers. Intercompany deposits from Russia to foreign locations on the books prior to March 2 appear to be rollable without authorization, but no new cross-border deposits of this type seem possible.   

The big four foreign banks in Russia are increasingly the focus for multinational companies. These institutions—SG Rosbank, Raiffeisen, Unicredit and Citibank—have local bank charters. Other foreign banks have signaled that their local operations will wind down. Some new bank accounts are being opened, but this seems to be dependent on the corporate’s overall global relationship with a bank, and it is difficult to see a pattern emerge.  

The elephant in the room. A major issue is how to implement a corporate decision to suspend operations or exit Russia. Many companies seem to have accepted that their Russian businesses will be written down dramatically, so most are not too focused on the financial aspects of these decisions. Instead, companies with thousands of local staff and dozens of factories or industrial sites have continuing practical decisions to make. 

  • So far, member companies seem to have done everything possible to help keep their staff employed and paid, even if operations have stopped. But there is a lot of variation from company to company and sector to sector.
  • Some members report that Russian authorities are inspecting their foreign work sites weekly. One member said his company’s local managers in Russia are afraid they risk a jail sentence if a plant shuts down, based on their understanding of Russian law. Given such circumstances, at what point do companies stop paying staff? What is the legal mechanism for turning a business over to the employees to run? Add these to the list of questions for which there are not yet concrete answers.
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"One of the things I truly, 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

"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

"Tech 20 has been one of the key foundational pillars of my career development over many years...I have many friends in this group and spend a lot of time outside of the formal meetings exchanging ideas...I feel like it keeps me informed as a treasurer and helps me be smarter on trends going on."

Zac NesperHP Inc. • Vice President of Treasury

"We're interested in hearing how other professionals in the same discipline address the same problems we have...by sharing that information and doing so in a comradery type of way, you get a value that is multiple times the input that you provide. If you can consider joining such an organization, it's probably one of your better decisions."

James HaddadCadence Design Systems, Inc. • Corporate Vice President Finance and Treasurers

"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

"...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

"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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