Chatham Financial and members of NeuGroup for Life Sciences Treasurers discuss varying ways to report on risk.
One size does not fit all when it comes to how, why and when treasury teams at multinationals interact with financial risk committees of the board of directors—assuming a corporate has a financial risk committee. A fair number don’t.
- That subject and the risk management dashboards treasurers need, want and use to report to financial risk committees, audit committees and the CFO were part of a session at the NeuGroup for Life Sciences Treasurers H1 2021 meeting sponsored by Chatham Financial.
A wide range of practices. Chatham executives presented an analytic framework capturing the spectrum of how companies develop policies and processes concerning risk committees. Focal points and relevant questions include:
- Scope of mandate: Is the committee approving, reviewing or directing decisions around risk at the program level, general financial risk level or enterprise level?
- Composition: Is the committee limited to a minimal number of members including the CFO? Chatham said some companies believe smaller groups may be more nimble. On the opposite side of the spectrum are larger committees with cross-functional members.
- “It flexes with time or circumstances,” Chatham’s Amanda Breslin said.
- Members agreed that reporting risk was an important responsibility, but that it needed to be done efficiently.
- One member said having a lot of smart people in the room talking about the same thing has its benefits; but being sensitive to managing their time was also important and that a smaller group (i.e. CFO, chief accounting officer, treasurer) could be the core of any risk committee.
- Communication: How frequent and how granular or big picture are the presentations of information to committee members or C-suite executives?
- One member’s company does not have a financial risk committee and presents to the audit committee of the board on a quarterly basis.
- Another member basically takes the same approach, but presents to the audit committee when needed, especially if the item requires board approval, like investment policy guidelines.
Reality check. One member said an FX audit on his first day revealed that a number of policies had requirements for internal governance that existed on paper but “not in real life.”
- Ms. Breslin said that situation is not uncommon, in part because policies adopted in the past are copied from a template and may not reflect changing needs. “We see scaling up and back depending on the needs,” she said.
- Members agreed about the importance of aligning what’s in policies with meetings.
- If the policy mandates regular meetings to discuss risk, those should be scheduled and conducted, especially if the company has experienced significant growth as the result of strategic M&A.
Diving into dashboards. Chatham shared a model program-level risk dashboard with members showing a range of views of cash flow exposures and hedges. (See chart above.) “The scope of the mandate will typically drive reporting needs,” according to the presentation. Elements may include:
- Hedge coverage relative to policy
- Period-over-period exposure changes
- Accounting effectiveness
- Estimated remeasurement impact
- Forecasts vs. actuals
- Trading activity reports
Fully automated cash reporting. One treasurer showed peers his fully automated dashboard, which is able to show the CFO how and why cash levels change by legal entity in every one of 30 countries where the company operates, including the top 10 balances across the globe. Updates can be run in 15 minutes, a speed that impressed peers.
- Designing and implementing the system took between six and eight months, the treasurer said. It includes data that flows directly from the company’s banks to its TMS system to the dashboard.
- One member said his dashboard was not as robust and was not fully linked to internal systems so he receives monthly, rather than daily, updates.
- Another member receives weekly dashboard reports, but said the process was manually intensive.
- A third treasurer said his dashboard is quite good and has all the information he needs, but it is a monthly report that’s not automated and requires accounting to close.
- One member’s TMS provider had been quite helpful in developing a useful dashboard, she said.