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Spotlight Features

Teaming Up with Tech Firms: Deutsche Bank’s Multifaceted Approach to Cash Management Solutions

Money Is Time: How TIS Simplified One Treasurer’s Bank Connectivity

Ripples Into Waves: Progress with ESG, D&I and Impact Investing

NeuGroup members using corporate balance sheets to help companies do good continue to up the ante.

HP treasurer Zac Nesper has a trending post on LinkedIn promoting an interview he did with Global Finance about HP’s award-winning sustainability bond framework. In the post and the interview, Zac is kind enough to cite a discussion he led in November at a NeuGroup for Tech Treasurers (aka Tech20) meeting with Joachim Wettermark, treasurer of Salesforce, the first software company to issue a sustainability bond.

NeuGroup members using corporate balance sheets to help companies do good continue to up the ante.

HP treasurer Zac Nesper has a trending post on LinkedIn promoting an interview he did with Global Finance about HP’s award-winning sustainability bond framework. In the post and the interview, Zac is kind enough to cite a discussion he led in November at a NeuGroup for Tech Treasurers (aka Tech20) meeting with Joachim Wettermark, treasurer of Salesforce, the first software company to issue a sustainability bond.

  • “We discussed using our platforms as treasurers for good,” Zac says, adding, “It is fun when you get in there and look at different ways that treasurers are using their treasury function as a platform to drive change.”

Here’s the backstory.

Creating ripples in the pond. The session with Zac and Joachim updated a NeuGroup joint session in May 2021, “Treasury as a Powerful Force for a More Equitable World,” with our Tech and Mega-Cap Treasurers groups. That featured a panel of six members, all leaders in using treasury as platforms for good, including Apple treasurer Gary Wipfler, who had announced his retirement and wanted to share how this mandate was an important part of his legacy. We dubbed this the “Ripple in the Pond” session in recognition of Apple CEO Tim Cook’s idea that each action can be a pebble in the pond that creates a ripple for change—and every ripple can build on the next to ultimately create a wave.

  • The objective of the original session was to provide examples of using treasury platforms for good that would inspire others to follow suit. Each panelist offered to serve as a mentor and help others build on what they had done. One suggested we collect these examples to help yet more NeuGroup members with treasury-for-good initiatives.
  • We released the first round of examples from our “Survey of Responsible Investing and ESG Initiatives” in October. The “Ripples Into Waves” discussion Zac led in November was a part of a series of sessions highlighting these initiatives and more. Indeed, NeuGroup has been proud to host dozens of sessions where members have shared D&I endeavors, social impact investing ideas (including in our D&I working group) and ESG/sustainability frameworks (ESG working group) in sectors including retail, manufacturing, healthcare, media and telecom, as well as oil and gas and tech.

Tremendous energy. Since so many of our members, like Zac, are making diversity and sustainability a part of their core treasury vision, we will continue to collect examples and add them to our member repository and promote them in sessions. We agree with Zac: “The energy in this space is tremendous.”

  • NeuGroup will continue to do its part to encourage members to share and learn from each other, and up the ante on leading their companies to do good with their balance sheets (in ways that are aligned with long-term enterprise value). 
  • In this way, we hope to create more ripples that turn into waves of treasurers using treasury to do good.
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Talk About SEC’s Proposed 30-Day Buyback Cooling-Off Period Heats Up

Members say the proposal for 10b5-1 plans would limit a corporate’s flexibility to execute buybacks efficiently.

The SEC’s proposal that corporates wait 30 days after the adoption of a Rule 10b5-1 share repurchase plan before buying back stock would significantly restrict the flexibility of companies to execute the plans effectively. That key takeaway emerged at a session NeuGroup convened this week at the request of treasurers examining the potential implications of several SEC proposals issued Dec. 15 regarding 10b5-1 plans, including next-day reporting of buybacks.

  • The 30-day cooling-off period for issuers (it’s 120 days for corporate officers and directors) would impede the ability of finance teams to react to quickly changing markets and effectively reduce the number of days corporates can be in the market buying back stock, members attending the session said.

Members say the proposal for 10b5-1 plans would limit a corporate’s flexibility to execute buybacks efficiently.

The SEC’s proposal that corporates wait 30 days after the adoption of a Rule 10b5-1 share repurchase plan before buying back stock would significantly restrict the flexibility of companies to execute the plans effectively. That key takeaway emerged at a session NeuGroup convened this week at the request of treasurers examining the potential implications of several SEC proposals issued Dec. 15 regarding 10b5-1 plans, including next-day reporting of buybacks.

  • The 30-day cooling-off period for issuers (it’s 120 days for corporate officers and directors) would impede the ability of finance teams to react to quickly changing markets and effectively reduce the number of days corporates can be in the market buying back stock, members attending the session said. 
  • “In addition to not being able to trade as many days because of the cooling-off period, 10b5-1 plans will become less effective,” one member said. “When we put in our plans, it’s informed by where our stock is trading. If we have to wait 30 days and our stock has moved away from that range, then the pricing grid we would have put in 30 days earlier is no longer going to be as effective. You’re always going to be chasing.”

What to do and what to ask the SEC to do. One member whose company already imposes a 30-day cooling-off period on 10b5-1 stock purchases advised peers that one way to cope with liquidity and price grid issues is to place a cap on the total amount spent in a 10b5-1 plan, “but with a grid that provides a maximum daily spend at different price points.”

  • After the session, NeuGroup Insights reached out to David Getzler, head of equity capital markets at Societe Generale, which, like all banks, is discussing responses to the SEC proposals with clients. “We would like the SEC to consider that a 10b5-1 could be adopted 30 days in advance, with the size and price grid to be confirmed while still in an open window, right up to the start date of the program,” he said. “This would not be very different from how companies in effect manage their 10b5-1 programs today.”
  • He added, “If the SEC will not be flexible on this, and requires the program size and price grid to be set 30 days in advance, then the actual grid formula could be worded so that the grid prices (for each discrete volume level) adjust to reflect the percentage change in a company’s stock price over that 30-day period before starting execution of the program.”

How companies will make their voices heard. Corporates and their advocates will have 45 days to comment after the proposed amendments are published in the Federal Register. The general consensus among members was that the SEC is not likely to be very flexible. But that won’t stop member companies from expressing their views through business lobbying groups, outside counsel, trade associations and industry associations. Here’s how one member described next steps for his company:

  1. “Develop a comprehensive understanding of the proposed rules and issues everyone sees with them (which was part of the point of the [NeuGroup] call today—to make sure I’m not missing anything).
  2. “Develop an internal consensus (along with counsel) of how the potential issues would impact the way we operate and unintended consequences to the marketplace.
  3. “Work with various groups that are planning on submitting comment letters to make sure they have a fulsome view of the issues as we see them so our concerns are captured in their submissions.”

Daily disclosure: burdensome and maybe worse. The SEC proposals include a requirement that companies report buybacks on the next business day using a new disclosure form—Form SR. Members described this and other disclosure changes as onerous, burdensome and bureaucratic.

  • “It certainly feels like the disclosure is overreaching,” one member said. “To have do so daily seems punitive when for 8-Ks you get four days for material announcements; but immaterial buybacks need to be done daily? That seems odd.”
  • Some members also fear the information furnished to the SEC falling into the wrong hands. “If we do need to disclose daily what the 10b5-1 buy looks like, the concern is that smart traders would figure out our plan and be able to front-run the market, causing some level of volatility that is good for them but not for anybody else,” one treasurer said.
  • Mr. Getzler at Societe Generale agreed, saying, “While our understanding is that the Form SRs will not be publicly available, there is still the risk that someone would be able to access the information. Then they can probably work out the grid instructions from a series of daily reports and really cause problems if a company’s stock drops and someone knows the company will be buying in size on that particular day.”

Seeking clarity. Among other issues, members discussed whether accelerated share repurchase plans (ASRs) would be subject to the same cooling-off period rules as 10b5-1 plans. Assuming the answer is yes, as some members are, one asked whether having two, alternating dealers administering ASR programs would be permitted under the SEC’s proposed amendment that “10b5-1 trading arrangements to execute a single trade are limited to one plan per 12-month period.”

  • “The jury is still out on alternating ASRs,” one member responded.
  • Another concern is a proposed amendment that “the affirmative defense under Rule 10b5-1(c)(1) does not apply to multiple overlapping Rule 10b5-1 trading arrangements for open market trades in the same class of securities.”
  • One member summed up the overall situation facing many in the room concisely: “We’re pretty heavy users of 10b5-1s, so having the cooling-off period, not being able to do overlapping plans, one single-trade plan per year? That would be problematic in terms of making companies less effective in executing buybacks, which would be detrimental to the shareholders the SEC’s proposals are meant to benefit.”
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Automating Together: The Human Side of RPA

One member’s success with automating processes prioritized getting treasury team members on board.

Most members attending a recent meeting of NeuGroup for European Treasury reported that they are at the early stages of implementing smart automation tools like AI and robotics to improve treasury operations. One member at an IT company who recently completed an intelligent process automation project emphasized that while the benefits may be significant, it will take employees time to get in the groove.

  • The member worked with his tech team to build an end-to-end process to connect the company’s bank accounts, TMS and ERP. The initiative included automating tasks such as trade reconciliation, risk outlooks for payments and processing of loan applications. According to this member, the project yielded approximately 60,000 FTE hours in annual savings.

One member’s success with automating processes prioritized getting treasury team members on board.

Most members attending a recent meeting of NeuGroup for European Treasury reported that they are at the early stages of implementing smart automation tools like AI and robotics to improve treasury operations. One member at an IT company who recently completed an intelligent process automation project emphasized that while the benefits may be significant, it will take employees time to get in the groove.

  • The member worked with his tech team to build an end-to-end process to connect the company’s bank accounts, TMS and ERP. The initiative included automating tasks such as trade reconciliation, risk outlooks for payments and processing of loan applications. According to this member, the project yielded approximately 60,000 FTE hours in annual savings.
  • Businesses leverage technologies such as RPA or AI to aid decisions, which the member said can cut around 35%-40% of the current cost of operations. “It’s about moving beyond process change to adoption of operating models.”
  • “But as you look at implementing process automation, there is a lot of people and change governance that needs to be done,” he added.

Results require adoption. One member, also at an IT company, said his treasury team has seen positive results after moving from a manual to an AI-enabled medium-term cash flow forecast. “It was costly, but immediately improved three-to-six-month forecasts, and it uses algorithms to determine if we should move or leave money in our accounts.”

  • However, this member has found it difficult to convince some team members to actually use the new tool. “The capabilities are fantastic, but they’re only good if you actually use them,” he said.
    • “I struggle with some of my staff actually using the dashboards and predictive analyses.”
  • The presenter responded that he had a similar problem at first but cracked it when he realized the return on investment of process automation is based in large part on its application by teams. “To accelerate adoption, we started forecasting the loss [of savings] based on lack of adoption,” he said.
    • His team estimated ROI based on the time savings, and then calculated any ROI losses due to lack of adoption and linked that number to the performance of the group. This approach to measuring performance builds confidence in the tools and can help teams build confidence in their skill in leveraging technology to save time.
  • The presenter’s tech team took an hour a day to educate the treasury staff to familiarize it with the new tools. This allowed team members to work out issues on a timely basis and increased buy-in. “We pushed people, but we had to hand hold a little.”

Open sourcing. The member said it’s best to start an automation initiative by soliciting suggestions from team members who perform the task in order to (1) make sure all sub-tasks are accounted for; and (2) figure out whether there are inefficiencies in the existing process that can be eliminated with the new tools.

  • By leveraging a third party or an internal tech capability, “you can use data technology to help [team members] build small automations to free up their time,” a technique called citizen development.
  • Hiring treasury employees with data and computer experience has also aided the member’s treasury team with understanding which parts of their jobs can be automated.
  • “At our company, five thousand bots have been built in the last 12 months, which to me is very exciting,” the member said. “Five years down the line, we expect to see [treasury team members] creating their own automations,” using simple, low-code or no-code solutions.

Putting in time up front. One treasurer at the meeting recently began to work with an outside vendor to leverage its automation tools. The project included upgrading treasury’s dashboards and implementing AI-assisted cash flow forecasting and predictive models. Although getting the ball rolling on the large-scale project requires a great deal of work, he expects efficiency to soar in time.

  • “It may require six months of very deep pain and long hours,” he said. “But we expect that once implemented, the new systems will require very little upkeep.”
  • “We don’t infuse technology just to make things digital,” the presenting member said, adding that technology “is there to make employees’ jobs better and faster, and that pays off.”
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Talking Shop: Hedging Cyclical Currencies

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: “When deciding on whether to hedge a currency, do you take into account whether the currency is cyclical or not?

  • “I think that there is a stronger case to hedge a monetary asset in a cyclical currency, such as the Brazilian real (BRL), that tends to appreciate when the economy is doing well and tends to depreciate more when the economy is doing poorly than if we had a liability in BRL.”

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: “When deciding on whether to hedge a currency, do you take into account whether the currency is cyclical or not?

  • “I think that there is a stronger case to hedge a monetary asset in a cyclical currency, such as the Brazilian real (BRL), that tends to appreciate when the economy is doing well and tends to depreciate more when the economy is doing poorly than if we had a liability in BRL.”

Peer answer 1: “No, my current and previous companies all hedged 100% of material net monetary asset/liability positions. I know some companies factor in hedging cost, e.g., model how much volatility reduction they get per dollar.

  • “We have not considered a currency’s beta or cyclicality in balance sheet hedging decisions. With the BRL example, USD/BRL is flat to the end of April 2020, but there has been some large volatility month-to-month that we wouldn’t have the stomach for. If you had a BRL liability, you could hedge that and get paid for hedging.”

Peer answer 2: “We don’t, as we wouldn’t want to risk an unpleasant surprise.”

NeuGroup peer group leader Anne Friberg responded that “hedging is to reduce risk and reduce volatility in either earnings, cash flows or both. Most companies do not have the stomach for the negative surprises that might ensue if they assume some sort of cyclicality.

  • “However, if they have a view on the currency’s future direction based on observed cyclicality in the past, they could potentially adjust the choice of instrument to preserve upside (with an option) vs. locking in a fixed/no-upside result with a forward,” she said. “To some extent, corporates could also adjust the hedge ratio to reflect a view—within policy flexibility.”

NeuGroup Insights reached out to Amanda Breslin, Chatham Financial’s managing director of corporate treasury advisory, for additional insight on how Chatham’s clients handle the issue.

  • In accord with Ms. Friberg’s point, she said that most of Chatham’s clients design their balance sheet hedging programs to reduce volatility “with an eye towards operational simplicity, setting hedging triggers and ratios that can be broadly applied and consistently executed, rather than isolating specific currencies.”
  • Ms. Breslin added that “exceptions are most often seen due to material transaction costs related to liquidity, companies that have a strong bias towards using forward points as a proxy for hedging costs and/or currencies that represent a relatively high or low proportion of the aggregate risk in the portfolio.”
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NeuGroup’s Top Five 2021 Insights

Reassessing finance organizations under new leadership tops the list of 2021 insights.

By Joseph Neu

Before we plunge full throttle into the new year, I wanted to distill what struck me as the key takeaways from 2021, our second year of accelerated change and pandemic-fueled challenges.

1. Questioning the way things have been done. The pandemic encouraged transformational thinking as many legacy business processes and delivery models did not perform well during lockdowns nor in a work-from-home environment. Covid-19 also sparked a new way of thinking about work, leading to what’s been called the Great Resignation and a further disruption to the status quo. But disruption inevitably creates room for positive change: As many exited the workforce, they opened the door for new finance and treasury leaders with fresh ideas, who naturally took the opportunity to question why things are being done the way they are.

Reassessing finance organizations under new leadership tops the list of 2021 insights.

By Joseph Neu

Before we plunge full throttle into the new year, I wanted to distill what struck me as the key takeaways from 2021, our second year of accelerated change and pandemic-fueled challenges.

1. Questioning the way things have been done. The pandemic encouraged transformational thinking as many legacy business processes and delivery models did not perform well during lockdowns nor in a work-from-home environment. Covid-19 also sparked a new way of thinking about work, leading to what’s been called the Great Resignation and a further disruption to the status quo. But disruption inevitably creates room for positive change: As many exited the workforce, they opened the door for new finance and treasury leaders with fresh ideas, who naturally took the opportunity to question why things are being done the way they are.

By looking beyond validated best practices, leading finance and treasury organizations have gained significant efficiencies and enhanced the value they add to the enterprise. One of our member companies has centralized the financial support model to eliminate redundancy and standardize processes for funding and cash management, as well as financial planning, analysis and reporting. As a result, staff was freed to focus on more value-creating work and engage more effectively with its stakeholders.

2. You don’t really need as much extra cash as you think, an idea that’s hard to accept. Treasurers have been going around in circles trying to determine the appropriate amount of cash to hold on their balance sheets and are torn between two extremes: Hoard cash or trust external liquidity sources (which are often boosted by post-crisis central bank intervention). In the aftermath of the eruption of the pandemic, banks and capital markets were highly receptive to corporate borrowing. Indeed, prevailing rates and spreads even made it a desirable option. Accordingly, the need to hold strategic cash has felt a bit hollow. That is especially true because the carrying cost of cash does not get better in an inflationary environment than in a zero-to-negative rate one.

  • Yet, others, or even the devil on the other shoulder, may counter that holding on to cash is paramount. According to one of our members, “Cash is a weapon. Unless you have activist shareholders, you wait, go countercyclical and buy cheap assets when others cannot. You should also invest in operations when others are not able to. Plus, if you are in expansion mode, then ‘hoarding’ is critical.” This senior finance executive added, “You can supplement cash with debt if the market is open. But having a good cash pile puts you in the driver’s seat.” Ultimately, most investors in tech or industrial corporates care more about avoiding losses than companies earning low returns on cash.
  • Furthermore, governments continue to threaten to tax distributions to shareholders via buybacks. This may persuade more CFOs to maintain cash reserves for rainy days.

3. Investing in technology to scale the finance function and support the business. Digitalization in support of remote work and new delivery models is critical. Most immediately, many CFOs signed big checks for new technology investments because of the difficulty of finding and retaining talent, and to enable transaction processing in a virtual environment. Staffing has been a particular challenge at the medium and lower ranks (e.g., senior treasury analyst).

  • The Great Resignation has therefore convinced CFOs to approve automation initiatives to plug capacity gaps (and scale up) created by staff departures. The proliferation of API-enabled and cloud-native fintech solutions has boosted levels of automation, sophistication of reporting and right-time analytics and shortened ROI generated by tech spend, reducing head count requirements. At the same time, automation is also redefining finance professionals’ roles and responsibilities, away from “grunt” work into more strategic activities.

4. Institutionalization of crypto means it’s something treasury needs to know. 2021 was the year corporate finance leaders had to start learning about crypto. Many are still taking their first steps up the learning curve, but it’s imperative that they come up to speed—and fast—because crypto is here to stay. The most mainstream use cases today are: (1) accepting “coins” as payment for NFTs being created by business experimentation with new ways of monetizing IP; and (2) sourcing cryptocurrency for ransomware payouts. In both cases, companies are not holding cryptocurrency on the balance sheet. However, inevitably, every corporate will need to decide when to move beyond such arm’s length arrangements.

  • Therefore, finance leaders should evolve their understanding beyond current practices. Crypto is either the biggest, fastest-growing Ponzi scheme ever, or a game-changer bringing on a new future of business-governance structure, finance and how the internet works. Time is running out to determine which you believe is true.

5. ESG is inescapable. ESG is now an integral part of every corporate decision, be it the still-dominant E (now gravitating toward CO2 emission targets), the increasingly relevant S (supporting diversity, equity and inclusion goals, especially), and the timeless G (which will be “governed” more and more by how intentional corporates are in managing themselves in support of E and S).

  • To remain aligned with the company’s vision, finance executives must factor ESG into every funding and investment decision. For many, the light bulb has gone off that the emphasis on ESG is not the result of a proliferation of external attention from raters and rankers. What matters is the internal stakeholders’ view of why, when, what and how ESG factors impact the value of the firm. That’s good “G”. Outsiders just need fair and measurable standards to judge performance against current and future targets.

All of these takeaways fit well into the topics we will look to distill new insight from in the year ahead. For more on what we expect in 2022, please read this outlook by Nilly Essaides.

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Moving Finance Beyond Resiliency in 2022 Amid the New New Normal

How to approach finance this year while addressing unknows and going beyond best practice, toward innovation.

By Nilly Essaides

In 2021, finance organizations focused on building their companies’ capacity to withstand shocks and bounce back. They automated existing processes so they can be executed remotely and with fewer staff. They forecasted more frequently. They continued to pile up cash (see companion piece by NeuGroup founder and CEO Joseph Neu). They integrated planning activities and embraced scenario analysis to account for a lack of relevant data and the unprecedented rate of change in health, economic and financial conditions.

How to approach finance this year while addressing unknowns and going beyond best practice, toward innovation.

By Nilly Essaides

In 2021, finance organizations focused on building their companies’ capacity to withstand shocks and bounce back. They automated existing processes so they can be executed remotely and with fewer staff. They forecasted more frequently. They continued to pile up cash (see companion piece by NeuGroup founder and CEO Joseph Neu). They integrated planning activities and embraced scenario analysis to account for a lack of relevant data and the unprecedented rate of change in health, economic and financial conditions.

  • At the start of this year, many finance and corporate leaders predicted that we would return to some semblance of normalcy by the middle of 2021. Remember the “new normal”? That term has since lost traction, as the pandemic is entering its third year. Now we hear about the “new new normal,” and who knows when or if we will find the right words to describe the continued level of economic uncertainty, market volatility and business model disruption.

How to address the unknowns. Preparing for the new year is not about having the newest crystal ball model. The velocity of change means we will face unforeseen events that will challenge the status quo in new ways. We hear a lot about finance resiliency as a critical success factor. However, being resilient no longer suffices.

  • Resiliency is the capability to withstand shocks and return to pre-crisis operations. Today, there is no going back. The way to brace for a year of ongoing challenges is to become agile, i.e., emerge stronger and better each time. It’s difficult to create KPIs for agility, but it’s possible. For example, finance can measure the data-to-insight cycle time, or how quickly it can adjust to new capacity requirements.  
  • Joseph Neu’s story shares five key takeaways from 2021. No. 1 is the need to question everything. Just doing things the way they’ve always been done is not sustainable. Finance chiefs must leverage technology to reinvent their operating models and how they deliver scalable services to the rest of the enterprise.
  • Tim Husnik, senior director of treasury at Medtronic, shared his new mantra. According to Mr. Husnik, fostering a culture of innovation has proved successful at boosting the finance function beyond proven best practice, which he considers the baseline. “Best practice is just like being average. You’re as awesome as the most average multinational corporation,” he said. “[This mindset] is not quite aligned to our company mission of being extraordinary and innovative.”
  • Becoming a first adopter of technology, novel process design or emerging best practices can be scary, and finance has always been a cautious function, often for good reason. But the function cannot afford to lag other parts of the company. “Have courage,” urged a member of our financial planning and analysis group. “You can’t just get stuck on one model of doing things. Being open to change is a huge benefit. It’s something we’ve had to get better at, and something we’re going to keep doing.”

Five ways to approach finance in 2022:

1. Leverage lessons learned. Remember that we’re not starting from scratch; we’ve now had about two years of practice in dealing with the unexpected. Lessons learned can inform how we overcome new challenges. For example, finance organizations were forced to transition to remote work almost overnight. But research from The Hackett Group showed that in Q1 2020, 80% of accounting organizations closed the books on time by leveraging existing technologies, distributing laptops and increasing bandwidth. In fact, many companies were able to shorten their close time by getting rid of manual intervention.  

2. Encourage and systematize innovation. Innovative thinking has not been a core finance skill. That’s got to change. A major way of triggering innovation in finance is adopting new technologies because they often bring fresh ideas on how to execute work. For example, AI can be layered onto an existing ERP to curate specific data to support different activities. Most ERPs now offer AI-enabled analytics modules; plus, there are stand-alone tools finance can test and deploy. It may sound counterintuitive, but successful innovation is exercised within a defined framework. And the top consideration is focusing on areas where there’s a significant opportunity to improve business performance.

3. Build a “composable” fintech architecture. A single system sitting atop a single data repository has been the holy grail for years. Many tried and most failed, not only because of massive and costly customization requirements. In a customer-centric, agile finance organization, different stakeholders have different needs. Finance must build a scalable platform that enables a bespoke UI in a cost-effective manner.

  • Plus, a single solution, no matter how advanced, cannot compete with the plethora of best-of-breed automations. That means selecting the best tool for the job and connecting it to the ERP and other point solutions via intelligent APIs. These applets not only exchange information in real time but also leverage connectivity to orchestrate cross-process/cross departmental workflows. On the data side, new data management technologies permit process leaders to curate the information that’s relevant to them from the general ledger and other validated source systems.

4. Break down silos. Finance and treasury organizations must dismantle intra-functional barriers to end-to-end processes and data flow, as well as open their activities and systems to other SG&A functions and the business. For example, the line between financial planning and analysis and account-to-report is blurring, as the accounting organization can use AI-enabled analytics to extract valuable insights. Increasingly, finance is called upon to become the analytics engine of the company. Its mandate is to partner with other functions and front-line leadership to make critical decisions about capital and resource allocation.

  • For example, finance is now helping HR in head count planning and advising management about the financial consequences of operational decisions. For instance, establishing a legal entity in an emerging market may lead to trapped cash. Or a business case for a new investment may not pass scrutiny when finance runs scenario analysis that reveals an ROI below hurdle rates.

5. Benchmark with other companies. Thriving in the “new new normal” while keeping costs in check requires thoughtful prioritization. Finance budgets are not expanding but demands are. The key is to choose where to invest, in the immediate and medium term. One of the most effective approaches to identifying improvement opportunities is benchmarking against other organizations. That exercise should go beyond collecting data on others’ performance. The data needs to be interpreted within the context of comparable functions. So, peer-to-peer exchanges, rich with practical examples and context narratives, are also crucial.

The surge in Covid cases may be temporary, but many states and countries are reporting record high cases. The current administration is pushing forward with impactful regulatory change and inflation may not be temporary. These and other risks mean finance executives will be challenged to continue to adapt their organizations to not only confront uncertainty but take advantage of disruption to become better, faster.

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Talking Shop: Use a TMS for Audit and Confirmation of Bank Accounts?

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: “Has anyone had success using their TMS for audit and confirmation of bank accounts? We are in the midst of our annual audit process. We have a number of accounts confirmed by Confirmation [a platform that’s part of Thomson Reuters] and the remaining have to be confirmed by treasury providing bank statements from bank portals.

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: “Has anyone had success using their TMS for audit and confirmation of bank accounts? We are in the midst of our annual audit process. We have a number of accounts confirmed by Confirmation [a platform that’s part of Thomson Reuters] and the remaining have to be confirmed by treasury providing bank statements from bank portals.

  • “We are attempting to argue with our auditor that the electronic banking statement files delivered to our TMS (and reported from the TMS) should be sufficient for this requirement. Does anyone else have this issue or leverage their TMS statements for their audit confirmations?”

Peer answer 1: “We globally import statements in various formats into our TMS. Completeness and accuracy is verified by a self-developed algorithm which is audited every year by external auditors by taking a sample of bank external bank statements to validate methodology.

  • “As a result, no further external statements are needed for the management of accounts globally. Local statutory audits might require additional Confirmation or bank statement proof.”

Peer answer 2: “We use Confirmation as well, and for the banks where that’s not possible, we have to send a scanned wet-signed letter for the respective bank to disclose the balance. The (external) auditors won’t even accept any statements retrieved by us, irrespective of portal or TMS.

  • “If you currently have to confirm all accounts, you could ask to only confirm those with balances of a certain size and above.”

NeuGroup Insights reached out to the questioner to ask if treasury had resolved the issue with its auditor. He said there has been no real outcome and that he expects to “have to go down the path” of getting the statements from bank portals. “It was good to hear from other peers that they are facing he same standards we are,” he wrote.

  • He added: “I think the auditing standards would have to change for there to be any improvement in the process. Auditors would have to better understand how the data is coming into and presented in these internal treasury management systems. Currently, they are taking the most conservative approach possible in wanting the information directly from or sourced from the banking counterparty.”
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Best of NeuGroup Insights, Second Half of 2021

Stories that stood out included posts on cryptocurrency, the effect of ESG on credit ratings, Google’s innovation with SAP, an in-house fintech and a pair of video interviews.

Review and reflect. Our final email of 2021 is a baker’s dozen of best posts from the last few months—selected for their topicality (ESG, cryptocurrency, NFTs), detailed descriptions of finance teams meeting challenges (complex spin-offs, post-merger integration, recruiting talent) and focus on key trends in treasury and beyond (right-time finance for FP&A, automating FX hedges, better connectivity).

Stories that stood out included posts on cryptocurrency, the effect of ESG on credit ratings, Google’s innovation with SAP, an in-house fintech and a pair of video interviews.

Review and reflect. Our final email of 2021 is a baker’s dozen of best posts from the last few months—selected for their topicality (ESG, cryptocurrency, NFTs), detailed descriptions of finance teams meeting challenges (complex spin-offs, post-merger integration, recruiting talent) and focus on key trends in treasury and beyond (right-time finance for FP&A, automating FX hedges, better connectivity).

  • To read the email, please click here.
  • Among the offerings are two video interviews, one on how to hire people with grit, the other on questions treasury must ask when evaluating new tech solutions. (We’ll bring you more video—and a podcast—next year.)

NeuGroup wants to thank each of you—our readers, members, sponsors and partners—for your invaluable support in 2021. We wish you a very happy and safe new year.

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Milestones of Automation on the Road to a Brighter Treasury Future

New technology such as RPA and data analytics help free up treasury staff to help the business meet strategic goals.

Assistant treasurers (ATs) highlighted their teams’ milestones over the previous year at a recent NeuGroup meeting, with several citing the development of skills and capabilities that helped automate time-consuming tasks inside and outside treasury.

  • Massive debt deals and prolonged adoptions of SAP systems ranked high on the list of major accomplishments for several ATs, whose hard work brought the projects to fruition.
  • But the initiatives drawing the most interest from peers involved innovative ways to automate operational activities, often using new technology, as treasury teams seek a greater role in their companies’ strategic decision-making.

New technology such as RPA and data analytics help free up treasury staff to help the business meet strategic goals.

Assistant treasurers (ATs) highlighted their teams’ milestones over the previous year at a recent NeuGroup meeting, with several citing the development of skills and capabilities that helped automate time-consuming tasks inside and outside treasury.

  • Massive debt deals and prolonged adoptions of SAP systems ranked high on the list of major accomplishments for several ATs, whose hard work brought the projects to fruition.
  • But the initiatives drawing the most interest from peers involved innovative ways to automate operational activities, often using new technology, as treasury teams seek a greater role in their companies’ strategic decision-making.

Emphasizing data analytics. The AT of a technology firm said an emphasis for treasury staff at his company has been data analytics and process automation, “the skills of the future for our team.”

  • So treasury partnered with the company’s internal analytics team, and data scientists and programmers conducted a series of training sessions for treasury staff, who proceeded to implement projects that have since gone live.
  • They automated the entry of time deposits going into SAP as well as confirmations for time deposits and FX transactions, “particularly [non-deliverable swaps], which were always painful for us,” he said.
  • He added that the treasury team members gaining an appreciation for the new technology and actually applying it was “invaluable for them personally.” It will enable them to better design bigger future projects that the data science team is working on, “and that’s going to feed into some of the other initiatives for us, like cash forecasting.”

Intelligent tools. The AT of a business-services firm listed an “intelligent cash tool,” as one of her team’s significant accomplishments. The tool automates cash forecasts by country and builds a cash inventory model that ensures the company has optimal cash in each country for operational purposes.

  • “It’s a data analytics as well as predictive analytics tool that allowed us to significantly improve our cash flow forecasting processes, as well as really look at making sure we have the right cash in the right place at the right time, in automated way,” the AT said.
  • A peer said his team’s director of cash operations developed a robotic process automation (RPA) tool tied to the SAP system that reviews bank signatories weekly across the company and provides reports on changes that need to be made.
  • “It’s an automated process that’s been a huge win,” the AT said. “And as you can imagine, it reduces a lot of pain points and keeps us up to date.”

Helping the business. Noting that the “first pillar” of treasury’s strategy is to be a “trusted business partner,” one AT said his team partnered with Citi to leverage its payment-exchange platform.

  • Previously, most claims payments were paid via paper check, a slow process for customers in which errors may not have been recognized for weeks. The Citi platform’s more dynamic payment capabilities include services such as Zelle and PayPal, which enables prepaid cards.
  • It’s still in the pilot phase, the AT said, adding, “We’re excited to add value to the business through that initiative.”
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The Path to Treasury Value Creation: Automation as an Ally

Technology holds the key to treasury transformation. So how can people on treasury teams add value in the future?

The strategic value that treasury teams provide to corporations depends in large part on the ability of finance leaders to adopt and adapt to technology that is transforming treasury while at the same time developing the skills and expanding the roles of the people on those teams.

Technology holds the key to treasury transformation. So how can people on treasury teams add value in the future?

The strategic value that treasury teams provide to corporations depends in large part on the ability of finance leaders to adopt and adapt to technology that is transforming treasury while at the same time developing the skills and expanding the roles of the people on those teams.

People, technology and road maps. The interplay of people with technology that is automating, streamlining and eliminating tactical, routine tasks presents treasurers with an enormous challenge as they look ahead. One member called talent planning “massive” in terms of leading to value-added, strategic work. “Doing more than just KYC compliance tasks is definitely the way forward,” he said. But he is finding it difficult to manage that on a large scale.

  • Mr. Furter suggests making a road map for “human capital” guided by developing trends. He said it is critical to start by benchmarking with peers and monitoring developments in technology. Then, he said, research and develop possible scenarios and quantify what the potential benefits and costs would be for each scenario.
  • After researching and analyzing the scenarios, create functional road maps to embrace opportunities, which includes regular course corrections to employees’ job descriptions and skill set requirements—but only if the research proves the changes will justify the cost.
  • In his case, Mr. Furter converted middle-management positions to technology and planning specialists, as well as turning broad “analyst” roles into specific IT security and TMS experts (see below).


Treasury’s future size.
What’s impossible to know precisely is how this ongoing transformation will alter the size of treasury teams. Mr. Neu believes there’s a good chance that treasurers will have half as many employees undertaking current tasks within a few years, with the other half “now doing much more that adds tremendously more value.”

  • He added, “That justifies not only the head count spend but the technology and resource spend. It’s not about doing less, but adding to the resource base as we roll into the future.”
  • Mr. Furter, meanwhile, said that while treasury team members working in Power BI and writing Python scripts or Excel macros are useful now, he believes that in the future AI will become better and faster than people, even at putting together the programs in the first place. Employees will need to adapt their skills to maintaining these systems, rather than building them.
  • Even so, he estimates that 90% of current treasury jobs will ultimately be eliminated, and many current skill sets will become obsolete. Mr. Neu emphasized that he believes the need is not to eliminate roles—it’s to expand and enhance them by freeing up time to create value.
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Year-End Deadline for New Libor Deals Focuses Minds on Alternatives

Gazing into 2022, SOFR remains the first choice among borrowers, but may still require “mathematical gymnastics.”

The year-end deadline for pricing new floating-rate transactions over Libor replacement rates and a steepening but uncertain yield curve prompted assistant treasurers from large-cap companies to tap the insights of rate and hedging experts from Chatham Financial at a recent meeting.

  • Companies are looking to increase their floating-rate exposure compared to a year ago, generally because they are at the higher end of their fixed/floating mix, according to Amol Dhargalkar, managing partner and global head of corporates at Chatham. Some investment-grade companies primarily funding through the bond market have considered swapping to floating, he said, although that’s a tough sell to CFOs as rate increase appear highly likely.
  • The requirement to price new debt and derivatives over an alternative to Libor starting in January raises a host of issues.

Gazing into 2022, SOFR remains the first choice among borrowers, but may still require “mathematical gymnastics.”

The year-end deadline for pricing new floating-rate transactions over Libor replacement rates and a steepening but uncertain yield curve prompted assistant treasurers from large-cap companies to tap the insights of rate and hedging experts from Chatham Financial at a recent meeting.

  • Companies are looking to increase their floating-rate exposure compared to a year ago, generally because they are at the higher end of their fixed/floating mix, according to Amol Dhargalkar, managing partner and global head of corporates at Chatham. Some investment-grade companies primarily funding through the bond market have considered swapping to floating, he said, although that’s a tough sell to CFOs as rate increase appear highly likely.
  • The requirement to price new debt and derivatives over an alternative to Libor starting in January raises a host of issues.

Pre-issuance hedging. Market volatility has increased the importance of pre-issuance hedges, but how to structure them?

  • “For companies using swaps to hedge future issuance, Libor is no longer an option so companies are using compounded SOFR trades,” said Kevin Jones, treasury advisory, corporates, at Chatham.

Waiting on term SOFR. Chatham has received numerous inquiries from corporate clients about term SOFR, published by the CME and echoing Libor’s term structure.

  • “The problem is that there’s not a lot of liquidity in term SOFR just yet,” Mr. Jones said. “I think this is going to change starting next year, but we’re not there yet.”
  • Consequently, most derivatives have been priced over SOFR compounded in arrears, which requires some “mathematical gymnastics to get the rate right.”
  • Chatham has also seen some derivative trades price over daily simple SOFR and SOFR compounded in advance.
  • Those opting for term SOFR on a derivative trade will likely face additional charges or premiums, since bank counterparties will be less able to lay off that risk.

On the ground. Few members acknowledged having used a Libor-replacement rate. One who priced a hedge over SOFR said they paid a premium, adding that “based on the fixed conversion from Libor to SOFR, we expect to get the value on the back end.”

  • He added that the biggest challenge was making sure the company’s accounting system supported the transaction.

On the debt side. The revolver of one member’s company allows borrowing in three currencies. He said the reference rate for borrowings over pound-sterling Libor is mandated to be replaced by the UK’s Sonia by year-end, and the transaction will soon be amended. No change was necessary for euro borrowings, which are not priced over Libor to begin with.

  • Another member said her company doesn’t borrow in other currencies, but the administration agent of its revolver nevertheless insisted on making that restriction formal.

SOFR alternatives? Some regional banks criticize SOFR’s lack of credit sensitivity and prefer the American Financial Exchange’s Ameribor or the Bloomberg Short-Term Bank Yield Index (BSBY), but the biggest financial institutions are now leaning toward SOFR. A member noted one large global bank still expresses support for BSBY and asked whether that was likely to continue.

  • Mr. Dhargalkar said that criticism of BSBY by regulators, including SEC Chair Gary Gensler saying it echoes Libor’s weaknesses, bring its widespread usage into question.
  • A member noted that the recent renewal of his company’s five-year revolver includes language enabling the use of Libor as long as it is available, and hardwire fallback language switching it to term SOFR plus the official spread adjustment.
  • “We also negotiated being able to adopt another reference rate, in the event BSBY or another rate ends up becoming predominant, with negative consent from our bank group,” he said.
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Treasury’s ESG Angst Over Auditors and Credit Rating Agencies

Upper management wants ESG audits to be merged with overall financial audit, to some members’ dismay.

Assistant treasurers (ATs) mulling renewals of their companies’ revolving credit lines next year compared notes in a recent meeting session on ESG-related issues, as those factors increasingly play a role in credit decisions—even if it’s unclear precisely how.

  • One concern: There’s a push to merge ESG-related auditing with the overall financial auditing typically done by a Big Four accounting firm, a move the ATs frowned upon.
  • And just what is up with the credit rating agencies ESG scores? Members expressed surprise at their methodologies’ lack of clarity.

Upper management wants ESG audits to be merged with overall financial audit, to some members’ dismay.

Assistant treasurers (ATs) mulling renewals of their companies’ revolving credit lines next year compared notes in a recent meeting session on ESG-related issues, as those factors increasingly play a role in credit decisions—even if it’s unclear precisely how.

  • One concern: There’s a push to merge ESG-related auditing with the overall financial auditing typically done by a Big Four accounting firm, a move the ATs frowned upon.
  • And just what is up with the credit rating agencies ESG scores? Members expressed surprise at their methodologies’ lack of clarity.

Audit consolidation. One member noted his team’s satisfaction with Dun & Bradstreet as the auditor of the company’s sustainability report, but there’s a push from above to align the business with its financial auditor.

  • “It’s just having a single face and a single focus for all the auditing work,” and reducing complexity, he said.
  • A few other members acknowledged a similar push, with one peer predicting a general shift in that direction if the SEC requires ESG-related auditing. 
  • Scott Flieger, director, peer groups, at NeuGroup, drew attention to the SEC’s Asset Management Advisory Committee adopting on July 7 the recommendations of its ESG subcommittee regarding ESG disclosures by issuers.
    • “Issuers will have their day in court, and this is just an advisory committee making suggestions to the SEC,” Mr. Flieger said. “But I think everybody would benefit from having clearer rules.”

Smaller auditors kaput? If the SEC requires more ESG disclosures, then the push to move ESG auditing under a company’s main financial auditor will only increase.

  • “They’re already doing that body of work for all the company’s financial statements,” said one member. “Plus, the board will probably push for that as well.”
  • Added another, “It’s just that you have to pay a premium to use the Big Four.”

ESG credit confusion. The rating agencies’ progress integrating ESG factors into their ratings has been in fits and starts, frustrating ATs looking for clarity about the impact on their companies’ credit—especially since the agencies say they’ve long incorporated ESG into ratings.

  • One member noted recently receiving a report from Moody’s Investors Service on her company’s ESG rating. “From my perspective, it’s not very detailed,” she said, adding that surprisingly contrasts with the in-depth discussion on the topic her team had with Moody’s credit analysts a year ago.

Lowest common denominator. The AT added that the agency provides scores for each of the E, S and G categories, with a few subcategories for each.

  • “And whatever your lowest score is the score for the category, so you could be excellent in all the subcategories except one, and that one will be your category score,” she said.
  • Furthermore, there was little scoring differentiation between companies in the same sector. After a peer in a different industry acknowledged receiving the same feedback, she said, “It begs the questions: What’s the value in this? And how it going to be used?”
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Connecting to Data to Drive Insights: Ed Barrie on Tech and Finance

The former treasurer of Tableau Software on what questions today’s treasurers need to ask before investing in tech solutions.

In a treasury career that includes positions at Microsoft, Itron and Tableau Software—where he built treasury from scratch—Ed Barrie has made it his mission to dive deep into how corporate finance teams can better leverage technology to connect to data, analyze it and extract insights that drive strategic decisions.

  • In the interview below with NeuGroup CEO Joseph Neu, Mr. Barrie does what he did for years as a NeuGroup member: shares his valuable knowledge of systems and data analytics with other finance professionals, recommending several key questions treasurers need to ask themselves when evaluating tech solutions.
  • You’ll also hear Mr. Barrie’s insights on the challenges facing legacy treasury management systems going up against cloud-based solutions as well as his thoughts on why internal IT departments don’t—and perhaps shouldn’t—prioritize treasury projects and internal financial systems.

The former treasurer of Tableau Software on what questions today’s treasurers need to ask before investing in tech solutions.

In a treasury career that includes positions at Microsoft, Itron and Tableau Software—where he built treasury from scratch—Ed Barrie has made it his mission to dive deep into how corporate finance teams can better leverage technology to connect to data, analyze it and extract insights that drive strategic decisions.

  • In the interview below with NeuGroup CEO Joseph Neu, Mr. Barrie does what he did for years as a NeuGroup member: shares his valuable knowledge of systems and data analytics with other finance professionals, recommending several key questions treasurers need to ask themselves when evaluating tech solutions.
  • You’ll also hear Mr. Barrie’s insights on the challenges facing legacy treasury management systems going up against cloud-based solutions as well as his thoughts on why internal IT departments don’t—and perhaps shouldn’t—prioritize treasury projects and internal financial systems.

Please be on the lookout for future portions of Mr. Barrie’s interview, including details of his latest tech endeavor: Treasury4, a fintech he cofounded where he serves as chief product officer and treasurer.

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Pain You Can Manage and Pain You Can’t: Separately Managed Accounts

SMAs mean accepting KYC and legal dept. pain, but clear communication can save plenty of heartache with managers.

Members joined forces for a panel discussion on the pain points associated with setting up, maintaining and reporting for separately managed accounts (SMAs) at a recent meeting of NeuGroup for Cash Investment. Not surprisingly, the most painful parts are the know-your-customer (KYC) obligations and the legal agreement tug-of-war needed for account setup.

  • The encouraging, somewhat unexpected takeaway: Effective communication and a strong relationship with your asset manager go a long way toward easing the pain of misalignment with the manager.
  • Clear definitions of terms, well-understood parameters and monitoring of execution and performance, along with regular and open communication with asset managers, are critical elements of the SMA relationship.

SMAs mean accepting KYC and legal dept. pain, but clear communication can save plenty of heartache with managers.
 
Members joined forces for a panel discussion on the pain points associated with setting up, maintaining and reporting for separately managed accounts (SMAs) at a recent meeting of NeuGroup for Cash Investment. Not surprisingly, the most painful parts are the know-your-customer (KYC) obligations and the legal agreement tug-of-war needed for account setup.

  • The encouraging, somewhat unexpected takeaway: Effective communication and a strong relationship with your asset manager go a long way toward easing the pain of misalignment with the manager.
  • Clear definitions of terms, well-understood parameters and monitoring of execution and performance, along with regular and open communication with asset managers, are critical elements of the SMA relationship.

Prioritize clarity and dialogue. All members stressed that SMA guidelines shouldn’t be subject to interpretation and warned peers against learning the hard way that managers may have different definitions or understandings than what treasury expects.

  • Avoiding misinterpretations of instructions requires precise language describing types of securities, duration, credit ratings and, for some corporates, ESG ratings.
  • One member said different managers have different styles and recommended using more than one manager in a space to better understand differences and recognize what works best for your organization.
  • Regular, open communication is essential and valuable. One member said the biggest benefit they get from SMAs flows from the relationships with portfolio managers and the intelligence those managers provide.

Lay the groundwork. Don’t get stuck being the net in the frequent ping pong matches between the legal departments of your company and the asset manager. Sometimes it’s a disagreement on boilerplate language that may be resolved by the lawyers communicating directly. Scheduling a conference call is your best and fastest option for legal resolutions.

  • Communicate needs and expectations with both your asset manager and custodial team from the start, beginning with accounting and reporting requirements. Agree to cadence and deadlines for data so month- and quarter-end reporting will be received quickly and without a lot of back-and-forth with managers and custodians.
  • One panelist in the midst of an SMA RFP is using a scorecard to evaluate the operational efficiencies of different managers. For his company, there must be clean connectivity with the trustee, Clearwater, and key treasury technology systems to avoid headaches down the line.
  • Buyer beware: members noted that using different systems for valuations requires reconciliations. One member flagged that it’s often an issue on structured products: “Our SMA managers use Bloomberg, we use Clearwater.” Numbers don’t always match, and minor discrepancies are found that need follow-up.

Time-consuming KYC and legal agreements. Unfortunately, to realize the benefits of separately managed accounts, you must buckle up for the frustrating tasks associated with KYC requirements. Keep in mind that you are tending to two relationships: the asset manager and custodial team; each one has nuances and different areas may mean different requirements.

  • It is pretty rewarding to check off items on your to-do list. However, even when you think you’ve completed everything, banks usually come back and need more. Their requirements change over time.
    • You may have filled out something a year ago, but additional requirements may come into play, or changes have occurred with authorized signers or those allowed to direct or redeem funds. Once you get an SMA in place, assume that it requires constant maintenance.
  • In a perfect world, account opening times with custodians range from 10 days to 15 days before connections, accounting, privilege and cash and trading authorities may be applied. One panelist said, there is a lot more paperwork today than 10 years ago.

Is there an ideal time to shop for SMA managers? Not necessarily, but just make sure they aren’t distracted by M&A, one member said. Looking at the track record of the investing team and leadership helps. And remember that sometimes the large size of a given firm doesn’t get you the attention you want.

  • One member said that with SMAs, you are ultimately betting on people and whether they will they be incentivized to work their best for you. There has been a huge compression across the board, which is a benefit for the buy side: 2021 is better than 2011.
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Cashing in on AI to Boost Accuracy in Forecasting Receivables

Danone North America took an overly manual process, added artificial intelligence, and now gets close to 100% accuracy.

Cash collection during the pandemic has been a big issue for corporates, with many facing uncertainty and lower cash flows. That’s why cash forecasting, and one of its main components, receivables calculations, have become more important than ever. And it’s also why more companies are turning to automation and artificial intelligence (AI) to improve the accuracy of those forecasts.

Fewer lumps and errors. At a recent NeuGroup meeting sponsored by cloud-based autonomous software company HighRadius, Jacob Whetstone, director of invoice to cash for Danone North America, described his company’s journey from a labor-intensive collection forecasting process to a more accurate, automated approach (see graphic).

Danone North America took an overly manual process, added artificial intelligence, and now gets close to 100% accuracy.
 
Cash collection during the pandemic has been a big issue for corporates, with many facing uncertainty and lower cash flows. That’s why cash forecasting, and one of its main components, receivables calculations, have become more important than ever. And it’s also why more companies are turning to automation and artificial intelligence (AI) to improve the accuracy of those forecasts.
 
Fewer lumps and errors. At a recent NeuGroup meeting sponsored by cloud-based autonomous software company HighRadius, Jacob Whetstone, director of invoice to cash for Danone North America, described his company’s journey from a labor-intensive collection forecasting process to a more accurate, automated approach (see graphic).

  • After years of tracking lumpy and error-prone payments from customers, it improved its accounts receivables forecasting to 96% accuracy.
  • “It was a very manual process,” Mr. Whetstone said about the previous AR process. “Sometimes it looked like were accurate, but a lot of the time we were really off.”
  • One issue that contributed to inaccuracy was that it was so time-consuming that the company only forecasted AR twice a year. “June and December,” Mr. Whetstone said, “and not much more than that.”

Putting the focus where it belongs. Savvy companies for years have realized there is cash to be had in some formerly untapped areas and processes and have been slowly incorporating them into their working capital management programs.

  • Nonetheless, companies still are sitting on billions of cash, according to research by The Hackett Group, which calculated companies “were sitting on $1.3 trillion in unused working capital at the end of 2019, including nearly $4 billion” in AR.
  • But instead of collecting that cash, companies are often bogged down collecting the data and doing calculations manually. Mr. Whetstone said this was true at his company. “We spent all this time pulling data together” instead of working with customers to get paid sooner. “We were spending too much time on non-value add activities.” 

Too many variables. One of the issues of trying to accurately predict payments from customers is that there are too many variables to figure out.

  • For instance, one transaction can have more than 60 invoice and customer-level variables to contend with, like invoice dates, customer-specific days payable, and invoice amounts among others. Accounting for all these in a spreadsheet would be nearly impossible or at least take a very long time.

Success through streamlining. After partnering with HighRadius and its AI-based automated cloud cash forecasting tool, the company was able to streamline the process.

  • This meant it was able to take those 60-plus variables, correlate them to reduce that number to about 30, and create more than a dozen algorithms to come up with a predictable payment date. This can then be uploaded into the company’s automated cash forecasting tool.
  • With the automation, Danone has more time to work on the algorithms and tweak them when necessary. And to work with the collections team in its dealings with customers. The automation also allows the company to do monthly forecasts instead of just twice a year.
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Trading with Real Money: Good Schooling for Future Finance Talent

Corporates give high marks to a University of Idaho program where students learn real-world lessons by trading.

Treasury and finance teams searching for talent with the right stuff—and an edge in this tight labor market—might want to take a page from Starbucks and Micron Technology by strengthening their ties to colleges and universities that are finding innovative ways to teach students financial decision-making skills.

  • Micron treasurer Greg Routin and Melanie Canto, a former Starbucks treasurer who is now a senior business transformation leader at the company, spoke at a recent meeting of NeuGroup for Tech Treasurers where they described the value of a program at the University of Idaho where students are given real money to trade.
  • With the dual objectives of capital appreciation and financial education, the Barker Capital Management and Trading Program teaches students high-level academic risk management and trading theory to develop their own strategy for trading individual, funded accounts.

Corporates give high marks to a University of Idaho program where students learn real-world lessons by trading.

Treasury and finance teams searching for talent with the right stuff—and an edge in this tight labor market—might want to take a page from Starbucks and Micron Technology by strengthening their ties to colleges and universities that are finding innovative ways to teach students financial decision-making skills.

  • Micron treasurer Greg Routin and Melanie Canto, a former Starbucks treasurer who is now a senior business transformation leader at the company, spoke at a recent meeting of NeuGroup for Tech Treasurers where they described the value of a program at the University of Idaho where students are given real money to trade.
  • With the dual objectives of capital appreciation and financial education, the Barker Capital Management and Trading Program teaches students high-level academic risk management and trading theory to develop their own strategy for trading individual, funded accounts.

Getting real. “It takes a lot of time to learn the fundamentals of treasury, like market sentiment and money flows,” said Dr. Darek Nalle, the program’s director, who also attended the virtual meeting. “But I believe in learning through real money, in real markets, in real time.”

  • Dr. Nalle said “trading is the hook and the shiny thing” that attracts students to the sought-after program, which has grown from 20 enrollees two years ago to 100 this year from the College of Business and Economics and the College of Agriculture.
  • Equities, foreign exchange, commodities, futures, junk bonds—everything is on the table, but the focus is on learning decision-making. Speculation is discouraged.
  • Students participate in group accounts, each led by an industry professional, which execute about 500 trades per semester; individual accounts start with $15,000.
  • The program takes the “training wheels” off to teach students to “be more comfortable being uncomfortable” and make decisions with “imperfect information,” Dr. Nalle said. In addition, students need to get Bloomberg certified, another helpful tool in the belt for new treasury recruits.

Developing a world view. “I’ve never seen anything like the Barker program,” said Ms. Canto, a University of Idaho alumnus who recruits from the program. Students are “very actively looking outside at what’s going on in the world just by the nature of trading. This isn’t normally taught in schools.”

  • She added, “They’re reading news all day, they know what the trends are, they see them coming down the pipe; that’s unique in early talent. They’re also learning to make decisions with the right amount of information, and that’s usually a gap you see [with recent graduates].”
  • A bonus benefit: Because the program is co-sponsored by the agriculture college, some students possess very real knowledge of the factors influencing the value of certain commodities like dairy, which is a significant risk to manage for a company like Starbucks.

On the map. The program also helps fill talent gaps for companies that lie outside the nation’s major tech and finance hubs, including Micron Technologies, based in Boise, Idaho. Mr. Routin at Micron has employed “roughly a half-dozen” Barker grads, has two on staff now and plans to continue recruiting them. “I have been proactive in developing deep relationships with local universities,” he said

  • “The University of Idaho has differentiated itself in terms of the caliber of students and their willingness to work,” he told peers. “I encourage everyone to develop strategic relationships with a select group of universities to expand your talent pipeline, if you’re not doing so already.”
  • Dr. Nalle added another reason treasurers may want to connect with “real-world” programs like his: cost savings. He said it typically “takes 18-24 months and $300,000 to bring a diploma to usefulness,” but hands-on training can cut that down significantly.

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Using a Framework to Level a Fixed- vs. Floating-Rate Debt Imbalance

The case for having a programmatic, market-agnostic approach to keep floating-rate debt at a desired level.

The vast majority (88%) of corporates polled (see below) at a recent NeuGroup for Capital Markets meeting sponsored by Deutsche Bank are above their target percentage of fixed-rate debt relative to floating-rate; but nearly two-thirds (63%) of the companies either don’t plan to make significant changes (42%) to their fixed-to-floating-rate ratio in response to the current market environment, or they aren’t sure about it (21%).

  • The poll revealed some context that helps explain this seeming disconnect. Members said that the biggest factors influencing the percentages of fixed- and floating-rate debt are the level of cash on their balance sheets (63%), the risk tolerance of management (58%) and the current level of interest rates (58%).
  • The meeting also featured members and Deutsche Bank explaining the value of adopting an internally approved framework to help maintain floating-rate debt at a predetermined ratio to fixed-rate.

The case for having a programmatic, market-agnostic approach to keep floating-rate debt at a desired level.

The vast majority (88%) of corporates polled (see below) at a recent NeuGroup for Capital Markets meeting sponsored by Deutsche Bank are above their target percentage of fixed-rate debt relative to floating-rate; but nearly two-thirds (63%) of the companies either don’t plan to make significant changes (42%) to their fixed-to-floating-rate ratio in response to the current market environment, or they aren’t sure about it (21%).

  • The poll revealed some context that helps explain this seeming disconnect. Members said that the biggest factors influencing the percentages of fixed- and floating-rate debt are the level of cash on their balance sheets (63%), the risk tolerance of management (58%) and the current level of interest rates (58%).
  • The meeting also featured members and Deutsche Bank explaining the value of adopting an internally approved framework to help maintain floating-rate debt at a predetermined ratio to fixed-rate.

Why the fixed-rate cup is overflowing. Many member companies have issued large amounts of fixed-rate debt since the beginning of the pandemic, taking advantage of rock-bottom interest rates, swelling the amount of cash on their balance sheets. And risk-averse senior executives and board members are often not in favor of adding floating-rate debt, or certain types of it, to correct the imbalance, despite the arguments of banks and others that, over time, floating is cheaper than fixed, some members said.

  • “We kept our fixed-to float [ratio] where we wanted it through the [commercial paper] markets, but there was always a discussion with the finance committee about the liquidity risk of the CP markets and where long-term rates were,” one member said. “So when the curve got smashed during Covid—and I think almost every corporate has been doing this—with all the [liability management] exercises that you see, everyone’s taking long duration at low rates.
  • “And now we’re all catching our breath, and it’s like, now I need to get back to my framework and, what is my new framework?” he asked. “Where do I begin to get back to more of an optimal fixed-float mix?”

The benefits of a framework. Another member explained the basis and benefits of having a framework that determines the ratio of fixed-to-floating. The basis: We fundamentally believe that floating-rate debt is going to be cheaper than fixed-rate debt over the longer term,” he said.

  • That long-term perspective helps address questions about interest-rate volatility that might push against sticking with floating-rate debt, he said. “We believe that there is a decent amount of interest expense volatility that we’re willing to take to be able to lower interest expense over the longer term,” he said.
  • The member’s company used an efficient frontier analysis to come up with a framework using a benchmark portfolio that is 40% floating- and 60% fixed-rate debt. “That has done wonders for us, just to make it a programmatic approach and take the decision-making out of it,” he said.
  • The framework helps treasury ground the argument to swap back to floating when it may not be obvious that’s the right call from a market perspective. “We report out where we are against our debt portfolio benchmark on a quarterly basis to senior executives, so they generally know if we’re overly fixed or overly floating.You can say, ‘well here we are against the benchmark,’” he said.
  • One of the Deutsche Bank bankers underscored the value of frameworks during times like now when there is uncertainty about interest rates and the Fed. “For any of these decisions, anchoring to some belief that you think is sensible and realistic helps you manage the gyrations of the market,” he said. “Because as we’ve seen for the last year and a half and we’ll continue to see, the market has moved materially in interest rates.”

Do the math Before the member’s companyadopted the framework, in the wake of the Great Recession and the historically low fixed rates that followed, treasury faced unwavering resistance when it asked for the authority to swap into floating rate debt. “We got to the point where the board said, ‘stop—stop asking,’” he said.

  • So in 2017 the member’s team “did the math” and showed the board that if the company had been at a 60%-40% fixed-to-floating ratio during the previous ten years, it would have saved “triple-digit millions.” That helped pave the way for a change in approach.

Talking swap rates. Of course, not every corporate will adopt a framework, making entry points to swap to floating more relevant than for companies that have a programmatic approach.

  • One member in this position said, “Since we don’t have programmatic, we are picking entry points and I’m of the opinion that absolute swap rates matter and that they’re too low to be advantageous at the moment.”
  • Another member said his team is also looking at the timing of swaps to floating. It did an efficient frontier exercise to help figure out the optimal mix. “We are looking at the term premium, carry, first three years of the swap, is it advantageous to take it now and reassess every year?”
  • “Given most corporates are currently underweight floating, it’s important to think big picture and get floating rate exposure back up instead of waiting for the best entry point,” one Deutsche Bank banker said. “Most companies have learned that it is very difficult to time the market perfectly, so the decision to increase floating rate exposure should be both strategic and tactical over the next few years.”
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Cyber Insurance Reality Check: Stress Testing to Set Coverage Goals

One company got help doing stress tests to report to senior management what cyber coverage it needed and why. 

Corporations scrambling to cope with the rising threat of data breaches and ransomware attacks face the additional, unpleasant reality of soaring premiums (see chart) and shrinking capacity in the cyber insurance market. That’s putting more pressure on finance teams to weigh the potential risks of forgoing or reducing coverage against the high price of having protection.

  • At a recent meeting of NeuGroup for Large-Cap Treasurers, a risk manager at one member company explained in detail how her team responded to a request by the CFO to justify coverage when it came time to renew the firm’s cybersecurity insurance.
  • “You have to allow your team to do a fair amount of diligence,” the member said. In her case, that involved bringing in insurance broker Marsh to do intensive stress testing that revealed the need for increased coverage.

One company got help doing stress tests to report to senior management what cyber coverage it needed and why. 

Corporations scrambling to cope with the rising threat of data breaches and ransomware attacks face the additional, unpleasant reality of soaring premiums (see chart) and shrinking capacity in the cyber insurance market. That’s putting more pressure on finance teams to weigh the potential risks of forgoing or reducing coverage against the high price of having protection.

  • At a recent meeting of NeuGroup for Large-Cap Treasurers, a risk manager at one member company explained in detail how her team responded to a request by the CFO to justify coverage when it came time to renew the firm’s cybersecurity insurance.
  • “You have to allow your team to do a fair amount of diligence,” the member said. In her case, that involved bringing in insurance broker Marsh to do intensive stress testing.

Start by asking the right questions. The member began the cyber insurance assessment process with a basic framework. “First, we decided we needed to dig into what the program gives us, why it’s important and what can we do with it going forward that allows us to grow it in a way that’s responsible and disciplined and still allows us to make our budget.” She devised three critical questions that a stress test at the center of the project must answer:

  • What are the potential losses that drive the company’s cyber coverage and technology errors and omissions (E&O) insurance program?
  • How will the company’s risk profile evolve over the next five years?
  • How much insurance is optimal for the company to purchase, at the most price-efficient structure, given current market conditions?

Prepare for interviews and Monte Carlo. The member worked with Marsh to do a “very detailed” analysis of the company’s preparedness for cyberthreats. The process required interviewing company leaders and “going through risk scenarios to show you the potential cost of that scenario. They can show you what the cost of an event would be under certain variables.”

  • The member described a time-consuming process to get the company’s legal department comfortable with the discoverable nature of what would be discussed with an external group, as Marsh’s analysis required comprehensive access.
  • “We then started the stress test last fall and made 15 leaders available to discuss materiality, risk profiles, long-tail risk events and mitigants,” she said.
  • “Interviews were conducted for eight weeks, and Marsh went ahead with modeling and Monte Carlo simulations; they had a pretty impressive team doing the work. They definitely helped improve the comprehension on our team.”

The bottom line. The study recommended that the company should ultimately double its cyber insurance limits to provide better balance sheet protection. But current cyber insurance market conditions and capacity constraints prevented the company from doing that in one annual renewal cycle.

  • Instead, it will increase its limits by 20% and hope to reach the 100% level in the next three to five years. The cost increase for its total program (primary and excess) this year was 55%. The company also increased its retention by 50%.
  • The member’s presentation indicated that the company had “no significant pullbacks or narrowing of coverage,” but that its business interruption waiting period increased from eight hours to 12 hours.
  • Looking ahead, the member said that “depending on market appetite feedback, we may even consider stripping out tech E&O in the high excess of the cyber program to enable more market appetite.”
  • The company will also seek to raise capacity by looking at carriers in other markets. “We are looking to add more of our global markets from a coverage standpoint once we’re able to travel more easily,” the member said.

Peer feedback. One member responded that his company has struggled to invest in cybersecurity insurance due to the amount of due diligence required. “But you could drive a truck through our current coverage,” so he said it would likely be worth the effort.

  • The presenting member responded that it likely would be, adding that her company’s program is still “relatively inadequate—it’s helpful but still not sufficient.”
  • Another treasurer responded that the presentation was eye-opening. “We don’t have cyber, but after this presentation I probably will,” he said, adding, “We’ll probably only add catastrophic coverage going forward.”
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The Great (Treasury) Resignation

Insights and advice for treasury teams grappling with new challenges in recruiting talent and holding on to it.

Treasury departments are not immune to the tight labor markets and higher workforce churn rates roiling employers at the same time they grapple with managing remote workers and the entry of a new and younger generation with different work expectations.

  • That reality formed the backdrop for a conversation at a recent meeting of NeuGroup for Mid-Cap Treasurers on how to attract and retain talent, with several members reporting that they are struggling to backfill open positions. They also outlined hurdles they face in searching for new talent.

Insights and advice for treasury teams grappling with new challenges in recruiting talent and holding on to it.

Treasury departments are not immune to the tight labor markets and higher workforce churn rates roiling employers at the same time they grapple with managing remote workers and the entry of a new and younger generation with different work expectations.

  • That reality formed the backdrop for a conversation at a recent meeting of NeuGroup for Mid-Cap Treasurers on how to attract and retain talent, with several members reporting that they are struggling to backfill open positions. They also outlined hurdles they face in searching for new talent.

Cutting through red tape. At several companies, HR resources have shrunk considerably during waves of cost reductions. “That leaves HR unprepared for the challenge of recruiting in a difficult market,” complained one of the participants. Plus, because HR typically controls the hiring process, it can involve too many handoffs.

  • “It can take eight weeks to hire someone,” explained one member. “Meanwhile, candidates get multiple offers, and are more likely than not to take another offer.”
  • The expanding adoption of diversity, equity and inclusion (DE&I) policies is a great step forward, but it also presents a new roadblock for treasurers. “We used to just go into the system and pull the resumes. Now, the identity is not only disguised, but to avoid any chance of bias, HR has blocked hiring managers’ ability to access resumes,” one member said.

Remote work. Virtual work is an opportunity to expand the talent pool, especially for organizations in locations not favored by applicants. At the same time, it’s harder to conduct interviews and even harder to onboard using Zoom or other tools.

  • While remote positions may be more attractive right now, members were unanimous in their belief that treasury staff needs to be in-office because of the high-value, critical transactions they execute as well as cyber risk and the chance for fraud.
  • New technologies enable more secure execution and segregation of duties; however, the consensus among members was that these new tools are not yet ready for prime time. This perception may have to change, as another potential surge in the pandemic arrives, once again postponing companies’ return-to-work plans.

Talent is hard to find. Getting open positions filled is definitely more difficult right now. Therefore, the challenge for treasurers and their HR partners is to embrace new ways of reaching out to potential candidates. Just posting a position and waiting for people to apply is not enough. “You have to leverage your network and reach out proactively to potential candidates.”

  • Treasurers also need to expand beyond established recruiting strategies to include non-traditional sources of talent. One way is to leverage relationships with finance professors at universities and colleges and ask about graduates they’d recommend.
  • Another is to use external recruiters to complement HR’s efforts. Only a couple of members had experience with treasury-focused recruiters, and the jury still out on how effective that experience may be.

Build the brand. It’s also important to market the treasury brand. “Let’s be frank, treasury is the most exciting place to work in finance,” said a member. That needs to be clearly communicated in job postings and conversations with potential employees.

  • However, treasury teams must also be aware that what excites the younger workforce is different: Digital natives expect a high degree of process automation and the chance to work with “cool” technologies that mimic their consumer experiences. This is one among many reasons treasuries must update their technologies and embrace new tools for internal interaction as well as core activities such as payments.

The upshot. The “Great Resignation” is not leaving treasury unscathed. Some members were facing the task of hiring to fill multiple positions, leading to a rethink of career paths within and outside of the function. A clear career path is also a highly effective way to attract new talent.

  • In the meantime, treasurers are considering more cross-training and working with HR and general finance on rotational programs. “We have a three-year rotational program in finance, and treasury is an important stop. This approach has generated a lot of success in hiring internally,” one member said.
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Bridging the Gap Between Treasury and FP&A 

By Nilly Essaides

Technological advances are fueling the convergence of once-disparate finance processes, as they increasingly rely on the same tools to execute critical processes.

In addition, faced with continued disruption in business, economic and financial conditions, CFOs expect finance organizations to contribute greater value through faster and more insightful decision-support. To do so effectively, legacy silos among different areas of finance must be dismantled.

By Nilly Essaides

Technological advances are fueling the convergence of once-disparate finance processes, as they increasingly rely on the same tools to execute critical processes.

In addition, faced with continued disruption in business, economic and financial conditions, CFOs expect finance organizations to contribute greater value through faster and more insightful decision-support. To do so effectively, legacy silos among different areas of finance must be dismantled.

Going Beyond Best Practice to Process Innovation

Nowhere is the need to bridge barriers more urgent than at the treasury and FP&A nexus, as both are charged with aligning the company’s strategic and financial objectives. The connection between the two is critical, if companies are going to make smart capital-allocation choices based on scenario planning, produce reliable forecasts of cash and P&L and deliver data-driven insight.

While the initial transformation will take some heavy lifting, it’s imperative the two groups understand their respective processes, identify redundancies, operationalize a collaborative relationship, and join forces to improve the quality of the decision support they provide key stakeholders. In the finance org of the future, intra-process best practices are no longer enough to achieve a competitive advantage. Today, finance orgs must reach beyond through process and technology innovation.

Five Points of Intersection

While treasury and FP&A teams represent different workstreams, they have several intersection points that should be recognized and operationalized.

  1. Data Analytics: Ideally both teams will leverage the same analytics solution, which will pull data from a single repository. For a while, each had its own technology ecosystem; however, larger vendors like SAP, Oracle, OneStream and Workday are pivoting away from a single-process focus to a cross-process view, thus reducing friction within finance, lowering system cost to bolster ROI, and aligning everyone on common methodologies, models and tools. Inconsistent data and models trigger confusion and undermine the goal of making data-driven decisions.
  2. Talent management: Research shows finance hires primarily from within, and it’s increasingly reliant on experiential vs. formal training. That means functional rotations, mentoring and coaching and career pathing are becoming critical to hiring, retention and succession planning—especially in today’s tight labor market. To attract candidates, finance needs to not only build brand awareness but also establish finance-specific talent development programs that offer clear career pathing. And while some treasury and FP&A skills are still specialized, core competencies are largely the same, e.g., financial and business acumen, critical and innovative thinking, agility and customer-centricity.
  3. Cash forecasting: FP&A and treasury produce short-, medium- and long-term cash forecasts that are often out of sync, creating confusion at planning time. By converging the two work streams, treasury and FP&A can leverage the same data-collection pipeline, models and intelligent automation to produce a more reliable range (vs. point) forecasts along with confidence intervals. This way, the end product can better support management decisions about capital raising and allocation.
  4. ESG: ESG will impact all areas of finance, primarily account-to-report (disclosures), treasury (financing) and FP&A (strategic planning, capital allocation, scenario planning and KPIs). FP&A needs to track the company’s progress toward its sustainability goals so they can be clearly communicated to multiple stakeholders, from creditors, to vendors, credit agencies, investors and auditors. Meanwhile, treasury is responsible for green funding and investment.
  5. Business partnering. Leading treasury and FP&A teams are investing greater resources in developing robust partnering capabilities. They are evolving their business acumen, dedicating FTEs, and refining engagement models to provide leadership with a clear view into the financial implications of business decisions, e.g., the impact on P&L, liquidity and financing requirements. The two have a shared interest in becoming a formal part of the business review process and developing common skill set.

The lines that separate different finance processes are blurring, as the finance operating model transitions to a new level of interconnectivity. That applies to FP&A and treasury. Another big area where we see convergence is between FP&A and account-to-report. The big question is what the finance org looks like, once everyone moves in sync.

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