The abrupt stampede to safety in financial markets unleashed by COVID-19 in March 2020 created chaos and concern for investors, financial institutions and regulators. And it put extra scrutiny on the ability of digital solutions, systems and tools that underpin global trading, execution and settlement to serve and satisfy millions of financial professionals trying to do their jobs from home.
One high-growth tech treasurer shares the multiple ingredients he uses to cook up a cash level that hits the spot.
Every corporate treasurer needs to have a point of view about the level of cash their company should keep on hand. Too much and activist investors may begin targeting the company’s stock. But wind up with too little to weather an emergency and the treasurer could be looking for a new job.
Members of NeuGroup for Growth-Tech Treasurers tackled this question at a recent meeting, including some discussion of simple rules of thumb, like having the cash equivalent of three months to a year of forecasted operating expenses; or holding cash equal to a small percentage of the company’s market capitalization.
One high-growth tech treasurer shares the multiple ingredients he uses to cook up a cash level that hits the spot.
Every corporate treasurer needs to have a point of view about the level of cash their company should keep on hand. Too much and activist investors may begin targeting the company’s stock. But wind up with too little to weather an emergency and the treasurer could be looking for a new job.
Members of NeuGroup for Growth-Tech Treasurers tackled this question at a recent meeting, including some discussion of simple rules of thumb, like having the cash equivalent of three months to a year of forecasted operating expenses; or holding cash equal to a small percentage of the company’s market capitalization.
But in the end, the group consensus was that there is no one formula that can be applied across the board because companies and their industries are too different.
Luckily, though, the presentation of one corporate treasurer provided a basic “recipe” that can be applied to help determine the appropriate minimum cash level for a company’s specific circumstances—regardless of size or industry.
The cash level cookbook. The recipe has four main ingredients:
Liquidity considerations. These encompass a company’s cash conversion cycle, working capital and operating expenses, including estimates for seasonality and growth prospects.
Next are the company’s business profile, especially its net margins and top line growth prospects, followed by its financial profile, including commitments to stakeholders.
Carefully consider financial policies, a company’s preferred credit rating and its policies on leverage, dividends and share repurchases.
Making a cold-blooded analysis of access to funding is critical, as financial flexibility increases with credit quality. Finally, company strategy is important. A serial acquirer must always have ample cash and financing available, as do companies that can be subject to high levels of business volatility.
The market’s key liquidity metrics and indicators. Among the many used by market analysts, the key ones include cash to market capitalization; cash to revenue; liquidity ratios such as cash to debt, current ratio, quick ratio, and acid ratio; the cash conversion cycle, which is the days inventory outstanding plus days sales outstanding minus the days payables outstanding.
From an accounting perspective, these metrics and indicators are snapshots in time, historical facts. But it is also important to agree on a range that these might achieve in the future based on business successes, failures, and external events.
Peer group analysis. This is an extremely useful process because it can engender a stimulating discussion every time a company in the peer group strays far above or below the average for each of the liquidity metrics and indicators.
It is also part of an essential feedback loop, as observations about what peers are doing can be factored back into financial policies
A subjective review of the results by treasury and the executive management team. This final ingredient is crucial to having the target levels endorsed and turned into policy.
After that, periodic reviews can help refine and update the policy, allowing everyone in management to sleep soundly, knowing the company has sufficient access to cash to withstand any shocks that appear.
Defining cash. Finally, treasury and management must agree on the definition of “cash.” This group was unanimous in choosing to include cash and highly liquid securities in the basic definition, with other sources of liquidity (such as committed term bank facilities) to be added later in the process, if warranted.
Also, most members agreed that stress testing can be done at every stage of the process, but that it is probably most valuable when done at the end, after the peer group analysis and during the management review.
Hear Medtronic FX risk manager Tim Husnik explain why grit is an essential quality.
Medtronic senior treasury director Tim Husnik is proud that everyone on the FX risk management team he leads innovates, solves problems, experiments, creates and builds. He says that’s a big change from the days when treasury was viewed as a tactical team, rather than the strategic partner it is today.
In the video interview below, he says that to find talent with the right stuff, he looks for candidates with “grit”—which he defines as passion, perseverance and resilience, among other traits. He wants people who can adapt and find innovative solutions to confront the unrelenting challenges treasury teams face.
Mr. Husnik shares some of the questions he asks to find people who will fit a team of practitioners selected for their grit rather than just education and experience. One of them: “If you weren’t in finance, what career would you want to be doing?”
Watch the full interview to hear Mr. Husnik’s entertaining answer to that question.
Hear Medtronic FX risk manager Tim Husnik explain why grit is an essential quality.
Medtronic senior treasury director Tim Husnik is proud that everyone on the FX risk management team he leads innovates, solves problems, experiments, creates and builds. He says that’s a big change from the days when treasury was viewed as a tactical team, rather than the strategic partner it is today.
In the video interview below, he says that to find talent with the right stuff, he looks for candidates with “grit”—which he defines as passion, perseverance and resilience, among other traits. He wants people who can adapt and find innovative solutions to confront the unrelenting challenges treasury teams face.
Mr. Husnik shares some of the questions he asks to find people who will fit a team of practitioners selected for their grit rather than just education and experience. One of them: “If you weren’t in finance, what career would you want to be doing?”
Watch the full interview to hear Mr. Husnik’s entertaining answer to that question.
How a mega-cap tech company’s treasury is using its dedicated fintech team to push transformation.
Treasury teams at large, multinational companies committed to creating a cohesive, global road map for digital transformation, automation and straight-through processing should consider lobbying the C-suite for a dedicated technology team that sits within treasury.
That takeaway emerged at the fall meeting of NeuGroup for Mega-Cap Treasurers during a session titled “Fintech as a Powerful Force for Treasury” featuring the experience of one NeuGroup member company.
How a mega-cap tech company’s treasury is using its dedicated fintech team to push transformation.
Treasury teams at large, multinational companies committed to creating a cohesive, global road map for digital transformation, automation and straight-through processing should consider lobbying the C-suite for a dedicated technology team that sits within treasury.
That takeaway emerged at the fall meeting of NeuGroup for Mega-Cap Treasurers during a session titled “Fintech as a Powerful Force for Treasury” featuring the experience of one NeuGroup member company.
“I wanted to share the journey of what it’s like to have a fintech built into your organization,” the treasurer who won approval from the company’s senior leadership to create a treasury tech team about two years ago said.
The assistant treasurer (AT) who leads the 30-member fintech team joined the session and said that while it’s still a start-up, “We’re already seeing ROI from an FTE efficiency perspective that justifies the investment.”
But the benefits of a dedicated fintech team and the automation of manual processes go beyond saving time and cutting costs. “It’s not just capacity that you’re creating; it’s controllership that you’re raising the bar on. It’s the employee and job satisfaction,” he said.
On the question of building technology or buying solutions from third parties—”build vs. buy”—the AT said, “I actually look at it as build and buy. I don’t see them as always mutually exclusive.”
Motivation for dedicated fintech. The treasurer told peers that although the tech company already had a corporate fintech group, treasury found it difficult to get its proposed initiatives completed. The AT added that “having accountability and ownership embedded in the business was a big priority” of establishing a fintech within treasury.
The AT’s presentation detailed many data-driven reasons treasury wanted to build its own fintech, starting with the legacy treasury management system (TMS) in use for about seven years. It had technical issues involving performance, capability, support, adoption and “massive core data issues,” he said.
One treasury team member in an overseas office didn’t use the TMS because she didn’t trust the data and therefore continued to use banking portals for cash positioning and payments, the AT said. “So there were some inconsistencies in terms of global processes,” he added.
There were too many independent, uncoordinated decisions on buying technology by multiple groups within treasury, including cash management, trading and investments, middle office and risk management.
“There needs to be a cohesive strategy around how all these systems work together and how they talk to each other and you can’t have straight-through processing if you don’t do that,” the AT said.
The company’s high growth rate and new initiatives within treasury to keep pace with expansion necessitated a coordinated approach to technology, the AT said. Some of the numbers used to make the case:
Thousands of bank accounts at dozens of banks; more than 1,500 banking access requests a month; more than 50% growth in insurance claims; a doubling of FX trades, topping $50 billion this year.
New initiatives include an in-house bank, regional treasury centers and a push to digitize and automate captive insurance programs.
“Controllership is another big item here,” the AT said. He cited too many journal entries that are not automated as just one example of where compliance will be improved by employing technology that removes risks presented by manual processes and the use of banking portals, among others.
Start with a road map and people. The first steps included creating a needs assessment and a road map. The member brought in PwC to help examine every third-party technology and all the manual processes used in treasury. The goal was figuring out “what are the big items we’re going to tackle and how are we going to tackle them?” the AT said.
The review established that a multiyear reimplementation of the existing TMS or implementation of a new one needed to be combined with filling in gaps with a data lake, emerging technology like RPA and building proprietary software for a treasury request system, among other steps.
Hiring is a major undertaking when building a fintech team and the AT said he always starts with product management. “With a new organization, investing in product management was a priority—like Marines on the beachhead,” he said, describing the need for people who can translate business process pain points experienced by treasury customers into a technical road map.
The fintech employs application engineers who understand treasury workstations and can configure and troubleshoot. “We’re trying to bring as many subject matter experts in-house as possible,” the AT said. Recruiting people who know both treasury and tech isn’t easy. “It’s almost like a unicorn,” he said.
The team includes technical program managers who understand how interfaces work and the dataflows between multiple systems via APIs and other technology.
Other positions include software development engineers and business intelligence engineers (BIEs). The BIEs use programs including Tableau, which sits on top of the company’s data lake. They’re working closely with the cash team to automate a weekly cash report, the AT said, among other projects.
The fintech team now reports KPIs to its customers in treasury, including the percentage of processes that are straight-through processing, payment failure rates and user adoptions, among other metrics.
Build and buy. To illustrate his point that “it’s not a binary world of build or buy, it’s not either or—sometimes it’s an ‘and’,” the AT first gave an example of the fintech team building its own tool to solve a problem—a treasury request system (TRS) that started as an automated FX trade request system and will expand to other uses including requests to open bank accounts.
He then described cases where the company decided to pay for third-party solutions—a new TMS and risk management software. His advice for other mega-caps: use your buying power to get a seat at the table and influence the vendor’s product road map.
The decision to build or buy is both a business judgment call and one informed by a framework that incorporates cost, the time to hire and the time to build it yourself, among other factors, he said. It starts with the customer who has the pain point and works backwards to determine how long it will take to implement a solution and which approach will be faster.
That said, the company’s preference is build, one reason the fintech is building its own bank fee analysis tool rather than rely on the module from a TMS vendor. “This is part of the framework,” the AT said. “We go through and we’re looking at does it make sense to buy bank fee analysis, and it really isn’t that complicated [to build].”
When the company decides to buy a third-party solution, it does so with the idea of learning how it might build the tool in the future.
A slide in the presentation read: “We recognize that we can’t build our way out of every problem. When we do ‘buy,’ we still want to employ a BUILD approach (BUy, Implement, Learn, Develop).”
The AT said, “It’s complex, it takes time, but when we do approach a buy, it’s doing so with a strategic lens of learning and then asking ourselves what can we develop ourselves.”
The company’s TRS road map includes adding letters of credit and inner-company funding to its TRS system, among other items. As that system scales up, the AT said, “It’s going to start cannibalizing what we’re doing from a treasury workstation perspective. And eventually our vision is to have multiple treasury workstation capabilities built in-house. But that’s more of a longer-term play.”
With supply chains still in flux and Delta not quite in the rearview, FP&A teams need to shine a brighter light on future developments.
The pandemic rendered most corporate budgets and forecasts obsolete, and FP&A had to quickly step in to provide some visibility into future performance. According to peer group leader Brian Kalish, the Covid-19 pandemic was like “a bank of fog rapidly and unexpectedly engulfing a ship at sea.” Teams must now find new ways to pilot the ship to a safe port.
With supply chains still in flux and Delta not quite in the rearview, FP&A teams need to shine a brighter light on future developments.
The pandemic rendered most corporate budgets and forecasts obsolete, and FP&A had to quickly step in to provide some visibility into future performance. According to peer group leader Brian Kalish, the Covid-19 pandemic was like “a bank of fog rapidly and unexpectedly engulfing a ship at sea.” Teams must now find new ways to pilot the ship to a safe port.
Haze of uncertainty. At a recent meeting of NeuGroup for FP&A leaders, members agreed that although accuracy has become more difficult in the last 18 months, they can still help their companies traverse the obstacles that stand between them and the ability to thrive. According to the head of FP&A at a global health care conglomerate: “There are more unknowns than ever before.”
“Since both the rate and magnitude of change are increasing, the ability to drill down into our data and mine for those nuggets of information to incorporate into our forecasts has never been at a higher premium,” he said.
Another member agreed, responding that at his company he has “to adjust quickly and be able to learn new insights about our business on a weekly, if not daily, basis.”
Mapping out routes. Some members said the key for forecasting success in what one called the “new new normal” is not producing an accurate single-point forecast, but a range of possible outcomes.
“We create a worst-case, best-case and a mid-case scenario,” one member said. “We just tested the hell out of everybody, from the sales team to the strategic team, to see every kind of range and the assumptions behind the range. It was pretty difficult, but worthwhile.”
Because of recent supply chain disruptions, one FP&A head said the focus should now be on integrating factors driving the business into the forecast. “Everything is now really hard to predict,” he said. “Some of the assumptions we have to make now are ones that we wouldn’t have touched for 10 years.
“You try to model your drivers, but what we found was those drivers were not predictive. It’s really been a challenging environment to try to scenario plan around things that are inconsistent and not within historical norms.”
“You have to balance your strategic, long-term view with understanding what key assumptions are driving the business now,” another offered. At his company, FP&A identified 10 “high-level knobs” that his team can adjust that impact the forecast. “We started iterating more often in every scenario, comparing against different variables.”
Riding the waves. When the FP&A group last met in June, a number of members said they believed the disruptions in the global supply chain and the increased rate of inflation would be short-lived.
It turned out that wasn’t the case. Corporates are now having to build out forecasts incorporating these factors for a significantly longer horizon, since businesses often don’t have the luxury of waiting for months to make important decisions.
Looking ahead. As the pandemic and its fallout forced the hand of FP&A teams across the globe to accelerate their use of new tools and new strategies, a number of members see a positive impact moving forward.
“Have courage,” one member said. “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.”
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: “Does anyone use efficient frontier in the balance sheet hedging program, i.e., consider the correlations between the currency pairs to determine the hedge ratio? I would like to learn how that works in practice.”Peer answer 1: “We do an efficient frontier light, I would say. We have different hedge ratios based on a cost per reduction of volatility metric. This is currency-by-currency, no correlation analysis.”
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: “Does anyone use efficient frontier in the balance sheet hedging program, i.e., consider the correlations between the currency pairs to determine the hedge ratio? I would like to learn how that works in practice.”
Peer answer 1: “We do an efficient frontier light, I would say. We have different hedge ratios based on a cost per reduction of volatility metric. This is currency-by-currency, no correlation analysis.”
Member follow-up: “That’s a good point, considering the cost vs. volatility. How do you determine the threshold (or hedge target) with this metric?”
Peer response: “Our thresholds were judgmental and will generally arrive at an overall target of hedging >85% of exposure. We looked for some inflection points at the time to determine the thresholds. > -25bps per vol is hedged 100%, -25 to -50 is 75%, -50 to -100 is 50%.
“We run this each quarter, but if a currency changes target, we will wait a quarter to see if the same signal is still there before changing. This is a starting point and we may make judgmental adjustments from there. Admittedly not highly sophisticated, but it’s easy to administer and has a VaR-ish approach.”
Peer answer 2: “We also look at a ratio of the points paid/received divided by the VaR reduction, currency by currency.
“We do not have a set threshold; instead we look at this information along with other ones (expected trend in the exposure, etc.) to decide whether or not we should hedge a currency, which is a decision that we make for the long term.”
Note: The member spoke to another peer whose company uses an efficient frontier based on its currency exposures generated by Chatham Financial.
“They use that as a base, but adjust based on their judgment to determine the optimal hedge plan,” the member said. “They managed to reduce the number of hedged currencies from more than a dozen to ~4, by hedging the currencies with the greatest exposure risks.”
Insights and lessons from two ATs who confronted challenges including culture and tight deadlines.
Low interest rates and plenty of cash on their balance sheets suggest large multinational companies will continue growing through M&A, challenging even experienced assistant treasurers (ATs) who tend to handle many finance-related integration issues.
Two ATs of companies at the tail end of mergers each recounted at a recent meeting the long list of projects they faced to integrate elements of the merging businesses, including treasury management systems (TMSs), funding sources, investment assets, and derivative and FX exposures.
Insights and lessons from two ATs who confronted challenges including culture and tight deadlines.
Low interest rates and plenty of cash on their balance sheets suggest large multinational companies will continue growing through M&A, challenging even experienced assistant treasurers (ATs) who tend to handle many finance-related integration issues.
Two ATs of companies at the tail end of mergers each recounted at a recent meeting the long list of projects they faced to integrate elements of the merging businesses, including treasury management systems (TMSs), funding sources, investment assets, and derivative and FX exposures.
ATs can lay the groundwork in some instances to facilitate such integrations in anticipation of future mergers, but the ATs presenting at the meeting noted the difficult-to-foresee hurdles that exacerbated the challenges.
Culture clash. In one merger, the acquiring company’s risk-averse culture contrasted sharply with the acquired firm’s lean, risk-taking, entrepreneurial approach. The acquirer’s resistance to change meant little review took place of which overlapping elements would be best to retain.
On day one, the acquired firm’s treasury team had to adopt all the acquirer’s policies and procedures. “We did not look at best-in-class,” the member said.
The few acquiree’s parts that were adopted by the merged company, such as the foreign exchange technology and the money market provider, took months to get approved and implemented.
“Never underestimate the power of different cultures,” the AT said. A peer echoed the AT’s culture insight, noting the contrast between his company’s “dictatorial” and centralized approach to the back office and a recent acquisition’s culture that gave more local autonomy.
Bank benefits. One bright spot: The acquiring company’s bank group included all of the acquiree’s banks, except for one, which it added to a new facility. From the perspective of overlapping banking relationships between the two companies the AT said the merger was a “marriage made in heaven.”
In many cases the companies were covered by the same bank teams, and when they weren’t the treasurer requested those relationship bankers be added to the account.
“So it was essentially seamless from a bank perspective,” the treasurer said.
Shotgun wedding. The other presenting AT’s company had to close a cross-border merger within literally weeks, due to regulations in the acquired company’s country, placing a significant burden on treasury.
The AT noted that most acquisitions provide teams on both sides with a “nice getting to know each other period” to accomplish significant planning before the deal closes.
“But we weren’t able to speak to them, get any data, or do any of the really hardcore due diligence, besides what was publicly available,” the AT said.
Besides some quick changes, such as replacing the acquired company’s revolving credit facility with intercompany funding, many functions remain separate, such as their TMSs and enterprise resource planning (ERP) systems.
“One thing we did move forward with was notional pooling,” which neither company had in place, the AT said, adding that its rollout is still in progress but so far has provided “significant visibility and access to cash stored in pockets around the world.”
Lessons learned. NeuGroup’s Scott Flieger asked whether the ATs would have done things differently in hindsight. The AT who highlighted cultural differences said many of the acquired company’s treasury team had left; that might have been different if the acquirer made more effort to assess how both companies did things and then adopted the best of each.
Despite the short deadline to close the other merger, certain integration decisions probably could have been more deliberate, the AT said, so policy and accounting issues the treasury team now faces in areas such as the intercompany-funding structure may have been less onerous.
“Looking back that’s something to consider a lot more closely,” the member said.
How one member uses Cashforce to save time and money on FX trades—and helped create an automated hedging process.
One assistant treasurer at a recent NeuGroup virtual interactive session said that her primary project for 2021 is “to make treasury as no-touch as possible.” This is a common theme for treasurers recently, though it’s not always clear where to start. Her first step was to seek potential connections in existing processes and platforms—which led to an overhauled and streamlined process for foreign exchange hedging.
The member already was using Cashforce, a fintech that allows deeper analysis of cash flow, to assist in cash flow forecasting, and saw potential in connecting it to Citibank’s CitiFX Pulse platform through the company’s TMS.
How one member uses Cashforce to save time and money on FX trades—and helped create an automated hedging process.
One assistant treasurer at a recent NeuGroup virtual interactive session said that her primary project for 2021 is “to make treasury as no-touch as possible.” This is a common theme for treasurers recently, though it’s not always clear where to start. Her first step was to seek potential connections in existing processes and platforms—which led to an overhauled and streamlined process for foreign exchange hedging.
The member already was using Cashforce, a fintech that allows deeper analysis of cash flow, to assist in cash flow forecasting, and saw potential in connecting it to Citibank’s CitiFX Pulse platform through the company’s TMS.
Through collaboration with Cashforce, Citi and her TMS, she was essentially able to turn the company’s hedging policy into an algorithm that reads the forecast and will potentially execute or propose trades all on its own.
From forecasts to forex. The member said this is only possible because Cashforce can forecast at a high level of granularity. The AT said she was “really lucky” that the tools work together so well.
“The forecast at that level of detail is a forecast in document currency,” she said. “And because I can have forecasting at nearly an invoice level, I know what that currency is going to be.”
Through the forecast, she said, the company is able to see what its FX position is going to be. “Then if I layer over what hedge I might already have in place, it will be able to tell me what are my gaps,” she said.
“The idea is to send it out so that we could auto-trade to fill the gaps below a certain threshold, let’s say 100 grand or less, and review above that just to check the data before we trade.”
A closed loop. Nicolas Christiaen, Cashforce’s CEO, said that, before this project, the member’s process was “very disconnected,” but all it took was connecting the dots.
“On the data input side, the ERP, TMS, P&L and bank statements are now put through [Cashforce’s] transformation layer, which results in a cash flow forecast,” he said. “As is very specific in this case, it’s a forecast by currency, by month.”
Currently, the company then uploads this forecast back into its TMS for review, and manually executes FX trades based on the company’s hedging policy.
“When these hedges are executed, the hedge amounts will pass back into Cashforce via the TMS, closing the loop,” Mr. Christiaen said.
A step further. With the proposed system that the member has designed with Citi, the company could include its hedging policies as a rules-based program in CitiFX Pulse that can read this forecast.
It would then “put in place the instruments used for the hedges for the thresholds that need to be taken into account,” Mr. Christiaen said. “Which ultimately results in a proposal.”
The chart below demonstrates the vision: As the data feeds into Cashforce, which outputs a forecast, that forecast is reviewed by the member and uploaded to CitiFX Pulse, which can automatically execute or propose FX hedges.
Constant change. Automation is “an awful lot to bite off,” the member said, and recommends starting slow on this kind of process:
The first step is to test what systems you already have. “A lot of us have pockets in the organization of different systems that can be leveraged. Some of them can’t do what they say they can or aren’t quite what you need—but sometimes you get lucky, as we did.”
She said it is also an opportunity for treasury to work with fintech partners to build exactly what it needs.
Collaboration and clear communication with IT is “super important,” which she learned the hard way. “Despite really clear instructions from Cashforce on the size of server we would need, [IT] gave us a quarter of that size and we now need a bigger size,” the AT said.
She warns that, although automation opportunities are promising, it’s not always smooth sailing. “Be aware of the opportunities, but also be aware of the work: automation is doable but takes an awful lot of time.”
“As the business changes, the structure changes as well,” she said. “The only constant within treasury is change.”
The gradual and partial return to offices in a hybrid work world presents challenges and some potential opportunities.
The hybrid work model many corporates were leaning toward last spring as the vaccine rollout began and infection rates dropped appears to have solidified as companies confronted the curveball sent by the Delta Covid-19 variant.
Some treasury team members are itching to return while others are lobbying to stay home; with staff turnover reaching all-time highs at some companies, it’s critical to find solutions that satisfy as many people as possible.
The gradual and partial return to offices in a hybrid work world presents challenges and some potential opportunities.
The hybrid work model many corporates were leaning toward last spring as the vaccine rollout began and infection rates dropped appears to have solidified as companies confronted the curveball sent by the Delta Covid-19 variant.
Some treasury team members are itching to return while others are lobbying to stay home; with staff turnover reaching all-time highs at some companies, it’s critical to find solutions that satisfy as many people as possible.
As many corporates adapt to hybrid work, some are trying to take advantage of potential opportunities presented by the new reality.
Remote synergies. Noting that the Delta variant resulted in a new set of work-from-home mandates just days before his company’s scheduled return to the office, an industrial company’s assistant treasurer (AT) said his treasury team is considering how to take advantage of remote work.
“We support a captive finance company that’s hundreds of miles away from us, so could we have more cross-sharing of talent and positions between treasury and the captive, without having to move or even source talent from there?” he said.
“So we’re thinking about how that may change in a more virtual environment and about employee engagement in general.”
A peer acknowledged exploring similar synergies with his company’s captive.
Hybrid in flux. For global companies, different jurisdictions have different and changing rules and recommendations around returning to work. One member noted that the company’s team in Singapore had briefly returned to the office full-time, but the recent outbreak has everybody working remotely again.
Echoing ideas discussed last spring, one company’s AT said employees have returned to the office in small groups on a voluntary basis, and a hybrid model involving two or three days in the office is in the works.
But the CEO is “very keen” on no management mandates and leaving the return to employees’ discretion, complicating the setup of in-person meetings and other events.
A peer at a major technology firm said the current expectation is that employees will return to the office just one day a week, so now his team is working on optimizing the remote connection and how to keep employees performing at a high level and maintain team cohesiveness around the world.
“There’s lots of company support for wireless events, just to make sure people are getting away from their desks,” he said.
Vaccination push. Two ATs said their companies anticipate employees returning the office in November, at least to some degree. But while some workers are eager to get back, others prefer working from home, an issue still to be worked through.
One motivator may be requiring everyone to be vaccinated. All US employees of a business services firm must be vaccinated by November 15, said the AT, adding that date was supported by 90% of employees in a recent survey. “That is a part of their longer-term vision of how we get back to the office.”
Staying remote. Only one AT said remote work was the future at her company.
“We’re not going back to the office; most of our employees will remain remote,” she said, adding that has been very well received by employees overall and the treasury team.
Well, maybe not entirely remote. The company will retain some flagship offices to be used to “drive culture and collaboration,” she said, where employees go for project work or career discussions, “maybe a team meeting here or there.”
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: “Does anyone use host-to-host or API for bank connectivity? We are exploring those solutions and would be great to have your input.”
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: “Does anyone use host-to-host or API for bank connectivity? We are exploring those solutions and would be great to have your input.”
Peer answer 1: “We use APIs for bank connectivity, from giving payment instruction to monitoring payment status to getting real-time balance and transaction details.”
Peer answer 2: “We do not use APIs for bank connectivity today. We use host-to-host and we are currently looking into SWIFT.”
Peer answer 3: “I asked my colleagues your question, and they told me the following:
‘We have a few host-to-host solutions, though I would recommend APIs if they are starting from scratch.’”
Deutsche Bank veteran Suman Chaki explains a strategy of developing bank-agnostic solutions with tech partners like TIS while continuing to invest in proprietary tools to solve problems faced by corporate clients.
Deutsche Bank managing director Suman Chaki has an impressive and extensive record of advising corporate clients and helping them solve a variety of cash management challenges. So it’s no surprise that his insights and perspective on what treasury teams at multinational corporations want and need from banks, and how Deutsche Bank is responding with bank-agnostic solutions co-developed with tech partners like TIS—as well as the bank’s own proprietary solutions—are compelling.
Deutsche Bank veteran Suman Chaki explains a strategy of developing bank-agnostic solutions with tech partners like TIS while continuing to invest in proprietary tools to solve problems faced by corporate clients.
Deutsche Bank managing director Suman Chaki has an impressive and extensive record of advising corporate clients and helping them solve a variety of cash management challenges. So it’s no surprise that his insights and perspective on what treasury teams at multinational corporations want and need from banks, and how Deutsche Bank is responding with bank-agnostic solutions co-developed with tech partners like TIS—as well as the bank’s own proprietary solutions—are compelling.
Mr. Chaki’s views are informed by deep experience in corporate banking at Deutsche Bank, where he has worked since the beginning of his career. He joined the bank in 1997, straight out of business school in India, and helped build what is now one of Deutsche Bank’s strongest cash management franchises globally. (Mr. Chaki studied electrical engineering as an undergraduate and worked as an engineer before deciding an MBA would open new doors.) Today, he’s global head of cash management structuring—an advisory function—and head of cash management sales in America.
His resume includes a decade of running various Deutsche Bank units in the Asia-Pacific region from the bank’s Singapore hub, including supply chain finance, working capital advisory and cash management. In 2020, he left Asia and moved to New York—a boon for US-based multinationals that can now tap Mr. Chaki’s wealth of knowledge about Asian markets where Deutsche Bank is an industry leader. His move exemplifies how Deutsche Bank provides executives with opportunities for professional growth, benefiting the individual and helping the bank retain top talent across the globe.
The two hats Mr. Chaki wears—one tailored to sales, the other designed first and foremost around understanding and solving client problems—allow him to paint a complete and nuanced picture of Deutsche Bank’s commitment to serving corporates on multiple levels. Mr. Chaki sat down recently with NeuGroup Insights for two virtual interviews to explain the cash management strategy. The interview has been edited for space and clarity.
Suman Chaki, Managing Director, Deutsche Bank Global Head of Cash Management Structuring and Americas Head of Cash Management Sales
NeuGroup Insights: Suman, let’s start with Deutsche Bank creating a cash management ‘structuring’ business. What is it and what’s the mission?
Suman Chaki:We set this up two years ago, while I was still in Singapore, as a critical global function—primarily to help our treasurers at large, global, complex multinationals through their transformation journey, the treasury 4.0 transformation. We’ve continued to increase the focus on how we can help their businesses around the world, which is why cash management has become so much more the focus of the corporate bank.
Through this advisory approach, we began hearing our treasurers a bit differently. We are trying to understand and appreciate the treasurer’s challenge a bit deeper rather than—and this is a big difference—immediately starting to think of product.
When I put on my structuring hat, my advisory hat, in front of clients, they are more open to sharing because I generally don’t want to sell them anything. I want to bring to them what we see other corporates doing, how we benchmark vis-à-vis the industry, how we understand what they’re doing, how we can guide them through the transformation process, including technology solutions that can help them.
To do that, we’ve started leveraging our client advisory board more proactively, in a way we haven’t in the past. Now, we often approach client board members on a bilateral basis and I’m very impressed with the way dozens of corporate treasury teams have made themselves available to share treasury challenges and current gaps.
That’s one of the reasons we set this team up. It’s not just about positioning Deutsche Bank products and solutions. At the end of this, we really want to approach the treasurer as an advisor who sees us as a trusted partner in the entire treasury transformation journey.
NGI:You say that treasurers are viewing that transformation journey—and the role of banks in it—differently these days, in part because of the pandemic. What do you mean?
SC: I think during the Covid phase, treasurers got a bit of time to sit back and withdraw from the day-to-day, and look at the real challenges that they’re facing in the current world and in the future. Weaknesses and inefficiencies in systems, processes and technology were exposed.
Now they’re looking and asking, ‘Do I have the right platforms and solutions, am I future-proof?’ They have to look internally and figure out what are their pain points. Then they have to figure out, ‘Can a bank help, can a technology company help me with that future-proofing journey over the next five to 10 years? Can I do it internally? Or is it a combination of all of that?’ My view is that’s what a lot of treasury organizations are doing today.
As a result, I have the feeling that that large, traditional and legacy RFP volumes will start coming down because the treasurers will start thinking, ‘Will changing a bank necessarily solve those problems? Or does the problem lie somewhere else?’ Just changing banks without addressing inherent challenges is not going to give them the biggest bang for the buck.
Rather than the standard cash management topics, we will see more inquiries from corporates on topics related to their rapidly evolving business models and the shifting technology landscape. It’s about banks helping clients identify and solve pain points. So banks will continue to be an important partner to corporate treasury organizations. It’s just that the role they play will increasingly look different.
The other thing that’s evolving very fast in my view is that as corporates focus less on traditional banking topics, they will start looking at more bank-neutral and bank-agnostic solutions. They’ll also start looking for ‘best-of-breed’ solutions for specific problem statements that are not necessarily being addressed by their existing ERP or TMS platforms.
NGI:That brings us to Deutsche Bank partnering with TIS, which operates a payment platform, on a bank-agnostic fraud solution—the first part of a broader initiative to develop and distribute multibank services for treasury and finance teams.But you’re doing this while continuing to offer proprietary solutions?
SC: This is going to be a journey, don’t get me wrong. For the foreseeable future, banks will need to continue to invest as much as they are now in their own proprietary offerings. So we will keep investing in proprietary solutions—like our NextGen cash manager, our Digital Service Manager, digitizing all interactions with the bank. So we keep doing that and offering it to our clients.
But as technology at corporate treasuries gets more mature, as companies start investing in their own data lakes and their own platforms, they will want to have more bank-neutral solutions. So in parallel, we want to start looking at offering bank-agnostic, bank-neutral treasury technology solutions co-developed with and offered through tech partners.
We think of it as treasury technology as a service—best-of-breed technology solutions. These products are being built on the back of feedback, of ideas coming from those large, global, multinational complex treasuries we’re talking to in our client advisory board and every day. We want to solve their problems through the co-development of solutions.
This is where the fraud tool with TIS comes in as an example. Clients have a payment fraud problem and they need a solution for it. But they need it across all banks. Also, the various bank account validation solutions available from third parties in different markets around the world do not fully protect against sophisticated vendor payment fraud often referred to as business email compromise, or BEC.
NGI:What payment fraud pain point does the tool address that isn’t already covered by Deutsche Bank’s robust security technology that flags potentially fraudulent payments before they’re made by the bank?
SC: All proprietary bank fraud management solutions have the limitation of working only with client data that’s available in a payment file, without having access to the client’s contextual data. But if we could provide the client a utility, for example, that operates in his environment and checks the file before it’s sent to any bank, then the program could access a lot more rich client data to flag a potential fraudulent transaction—before anything leaves his premises. Additionally, the client would get the benefit of the ‘community effect’ of such a cloud-based solution.
NGI:Can you explain how this community effect and ‘swarm intelligence’ benefit multiple clients, regardless of what bank or systems they use?
SC: Yes—as the software is used by more and more clients, there is a network effect. The more the software gets used—and that’s the benefit of the cloud—the more it learns and the more everyone benefits from the community. effect. That is not possible with a pure banking solution or if the client does it themselves.
NGI:But is this model of partnerships with tech companies like TIS really different from the white labeling that banks have been doing for a long time
SC: We’re saying this is different. We want to offer this product to a client not through Deutsche Bank but through an independent entity in which we may or may not have a direct interest, a third party. It could be a tech company, could be a JV, could be something else. And that product is offered as a pure technology product to the client, not as a banking value-added solution.
It’s not about a product built by a tech company and we’re white labeling it. And it’s not that we’ve made an investment and we are a passive player. Here, we are collaborating to co-build and co-develop a product with a tech company that’s a stand-alone, bootstrap solution that has its own life that we should be able to charge a fee for. It’s something we could have built ourselves. But the reason we’re not building it ourselves is that it is less useful for treasurers to use a bank proprietary product. Then he or she will need it from every other bank.
I don’t think there are too many with that specific approach that have been out there in the market; we want the treasurers to understand why this is different from the traditional white labeling.
NGI: How do the tech companies—that you need to partner with to build bank-agnostic solutions—benefit from collaborating with you, the bank?
SC: For DB, it starts with 150 years of experience and world-class IP. It’s about bringing to the tech partner the bank’s knowledge repository around payment, around liquidity, around regulation; how can we bring that into the platform of the tech company? Since in many cases we are already building solutions for our portal—like in the fraud case—we can also use some of that knowledge to further help build out the bank-agnostic tools, leveraging the value of our expertise.
The idea is finding where the bank’s expertise and the tech company’s programming, agility and flexibility come together to create multibank solutions that address widespread problems for clients. Those are the winning cases.
The bank has to have something so unique that a tech company by itself will not have easily. A simple example is the knowledge of what it takes to open a bank account in a rapidly evolving global market: What it takes to update signatories, nobody will ever know as well as a bank will know.
NGI:Speaking of that, do you expect bank account management could be an area of possible bank-agnostic treasury technology solutions?
SC: In our journey to create bank-agnostic or multibank treasury technology as a solution, bank account management is another use case, where there are significant challenges corporates face, for example, when they have to make an alteration or modification around signatories, where what the bank needs varies from market to market, bank to bank.
Clients are asking, ‘Can we have a database of what we need in markets where we are present, where can we update signatory information based on our knowledge into that system?’ None of the bank account systems have that level of intelligence today, based on client feedback. If I need to do a signatory change in Korea, what exactly do I need to do if it is with bank A or bank B and in market C?
When you talk to treasurers, which is what I do in my day job in my treasury advisory role, I find the more complex and global and challenging the client’s business and operations get, the less the standard functionalities of a TMS or ERP are able to meet their unique needs. Many corporates say they want a best-of-breed solution because their needs are unique, and implementation and extraction of data are difficult. That’s what we’re addressing.
NGI: Any other bank-neutral products in the works that you can tell us about?
SC: We’re in the advanced stages of working on a proof of concept, in collaboration with technology partners, for solutions on data-driven treasury for large, global and complex multinational corporates, focusing initially on tools like intraday liquidity and cash flow forecasting. There are many companies for whom an active management of global treasury liquidity positions, across multiple bank providers, is essential. Not just cash but also payments, collections, vis-à-vis, ‘How am I performing [versus] what was forecasted on a real-time basis?’ If that’s what is important for you, that’s what we’re trying to work on.
NGI:Thanks so much, Suman. Please keep us posted on these bank-neutral solutions for treasurers.
SC: Thank you very much. We will—this is the beginning of many more to come. You will see more.
Tech treasurers in Asia discuss ESG priorities with Goldman Sachs Asset Management.
Members of NeuGroup for Asia Tech Treasurers heard insights on treasury’s growing role in the accelerating efforts of corporates to promote sustainability through environmental, social and governance (ESG) initiatives at a recent meeting sponsored by Goldman Sachs Asset Management (GSAM).
Among the key takeaways: Figuring out what matters and what doesn’t to investors and other stakeholders diving into the ESG pool is critical for treasurers facing pressure to innovate and manage complex projects.
Tech treasurers in Asia discuss ESG priorities with Goldman Sachs Asset Management.
Members of NeuGroup for Asia Tech Treasurers heard insights on treasury’s growing role in the accelerating efforts of corporates to promote sustainability through environmental, social and governance (ESG) initiatives at a recent meeting sponsored by Goldman Sachs Asset Management (GSAM).
Among the key takeaways: Figuring out what matters and what doesn’t to investors and other stakeholders diving into the ESG pool is critical for treasurers facing pressure to innovate and manage complex projects.
In addition to examining where ESG fits in treasury’s investment and issuance responsibilities, the meeting featured panel discussions between members and subject matter experts on the rise of digital assets and the search for yield by investment managers.
You can see a video synopsis of the meeting’s takeaways by clicking here. Below are takeaways from the ESG session. Please watch for takeaways from other sessions in future posts.
Make treasury an ESG center of excellence. In response to questions from Queenie Siu, head of Greater China liquidity solutions sales at GSAM, John Goldstein, head of sustainable finance at Goldman, said that because ESG “is important and it’s often about money, treasurers often become a center of excellence within the firm.”
To do that, in addition to figuring out ESG’s role in cash management and investment as well as capital markets issuance, treasurers are increasingly playing a strategic role in helping C-suite executives explain to investors where ESG fits in the company’s story, Mr. Goldstein said.
“You could see it as an opportunity for treasurers to be central to that dialog or a growing requirement,” he said. “Treasurers have really started to better appreciate the full range of tools they have to express the ESG views, advance the ESG mission, tell the ESG story within their organizations.”
Figure out what matters. The opportunities ESG presents to treasury teams to help shape their companies’ sustainability narrative come with some challenging responsibilities, Mr. Goldstein noted. He recalled talking to one treasurer who had been asked in the last year for more than two thousand different ESG data points.
Amid all the requests for data, metrics and other reporting, “It’s easy to get lost and figure out what matters and what doesn’t,” he said. “It’s almost as important to know what doesn’t matter so as to not waste time so you can focus on the stuff that does.”
To assist treasury teams make those distinctions and focus their efforts, Goldman spends lots of time gathering intelligence by talking to investors, helping treasurers stay “close to the market” and “make good decisions based on new, fresh, clear understanding.”
Treasurers are learning fast that, like other areas of responsibility, ESG issuance and investing involves both innovation and project management.
“Innovation is hard; project management is hard,” Mr. Goldstein said. “As you get more things to do and more innovation,” it becomes more important for treasury to grapple with “how you keep up with it all.”
Investments or issuance first? Corporates face lots of options as they survey the ESG landscape, starting with whether to focus first on investments or issuance. This prompted one NeuGroup member to ask, “How can we most effectively evaluate the priorities among these ESG-related activities?”
Mr. Goldstein’s answer: “Starting with investing is often easier, it takes less time, you can lean much more heavily on outsourcing to other people, so that has real advantages.”
Investing with ESG principles allows treasury to learn “what metrics are other people using” and to better understand the data, he added. “For some people it’s learning, for some people they’re not ready to issue.”
That said, if senior leadership is intent on telling the company’s ESG story to the market, “that may mean it’s time to get working on an issuance framework,” something that takes plenty of time and planning, he said.
Asked by the member about the trade-offs regarding yield and risk in investing with an ESG lens, Mr. Goldstein said that in designing portfolios with a client, “We’ll say, ‘If you get this level of carbon reduction, this looks great. If you want to get to this point, you’re changing your universe, it may be hard to get the yield with this duration and credit quality you want.
“There’s not one answer to it. For us, it’s a process. The process is fact-based and analytical. ESG is a field where people spend a lot of time with opinions as opposed to facts. We don’t like to make up our mind until we have the data.”
Partnering with global business services (GBS) helped one treasury team boost cash visibility and achieve consistency.
Companies expanding globally have often left regional affiliates with their own treasury back offices to support the local business, resulting in fragmentation of the treasury function and costly inefficiencies. That takes time away from corporate treasury that could be spent addressing more strategic issues.
“Preaching the gospel of global treasury operations,” the assistant treasurer (AT) of one NeuGroup member company said, required convincing local business leaders that corporate treasury didn’t seek to wrest control.
Partnering with global business services (GBS) helped one treasury team boost cash visibility and achieve consistency.
Companies expanding globally have often left regional affiliates with their own treasury back offices to support the local business, resulting in fragmentation of the treasury function and costly inefficiencies. That takes time away from corporate treasury that could be spent addressing more strategic issues.
“Preaching the gospel of global treasury operations,” the assistant treasurer (AT) of one NeuGroup member company said, required convincing local business leaders that corporate treasury didn’t seek to wrest control.
In the case of cash, he told those leaders, “We’re not here to take it, but to make sure you have the cash you need, when you need it.”
Reaching out to GBS. Treasury’s first practical step to reduce the fragmentation of operations was to reach out to global business services (GBS) centers for Asia-Pacific (APAC); Europe, Middle East and Africa (EMEA); and Latin and North America.
Corporate treasury explained that fragmented treasury options made it difficult for the company to locate and measure cash in a timely manner, and to track bank accounts and their signatories.
Among the questions the AT asked: “Can we partner with you and build out regional treasury operations centers, to bring that work to those centers and bring consistency to fundamentals such as opening and closing bank accounts?”
Dividing duties. Key to the argument was clarifying that corporate treasury would control the strategy and the health of the processes, including the company’s in-house bank and global treasury operations, while the lower-cost GBS centers would retain responsibility for operational execution.
The approach to implementing the initiative in each region differed, since each GBS center was at a different stage of development.
The regional treasury office (RTO) teams now report administratively to the GBS operations leader, while taking much of their technical direction from corporate treasury.
The exception is EMEA’s GBS, which houses the in-house bank, where employees also administratively report directly to corporate treasury, “because of the complexities of the work and the close linkage they have with executing treasury strategies,” the AT said.
The benefits. Consistency is first and foremost, the AT said, adding that while the approaches to centralizing treasury activities in the GBS centers may have varied, the processes and standards they apply across the globe are now consistent.
That should reduce “hiccups” stemming from local treasury offices entering into hedges without fully understanding those instruments, something that in the past resulted in unnecessary costs and risk, a comfort to him and the treasurer, the AT said.
With its regional treasury centers now all using the same treasury management system (TMS), corporate treasury has 90% visibility into its cash, enabling balance sheet cash to be slashed in half, a boon for a net-debtor company from a credit perspective.
Centralizing treasury around those centers has expanded the use of a tool to uncover unnecessary or excessive bank fees. “That’s enabled us to get more competitive pricing from our banks quickly,” the AT said.
The Latin American treasury team center often spent a majority of its time reconciling prior-day transactions, the AT said, and now, with access to the TMS, “That team can deploy their intellectual capacity in other areas that produce savings for the company.”
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: “Do other companies review their FX hedge strategy with functions/leadership outside of treasury?”
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: “Do other companies review their FX hedge strategy with functions/leadership outside of treasury?
“We review FX impact results (underlying + hedge) monthly with the CFO, but we don’t discuss our hedge strategy, which has raised questions on governance.
“If you do review your hedge strategy (hedge ratios, currencies, execution approach, instrument usage, etc.) with other functions/leadership outside of treasury, how frequently is that done, with whom, and to the extent you can share, what kind of detail do you go into?
“Also, do you need approval outside of treasury to change your hedging approach?”
Peer answer 1: “We review our hedge strategies and update them quarterly at a hedge committee meeting.
“The hedge committee includes the CFO, corporate controller, corporate business operations leader and regional/business unit finance leaders.
“We also do a deep dive annual FX hedge review with each regional/business unit finance team.”
Peer answer 2: “We are doing the same. We have a finance risk committee meeting on a quarterly basis. For any changes in FX strategy, we get the committee’s approval or review.
“Finance committee members are the leaders of tax, FP&A, accounting, treasury and corporate CFO.
“We also review the committee members once in a while to make sure we include the right stakeholders in the meeting.”
Peer answer 3: “We recently put in place a quarterly FX committee meeting reviewing hedge results.
“This is in addition to the CFO/board committee report/meeting. The FX committee members are from accounting, FP&A, tax, etc.
“We review hedging strategies, but the unofficial goal of the committee is raising FX awareness and getting alignment with teams that may impact your hedge results.”
Anne Friberg, NeuGroup senior director: “In the end, it all comes down to who owns the results of the FX hedge activities and how that is tied to people’s KPIs and incentives. If all the results are held at the corporate level, there is little reason to involve stakeholders outside of treasury in hedge strategy because treasury owns it.
“If results are allocated in some way to regions or business units (for example, via back-to-back internal hedges or because treasury hedges on their behalf), then they will feel the pain or gain (either from forecast inaccuracy or hedge decisions, or both) and will want to have a say in how exposures are hedged.
“Hedge accounting changes a few years ago also moved the results from other income & expense (‘below the line’) to the line item that’s being hedged, which for many is revenue, which is often very integral to compensation/KPI targets.
“If treasury owns the results, its communication with business units is still very important because forecasts that drive the hedge decisions—if inaccurate—can result in over- or under-hedging and undesirable volatility on earnings, for example. Treasury has to educate and create an appreciation for the importance of accuracy to company results overall.”
One treasury team made a winning case that the governance group should own KYC.
Call it reaching the treasury promised land or a dream come true. Whatever you call it, one treasury team’s early-stage success at shifting responsibility for know your customer (KYC) compliance to a corporate governance group generated plenty of buzz and some envy at a recent meeting of NeuGroup for Global Cash and Banking.
“I’m really excited to get out of the KYC business,” the member told his peers during the projects and priorities session of the meeting.
“I would LOVE to know how [he] convinced corporate governance to take over KYC!!” wrote one peer in the Zoom chat.
The member’s response: “Lots and lots of meetings and many examples of where ownership of the data should truly be managed.”
One treasury team made a winning case that the governance group should own KYC.
Call it reaching the treasury promised land or a dream come true. Whatever you call it, one treasury team’s early-stage success at shifting responsibility for know your customer (KYC) compliance to a corporate governance group generated plenty of buzz and some envy at a recent meeting of NeuGroup for Global Cash and Banking.
“I’m really excited to get out of the KYC business,” the member told his peers during the projects and priorities session of the meeting.
“I would LOVE to know how [he] convinced corporate governance to take over KYC!!” wrote one peer in the Zoom chat.
The member’s response: “Lots and lots of meetings and many examples of where ownership of the data should truly be managed.”
Don’t make it about KYC pain. Key to making the case that treasury should not be an owner of KYC, the member told NeuGroup Insights, is to avoid focusing on the burden of KYC and banks’ varying data requests; that pain is not going away anytime soon, he said.
Instead, the member focused on problems in internal KYC processes and the value of shifting ownership to a corporate governance group that sits between tax and legal. That would mean replacing the existing, fragmented approach where treasury was considered the expert for both bank and non-bank KYC requests.
“That’s how we kind of framed a lot of this up: This is not our comparative advantage; it never should be. So, [we were] trying to take more of that back into the groups where it should belong.”
He added, “We should not be responsible for knowing when to disclose our shareholders’ driver’s license and passport or social security numbers. Treasury shouldn’t own that data, in my opinion.”
The power of a diagram. His team put together a diagram for the company’s tax and legal groups showing the complexity of the company’s current system, where at least eight separate groups—including treasury, tax, business legal teams and the investment group—receive KYC requests.
Seven of the groups respond to the requests and five, including treasury, are the primary owners of KYC.
The result, treasury said, is inefficiency as well as inconsistent and potentially inaccurate information flowing to requesters. And there’s no clarity on who owns KYC across the company.
The diagram of the proposed solution gives the corporate governance group responsibility for responding to KYC requests and ownership of the process—improving efficiency, accuracy and consistency.
The point of walking the company’s tax and legal teams through the diagram was to get them “aligned with the value of creating a centralized group, outside of treasury, to manage KYC for the company,” the member said.
Traction and examples. “We started to get traction when we met with some of the heads of our legal and tax groups and they frankly didn’t realize how bad it was out there,” the member said.
“We started giving them more and more examples that we’re not really following a good model, and we may be giving inaccurate information in some cases.”
The key moment: “For us, it came from our head lawyer who said, ‘You guys have to take this and fix it’ to the governance group.”
A company-wide reorganization and centralization process also worked in treasury’s favor, the member said. Following the consolidation of tax and legal teams, “they’re more willing to listen on a [company}-wide scale.”
Another element of treasury’s case for reducing KYC responders to one group is that the multinational corporation is privately held and places great importance on protecting the privacy of its shareholder owners.
Under the approved transition, treasury will serve as an “escalation point” to banks and be responsible for naming account signers.
Be patient, realistic and watchful. The corporate governance group has identified someone to take on a full-time position managing KYC. Treasury will begin training that person in the next couple of months, the member said. He expects training to last about six months.
“Until they are fully up to speed and able to handle these requests without treasury’s involvement, I don’t see our KYC workload decreasing”—something that won’t likely happen until the second quarter of 2022, he said.
Before treasury made its proposal, some on the broader team asked what incentive the corporate governance group would have to respond to KYC requests “as quickly as we do,” the member said. “So we’ll have to continue to build that accountability.”
The member also expects his team will need to keep close watch to ensure treasury’s bank relationships are not adversely impacted as the corporate governance group begins communicating directly with banks—something only treasury has done heretofore.
Treasury has begun discussing the changed KYC process with its top banks and will seek their input on how to make this a successful initiative.
Insights and observations on the intersection of treasury and crypto in a video interview with Medtronic’s Tim Husnik.
Medtronic senior treasury director Tim Husnik loves a challenge. So it’s no surprise that he’s giving lots of thought to what his FX risk management team and other treasury groups will need to do, and how to do it, if Medtronic customers start asking to pay for products with cryptocurrency.
“There will be an intersection with treasury at some point in the future,” he tells NeuGroup’s Antony Michels in the video interview below. “It’s a fascinating world to start thinking about.”
One key topic on his mind is how to hedge cryptocurrency risk. “I’ve spent more time thinking about that than I care to admit,” Mr. Husnik says in the interview.
He also admits that he’s not eager to be the “first one to figure out the solution” to this particular challenge—one reason he says it’s critical to attend trade conferences and—our favorite part—participate in peer groups.
“It’s really important to stay connected to your industry peers, more so than the banks, because right now a lot of banks can’t provide a customer a cryptocurrency transaction.”
Please listen to all of Mr. Husnik’s insights in the full interview below:
Insights and observations on the intersection of treasury and crypto in a video interview with Medtronic’s Tim Husnik.
Medtronic senior treasury director Tim Husnik loves a challenge. So it’s no surprise that he’s giving lots of thought to what his FX risk management team and other treasury groups will need to do, and how to do it, if Medtronic customers start asking to pay for products with cryptocurrency.
“There will be an intersection with treasury at some point in the future,” he tells NeuGroup’s Antony Michels in the video interview below. “It’s a fascinating world to start thinking about.”
One key topic on his mind is how to hedge cryptocurrency risk. “I’ve spent more time thinking about that than I care to admit,” Mr. Husnik says in the interview.
He also admits that he’s not eager to be the “first one to figure out the solution” to this particular challenge—one reason he says it’s critical to attend trade conferences and—our favorite part—participate in peer groups.
“It’s really important to stay connected to your industry peers, more so than the banks, because right now a lot of banks can’t provide a customer a cryptocurrency transaction.”
Please listen to all of Mr. Husnik’s insights in the full interview below:
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: “A global banking partner is discontinuing physical cash services in Israel, where our cash needs typically exceed ATM levels.
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: “A global banking partner is discontinuing physical cash services in Israel, where our cash needs typically exceed ATM levels.
“Does anyone have experience obtaining USD and ILS (Israeli new shekel) in country without opening a local bank account?”
Peer answer: “Our global bank partner can offer USD and ILS accounts in the Netherlands, Ireland and the UK, which could be used for deposits or to make cross-border payments (FX wires and cross-currency ACH).”
Member question: “We are exploring other investment vehicles for cash in China. Beyond bank deposits and money market funds, what products do others in the group use?”
Peer answer: “We also invest in structured deposits. There are various types of structured deposits in local market, some of which are principal protected, whose structures fit with our investment policy and offer pretty decent yield.
“While banks were asked to scale bank structured deposit offerings by regulators in 2020, this product category itself is regulation-compliant, and is still a valid investment tool in China market.”
With flexibility in both bank file types and system compatibility, TIS can be the key to a “best-of-breed” approach.
Fernando Tenuta, an assistant treasurer at the staffing solutions provider ManpowerGroup, knew he was in for a steep climb when he was tasked with digitizing treasury and assisting with a cloud-based ERP. But he got a lift in the form of Treasury Intelligence Solutions (TIS), a bank connectivity aggregator whose solutions are specifically designed to make this kind of process simpler.
Before this project, Mr. Tenuta was working off of a spreadsheet for central treasury operations. He was intrigued by what TIS calls a best-of-breed approach, a term that refers to employing a number of top-rated applications built on an architecture of interlocking “microservices” with specific purposes, versus the one-size-fits-all solutions that can often come up short.
With flexibility in both bank file types and system compatibility, TIS can be the key to a “best-of-breed” approach.
Fernando Tenuta, an assistant treasurer at the staffing solutions provider ManpowerGroup, knew he was in for a steep climb when he was tasked with digitizing treasury and assisting with a cloud-based ERP. But he got a lift in the form of Treasury Intelligence Solutions (TIS), a bank connectivity aggregator whose solutions are specifically designed to make this kind of process simpler.
Before this project, Mr. Tenuta was working off of a spreadsheet for central treasury operations. He was intrigued by what TIS calls a best-of-breed approach, a term that refers to employing a number of top-rated applications built on an architecture of interlocking “microservices” with specific purposes, versus the one-size-fits-all solutions that can often come up short.
ManpowerGroup’s process now starts with TIS, which acts as a communicator between the company’s bank accounts and the rest of its systems, which Mr. Tenuta says has “really reduced” the amount of time his team spends dealing with technology.
He and Jonathan Paquette, TIS’ head of customer success, described how TIS helped ManpowerGroup develop this solution at a recent NeuGroup Virtual Interactive Session sponsored by TIS.
TIS and beyond. In the meeting, Mr. Paquette shared how TIS’ SaaS platform works, addressing both the bank connectivity and file formatting complexities that impede many organizations’ initiatives toward automation and straight-through processing.
“We connect with all banking relationships as well by any method of the customer’s choosing, whether that’s APIs or local connectivity protocols like EBICS or even SWIFT,” he said.
As the graphic below shows, TIS sits between a corporate’s various banks and its ERPs (SAP, Oracle, etc.), its TMS and other third-party solutions. This allows for simpler bank account management, analytics and payment processing, among other functions.
A manpower problem. For ManpowerGroup, automated bank connectivity was a primary objective. The company operates in 75 countries and provides work for over 600,000 employees—a sizable operation for a central treasury team with only a handful of members.
Although finance functions such as AP and accounting are managed by regional teams, ManpowerGroup maintains one corporate treasury team in Wisconsin that has global oversight over cash management. On top of this, ManpowerGroup was in the midst of rolling out Oracle Cloud Financials, a cloud-based ERP that required complete system and bank interoperability, as well as a bank rationalization project, which required better visibility of accounts.
Initially, Mr. Tenuta planned out a system like the one below, which would require a central TMS connected to all bank accounts and applications, using a variety of connections and technology. “There is so much complexity of the multiple apps connecting to the banks in different manners,” compared to TIS’ relatively simple architecture, he said.
Plug and play. It wasn’t until Mr. Tenuta’s team worked with industry consultants that it considered seeking an aggregator like TIS to simplify the system instead of relying on a central TMS.
“We sat down and took a hard look at the TMS landscape and the treasury aggregators and really came to the conclusion that it made sense for us to kind of split the two apart,” he said.
“That’s when we sat down and created a cleaner architecture, an aggregator in the middle between the banks and our various systems,” he said. “So now, down the road, if we wanted to change a TMS or one of those other systems, it would be easier.”
A simple solution. Mr. Tenuta said ManpowerGroup is already reaping the benefits of time saved and processes streamlined by TIS.
“Our Oracle team only has to build one XML file, and it’s exported from Oracle and it’s transferred over to TIS,” he said. “From TIS, they’ll translate it into the bank-required format in whatever country we’re in.”
This significantly helped ease the implementation for the company’s IT department: Once they build the initial file, they can transfer it to TIS, which does the rest of the work.
“And then we’ll get data coming back from the banks through TIS and then back into Oracle: prior-day reporting, credit notices, payment file notifications, things of that sort.”
In addition, “TIS enabled smooth connectivity and a full implementation of a TMS, moving from an Excel-only solution,” he said. “TIS account connectivity greatly increased global cash visibility.”
TIS impact. As an unexpected benefit of TIS, Mr. Tenuta has found that the platform provides an agile on-demand source for bank connectivity to address a variety of unforeseen needs.
When government regulation in Singapore changed and required the company to pull an outsourced transactional process back in-house, he was able to quickly implement a solution that accessed existing bank connectivity through the TIS platform.
Moving forward, Mr. Tenuta sees considerable opportunity to standardize legacy connectivity processes put in place by the regional teams by incorporating them into the TIS connectivity hub. The file formatting capabilities of TIS also allow him to easily upgrade the legacy file formats used in these processes to more modern ISO XML standards.
In these ways, Mr. Tenuta has established a solution that will both support future bank and system changes as well as provide immediate solutions to unforeseen bank communication needs.
Finance teams prepare for questions on crypto as corporates plan for ransomware attacks.
Cryptocurrency and ransomware proved popular topics at a recent meeting of NeuGroup for Global Cash and Banking, during both the Projects and Priorities session and in a smaller breakout group.
Some members are being asked how treasury plans to respond if cryptocurrency is needed in the event of a ransomware attack.
Most members said their companies have no current interest in investing in or holding cryptocurrency. A few members work at corporates exploring the potential use of crypto as payment by customers.
Finance teams prepare for questions on crypto as corporates plan for ransomware attacks.
Cryptocurrency and ransomware proved popular topics at a recent meeting of NeuGroup for Global Cash and Banking, during both the Projects and Priorities session and in a smaller breakout group.
Some members are being asked how treasury plans to respond if cryptocurrency is needed in the event of a ransomware attack.
Most members said their companies have no current interest in investing in or holding cryptocurrency. A few members work at corporates exploring the potential use of crypto as payment by customers.
Preparing a handbook. One member said someone on her team is developing a cryptocurrency handbook that will include use cases and address “when and why and if” the company would use crypto.
Treasury wants to have the information “readily available because we know the questions are going to be coming soon,” she said.
Treasury will share the information with other parts of the business and finance teams to educate people and make them more comfortable with what crypto is and how it’s used—or could be used at the company.
The idea intrigued another member, who said, “I want to hear more on the crypto handbook. This is something we’re starting to contemplate as well. How can we be prepared in case we’re asked or forced to accept [crypto] in the jurisdictions where we operate or sell?”
Ransomware strategies, facilitators. Several members discussed looking into using third-party facilitators that, among other services, help corporates make payments using cryptocurrency following a ransomware attack. “If we have a ransomware attack, what happens?” one member asked.
Arete’s website includes this note: “If it is determined by the [insurance] carrier and breach coach that paying a ransom is the most effective way to resolve the issue, Arete will communicate with the ‘bad actor’ on the client’s behalf to obtain the amount of the ransom demand and negotiate a settlement.”
The general consensus among members: Banks are not interested in playing a role in transactions involving crypto, one reason corporates are turning to facilitators.
One member told NeuGroup Insights, “Certain banks are more willing [than others] to provide contacts to these facilitators. Others are more strict and would point a corporate to the FBI to handle the situation. The FBI would then help in advising how to handle any ransomware payment.”
Within some corporates, the issue of ransomware and cyberattacks involves coordination with insurance and corporate security teams.
Ransom payer beware. One member at the meeting referenced an article previewing sanctions and other actions by the Biden administration to make it harder for hackers to use cryptocurrency to profit from ransomware attacks.
The same week as the global cash and banking meeting, the Treasury Department announced those sanctions and actions.
They include an updated advisory from Treasury’s Office of Foreign Asset Controls (OFAC) on potential sanctions risks for facilitating ransomware payments.
It includes this recommendation: “The U.S. government strongly discourages all private companies and citizens from paying ransom or extortion demands and recommends focusing on strengthening defensive and resilience measures to prevent and protect against ransomware attacks.”
The law firm Bracewell commented, “While the advisory does not change existing law, it signals increased regulatory enforcement and an intent to put companies on notice that they will have an even more complicated risk analysis to conduct when faced with a ransomware attack.”
One member said he finds it “very interesting…how OFAC plays a role in this whole process and may create additional hurdles for corporates to face in paying any ransom in the future.”
As ESG initiatives grow, audit teams work to ensure companies meet their publicized targets.
At recent NeuGroup meetings, internal audit heads discussed taking the first steps at integrating ESG into their audit plans, conducting tests to ensure alignment with public statements on environmental goals.
Though only a handful of members currently have ESG in their audit plan, others recognized the need and are kickstarting the process to get out ahead.
ESG goals “can become a sales pitch,” one member said, adding he is actively monitoring the goals, hoping to stave off the looming threat of ESG litigation.
As ESG initiatives grow, audit teams work to ensure companies meet their publicized targets.
At recent NeuGroup meetings, internal audit heads discussed taking the first steps at integrating ESG into their audit plans, conducting tests to ensure alignment with public statements on environmental goals.
Though only a handful of members currently have ESG in their audit plan, others recognized the need and are kickstarting the process to get out ahead.
ESG goals “can become a sales pitch,” one member said, adding he is actively monitoring the goals, hoping to stave off the looming threat of ESG litigation.
A legal perspective. At a first-half meeting of NeuGroup for Internal Audit Executives, Heather Palmer, a partner who helps lead the global ESG practice at the law firm Sidley Austin, gave members advice on how companies can eliminate potential legal or reputational issues before they happen.
She said that the first way companies can protect themselves in terms of their public claims is to be careful and cautious about what goals are being advertised.
“One of the challenges to publicizing goals is you have to be careful about what goals you’re setting and how you’re vocalizing those goals,” she said. “Do you have a plan to back up how you plan to achieve those goals?”
Ms. Palmer said that lack of consistency in terms of public ESG goals and internal documentation has gotten several companies in trouble so far. “Externally, some are saying they can meet a certain goal, or they have these priorities, but within the company perhaps it’s a different story,” she said.
“A large part of avoiding litigation relates to ensuring consistency across the company and making sure the things that are material are getting disclosed in SEC filings.”
Auditing ESG targets. To ensure the company stays on track, one internal audit member recently completed the corporate’s first audit of its ESG and sustainability reporting process.
“For the first phase, we actually just completed a walk-through of the entire process, understanding where information is coming from and the overall governance of the process,” she said.
For the second phase of the audit, her team conducted more substantive testing focusing on areas in which the CEO had indicated goals during an investor conference.
“The audit started after the team had started pulling together information for the sustainability report, so the goal for next year is to conduct the audit a little earlier in the process so as to not interrupt their consolidation process,” she said. “We are also evaluating how we align this process to our reviews/audit of the proxy statements.”
Future-proof. Another member said she is working with the A4S Academy, a program that supports and trains finance professionals on ESG initiatives, which she said has been helpful in learning what approaches other companies are taking, especially around disclosures.
She is now working with her company’s technical accounting group to take “the next step” into future-proofing their disclosures.
The member said she is expecting an announcement from the SEC toward the end of the year mandating climate and human capital disclosures. “So we’ve already got something going for both of those,” she said. “We’re trying to start early in preparation for next year’s 10k.”
Treasury teams communicating with the board on financial risk need a common language.
NeuGroup’s longstanding enterprise risk management (ERM) group has nearly doubled in size in less than a year, perhaps unsurprising given the relentless unfolding of political, environmental, health and financial risks worldwide, and global companies’ likely exposure to many of them.
Assistant treasurers in a recent meeting compared the roles their treasury departments take within ERM and got insight from the head of ERM at a Fortune 500 technology firm on how to bolster the function.
Treasury teams communicating with the board on financial risk need a common language.
NeuGroup’s longstanding enterprise risk management (ERM) group has nearly doubled in size in less than a year, perhaps unsurprising given the relentless unfolding of political, environmental, health and financial risks worldwide, and global companies’ likely exposure to many of them.
Assistant treasurers in a recent meeting compared the roles their treasury departments take within ERM and got insight from the head of ERM at a Fortune 500 technology firm on how to bolster the function.
The rise of ERM. Ted Howard, who leads the peer group, noted the recent emergence of key risks—ESG, for example—as one of several reasons fueling ERM as a priority for companies.
Another is the insurance market’s currently high premiums, encouraging senior leadership to emphasize more management of risks internally.
In addition, the ERM function’s ability to identify, quantify and qualify the types of risks requiring better control has greatly improved, Mr. Howard said, adding, “And what I keep hearing in our group is people asking, ‘How do you build a risk culture?’”
Treasury leads financial. One AT said ERM was added to her responsibilities a year ago, and the finance pillar—one of several risk pillars in her company’s ERM program—sits squarely in treasury rather than other parts of corporate finance.
The ERM executive presenting to the group said his company has 20 or so functional groups, each with a “risk-champion subject matter expert,” including investor relations, human resources, and all the business units.
“They’ve been trained in decision-making and risk management, and as the likelihood of them achieving their goals improves, the company as a whole benefits.”
The AT of a consumer goods company said ERM sits within treasury, noting the treasurer recently spoke to the audit committee about rising risks and mitigation efforts, and provided a subset session on ERM.
A large manufacturer’s AT added that ERM sits in the audit unit, but “treasury naturally leads initiatives related to finance.”
Where the risk lies. The AT a medical device company said treasury took responsibility of ERM a few years ago, but it has since moved to operations, where risks are deemed more significant.
Patience, communication and pre-mortems. Noting ERM may become one of a treasury leader’s several responsibilities, Mr. Howard asked the ERM executive for advice on where to focus.
For starters, he said, be patient, because adopting ERM is a culture change, and that takes time. Support from the board of directors and the executive team is essential, as is developing a common language to communicate about ERM to them and with those responsible for ERM in other units.
“Without a singular language, it’s hard for the board to understand and compare and make decisions about where to invest,” he said.
Do a “premortem” risk analysis, the executive said. That’s where a team embarking on a project or strategy is asked to assume, hypothetically, that it fails and quickly analyze what risks led to the failure.
This, he said, will typically result in a longer and more objective list of risks than a postmortem analysis, when team members tend to defend the plan they had followed.
Tech tip. An AT asked whether the ERM executive had found software to facilitate the ERM process. Nothing off the shelf that met all his needs, he said.
But his company’s research and development team adapted Atlassian’s Jira project management software to create a web interface that enables employees across the company to input risks.
