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
- 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.