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Justin Jones
In FP&A, NeuGroup Viewpoint, Technology

The Challenge of Building Agility Into Finance

How finance organizations can become more resilient amid disruption and demands to accommodate rapid changes in the business landscape.

By Nilly Essaides

Change, of course, is not new. But its speed and velocity have grown exponentially since the start of the pandemic. And its relentlessness is pressuring finance departments to speed up the delivery of data-driven decision-making support to the C-Suite and business leaders. An uncertain economic environment, a cloudy outlook for interest rates and inexorable technological innovation present CFOs and their teams with challenges—as well as the chance to enable a more agile operating model.

How finance organizations can become more resilient amid disruption and demands to accommodate rapid changes in the business landscape.

By Nilly Essaides

Change, of course, is not new. But its speed and velocity have grown exponentially since the start of the pandemic. And its relentlessness is pressuring finance departments to speed up the delivery of data-driven decision-making support to the C-Suite and business leaders. An uncertain economic environment, a cloudy outlook for interest rates and inexorable technological innovation present CFOs and their teams with challenges—as well as the chance to enable a more agile operating model.

Agility challenges. Greater agility in this finance context means making processes more efficient by shortening the data-to-action cycle. Companies must think forward and prepare for the unexpected by improving data integrity, enhancing analytics capabilities and embracing dynamic planning principles.

  • “Our finance reinvention initiative is focused on increasing organizational agility,” said a member of NeuGroup for Heads of FP&A. “That is particularly challenging for a company with a long history of doing things a certain way.”

A two-pronged approach. Agility can be made tangible in the finance context. Achieving it boils down to two primary strategies:

  1. Process redesign, through standardization and automation, to eliminate redundant activities.
  2. A reconsideration of process placement, i.e., where certain activities should take place.

Automation everywhere. Process optimization and standardization are essential to realizing a positive ROI on automation and reducing the time it takes to produce actionable insight. When technology merely automates legacy processes, it will perpetuate inefficiencies. Plus, incongruent processes often use inconsistent data and analytics approaches that lead to inconsistent decisions, inevitably impairing the ability of companies to change course quickly.

  • “I am focused on streamlining and standardizing the capital allocation process,” one member of the FP&A group said. “Having looked at this from the outside and now the inside, I was surprised to find so many low-hanging fruits,” she said. “Whatever I can do to introduce consistency to capex and opex planning, the more efficient and cohesive we become.”

What goes where? An integral aspect of process design is figuring out who will execute it and where; what matters most is ensuring the right activities are performed at the right part of the organization to optimize efficiency and eliminate redundancies. Increasingly, the agile finance operating model includes shifting work to shared services centers (SSCs) and/or centers of excellence (COEs).

  • The migration of certain activities to entities outside of HQ finance (even if they are owned by finance) must go hand in hand with the redesign of the process itself. In some cases, finance organizations have chosen to “lift and shift,” i.e., take an existing way of doing things and transfer it to an SSC or COE. However, to realize cost and effectiveness benefits, it is often better to optimize the process first, before dropping it somewhere new.
  • There remains a debate about the scope of SSCs versus COEs which goes beyond semantics. How companies distinguish between the two is essential to making choices about where to migrate specific activities.
    • “When we started our COE five years ago, it performed pretty simple work, like data aggregation and first-line analysis,” one member explained. “Over time, we realized that is not the best use case. Now we are using the COE to concentrate high caliber talent who can develop advanced models, which serve finance in executing sophisticated analytics.”

Clarity of roles. While SSC and COE definitions continue to differ, we see the emergence of a clearer distinction between the two, which speaks to how finance advances the cause of agility.

  • Digital operations centers. Historically, SSCs were a labor arbitrage play. Companies shifted high-volume, low-value work to cheaper, offshore locations. While some organizations hold on to this legacy strategy, greater automation is altering the value proposition of SSCs.
    • More mature SSCs are becoming digital hubs where highly automated work is consolidated to create economies of scale. In addition, while the bulk of the SSCs’ work is typically finance related, they can also serve other parts of the company, like sales or marketing. Mature SSCs are often multi-functional.
  • Capability centers. COEs, meanwhile, often host more high-value work; they bring together a small group of specialists, e.g., in analytics or RPA, to spread their often expensive expertise to support a broader audience, so not every finance team member must learn how to build ML algorithms or program robots.
    • The COE’s team can thus perform activities like building sophisticated models, running scenario analysis, evaluating and purchasing new solutions and accelerating the automation of finance processes.

FP&A business empowerment. Establishing a COE does not mean finance is stripping the business from doing its own analysis. On the contrary: Solving  problems at the source and implementing immediate solutions is key to the finance function’s agility. What more mature COEs now do is purchase solutions that support self-service functionalities via user-friendly interfaces. The upside is 1) decisions can be made faster and closer to the business; and 2) decisions are based on a consistent set of data and models.

  • However, self-service can backfire, as one of our members found out the hard way. “We wanted to enable staff to get answers quickly, so we implemented Power BI,” this member said. This attempt at empowerment led to a proliferation of models, which complicated cross-finance decision making. “We are going to move to a different type of solution,” the member said.

A shifting center of gravity. As finance is remodeling, it is also transforming how it identifies and acquires new tools. While IT typically leads the selection and implementation (or upgrading) of ERPs, our conversations with members reveal that decisions to acquire process-specific solutions are often made by SSC and COE leaders..

  • For example, analytics COEs are often charged with developing the business requirements document for their solutions, managing the RFP, making the final choice and monitoring ongoing performance.  For vendors, this means building relationships with a new cohort.
  • Cash ops and other transactional finance systems are increasingly selected by SSCs, which are charged with maintaining them in collaboration with IT, so banks are reaching out to an entirely new buyer community.

Meanwhile, the implication for finance leaders is that they must work closely with their SSC and COE leader peers if they are to ensure their needs as users are fully addressed.

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Justin Jones
In Banking, Cash Investments, Talking Shop

Talking Shop: Investment Policies and Counterparty Risk on Cash

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].

Context: The failures of Silicon Valley Bank, Signature Bank and Credit Suisse dramatically drove home the critical need of corporations to keep close tabs on the credit worthiness of their banking partners. In response to the crisis of confidence, some companies moved money out of smaller, regional institutions into large, global systemically important banks. The tumult also sparked questions for treasury from audit committees and the C-Suite about counterparty risk and investment policies.

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].

Context: The failures of Silicon Valley Bank, Signature Bank and Credit Suisse dramatically drove home the critical need of corporations to keep close tabs on the credit worthiness of their banking partners. In response to the crisis of confidence, some companies moved money out of smaller, regional institutions into large, global systemically important banks. The tumult also sparked questions for treasury from audit committees and the C-Suite about counterparty risk and investment policies.

Sharing investment policies. In response to the inquiry posted below, two NeuGroup members shared edited versions of their investment policies with the peer who asked the question. Excerpts from those two policies, also provided to NeuGroup, follow a response from another peer.

Don’t change the policy? When asked by NeuGroup Insights, the treasurer of one company that provided its policy said he did not change it in the wake of events in the banking world. “We believe a good investment policy should not need to be changed for every crisis. If it is a good policy, it covers all the potential risks,” he wrote.

  • “We do and have given our investment managers tactical guidelines that are more conservative than the investment guidelines,” he added. “In this case, for financials since 2009, we only allow the purchase of specific bank names from a list we provide. We review and edit it from time to time.
  • “One example why we do that is our primary operational bank. Worldwide, we have plenty of exposure to that specific bank via balances in our bank accounts; therefore, we do not allow our asset manager to buy their bonds even though they meet the ratings threshold.”

Question: “I’m looking to see if anyone has a framework in their investment policy around counterparty risk on cash? The news about SVB, Signature and CS prompted an audit committee inquiry about our investment policy. I would appreciate it if anyone is willing to share their investment policy.”

Peer answer 1: “While I cannot share our investment policy itself, we employ best practices and place limits on counterparties. Limits are a combination of hard dollar limits and percentage limits, which allow for flexibility during cash peaks.

  • “We also employ minimum credit ratings and duration limits. Any exceptions (which are few) require advance written approval by the treasurer.”

Peer 2 investment policy excerpts:

“Counterparty credit risk management rules/guidelines:

  • “Asset size-based limits: The company limits counterparty exposure for certain assets to institutions with assets above a specific threshold, as defined by asset type.
  • “Ratings-based limits: The company limits the amount of allowable exposure to a counterparty by the financial condition of the counterparty, as assessed through rating agency (Moody’s, S&P, Fitch) ratings.
  • “Diversification requirements: For certain investment types (e.g., money market funds), the company requires diversification of these investments across multiple funds.
  • “Credit Default Swaps (CDS): To the extent the company needs to maintain investments or cash management services at a counterparty and it results in an exposure above the allowable ratings-based limits, a CDS swap may be purchased to mitigate this risk as determined by the CFO and treasurer.”

“Escalation during observed risk events: If a bank’s credit rating falls below BBB- by S&P or Fitch and Baa3 by Moody’s, the corporate treasurer and financial risk committee will be notified.”

“Maximum cash exposure by rating. The following ratings limits exist for cash and cash investments with a maturity of two days or less. All counterparties must be rated by at least one of the three rating agencies (Moody’s, S&P, Fitch), but if rated by multiple agencies, the lowest rating is used.”

Peer 3 investment policy excerpts:

“Cash investments are placed in investment grade financial instruments (excluding BBB) to ensure safety of principal.”

“Diversification. Securities of a single issuer, valued at cost at the time of purchase, should not exceed 3% of the market value of the portfolio. The following specific portfolio holdings limitations are in effect:

  • “Finance corp. securities, including bank notes and bonds: 10%
  • “Industrial/corporate notes and bonds: 40%
  • “Commercial paper: 50%”

“Quality. Individual holdings of commercial paper must be rated A-1, P-1, or better by either S&P, Moody’s or Fitch at the time of purchase.

  • “Securities of issuers with a long-term credit rating must be rated at least A-/A3 by S&P, Moody’s, or Fitch. If a security held in the portfolio does not maintain the minimum rating specified above by one of the rating agencies the investment advisor will notify the treasurer and the security will be sold within 30 days.
  • “Asset-backed securities and mortgage-backed securities must be rated AAA.”
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Justin Jones
In Capital Markets, Risk Management

Volatile Rates Spark Corporate Interest in Pre-Issuance Hedging

Multiple members have executed pre-issuance hedges in recent weeks, with many more strongly considering them.

Extreme volatility in interest rates is fueling strong interest in pre-issuance hedging among NeuGroup members who want to mitigate risk—especially those who plan to issue fixed-rate debt in 2023.

  • At the first-half meeting of NeuGroup for Capital Markets sponsored by Chatham Financial and Loop Capital Markets, members and representatives from Chatham agreed that this is an opportune time for companies to consider pre-issuance hedging, particularly using forward-starting swaps.

Multiple members have executed pre-issuance hedges in recent weeks, with many more strongly considering them.

Extreme volatility in interest rates is fueling strong interest in pre-issuance hedging among NeuGroup members who want to mitigate risk—especially those who plan to issue fixed-rate debt in 2023.

  • At the first-half meeting of NeuGroup for Capital Markets sponsored by Chatham Financial and Loop Capital Markets, members and representatives from Chatham agreed that this is an opportune time for companies to consider pre-issuance hedging, particularly using forward-starting swaps.
  • Pre-issuance hedging mitigates interest rate risk for a company’s future bond issuance by offsetting changes in the Treasury component of the bond coupon that occur between the date of the hedge and the date of bond issuance, according to Chatham.
  • “This strategy is particularly useful in volatile interest rate environments,” Chatham’s presentation said.

Volatility drives interest. “Interest rates have been significantly volatile as inflation has remained elevated, geopolitical tensions have run high, and recession fears have grown,” the presentation said. In the past year, for example, the 10-year US Treasury yield reached a low of 2.32% and a high of 4.25%.

  • And in the immediate aftermath of the collapse of Silicon Valley Bank, the US 2-year Treasury yield had its largest three-day decline in 36 years following a rapid rise in 2022.
  • “With all this volatility, we really want to lock in rates,” said one member who opportunistically entered into a forward-starting swap in mid-March.

Instrument options. Corporates primarily use treasury locks to hedge short-term risk when an issuance is expected in three to six months, and forward-starting swaps to hedge rate volatility for bond offerings that occur on a longer time horizon.

  • One member said her company had only done pre-issuance hedging on a short-term basis, primarily using treasury locks. But she has shifted recently to forward-starting swaps on a longer-dated basis “based on financings we expect to be done, but don’t actually have details on.”
  • “We know at some point we may want to be able to issue debt at attractive rates, but we’re not sure when,” another member said in agreement. “So if we have more of a window, a swap is a better instrument, even though treasury locks work better when we know when we’re going to go to market.”
  • The Chatham chart below explains how a forward-starting swap works.

A sometimes scary strategy. Another member at a corporate that issues debt up to six times a year described the difficulty of managing interest-rate risk in the last 15 months. “With rates having gone up very quickly very fast, we’ve been pre-issuance hedging since January 2022 when rates started to take off,” he said. “It’s gotten scarier and scarier the longer we’ve been doing that, and the higher rates went.”

  • The member is sticking with the strategy in part because of interest rate indicators his team built that analyze factors such as inflation and geopolitical tensions to help forecast rates. “Those indicators have been flashing bright red for about six months,” he said.

Picking your spots. In the last year, his team has focused primarily on two-year hedges, “because if rates plummet, you’re not going to get your face ripped off like if you did a five-year hedge,” he said.

  • “Our auditor is okay with us having a lot of two-year hedges on the book, but then if we’re going to issue a three-year bond, we can just apply those two-year hedges to that bond,” he said.
  • “So if you put on a lot of two-year, three-year, five-year, seven-year and 10-year swaps, all those different tenors, you can look at how the curve shifted up or down during the time from execution to unwind to see which ones you want to unwind,” he continued. “That can be a good tool that can help capitalize on interest rate volatility.”
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Justin Jones
In D&I, Investment Management

Driving Diversity: A Company’s DEI Scorecard for Asset Managers

One corporate uses data on firms’ racial and gender representation relative to the US Census and their peers.

A dearth of minority-owned firms that manage fixed-income assets—and a desire to hold all its asset managers accountable on diversity initiatives and metrics—led the treasury team at one NeuGroup member company with a large cash balance to develop a scorecard for diversity, equity and inclusion. The company’s treasurer shared it with peers at a recent meeting of NeuGroup for Mega-Cap Treasurers.

One corporate uses data on firms’ racial and gender representation relative to the US Census and their peers.

A dearth of minority-owned firms that manage fixed-income assets—and a desire to hold all its asset managers accountable on diversity initiatives and metrics—led the treasury team at one NeuGroup member company with a large cash balance to develop a scorecard for diversity, equity and inclusion. The company’s treasurer shared it with peers at a recent meeting of NeuGroup for Mega-Cap Treasurers.

The treasury team’s asset manager DEI quantitative assessment shows the diversity performance of 11 investment firms relative to each other and in comparison to a score based on statistics from the US Census on the representation of women and people of color. Some of the data used to produce the scorecard is public; the corporate had to request the rest from its managers.

  • The company is using the scorecard as part of a dialogue about DEI with its asset managers. The treasury team’s overarching goal is to share thought leadership on diversity with its partners, describe how the company is thinking about the issue, and discuss how the asset manager plans to make progress on its DEI strategy.

The scorecard has four categories, shown below with the weighting the corporate gives each category.

  • Leadership (33%)
  • Investment team (33%)
  • Total workforce (20%)
  • DEI policy and governance (14%)

Large disparity. The results showed—unsurprisingly—that none of the 11 firms have a DEI score equal to the representation of women and people of color as documented in the US Census. The combined average score of the managers totaled 35, versus 56 for the US Census-based score, according to the formula developed by the corporate (see figures in bold in the table below).

  • The treasurer noted the relatively wide disparity among the firms, especially in some categories. The investment team score, for example, ranged from 5 to 14, with an average of 8. That compares with the US Census-based score for this category of 19—leaving plenty of room for improvement.
  • The table compares managers against their peer group as well as the US Census across each category (and several unshown subcategories). The figures to the right of the “Weights ” column in the table show:
    • The US Census-based score for a given category as calculated by the company.
    • The manager’s score (Manager 1 as example in table).
    • The peer group average.
    • The manager’s percentile ranking within the group.
    • The minimum and maximum scores of the peer group.

Discussing the data. The treasurer told peers at the NeuGroup meeting that he discussed the scorecard results with a few of the managers—including some of the company’s largest partners—and found them “incredibly receptive.” That’s not particularly surprising, in part because the corporate represents a very large account for the firms.

  • Some asset managers asked about the corporate’s use of US Census data to calculate scores, given differences in demographics between cities and states, including talent pools and the population of college graduates.
  • The corporate recognizes the limitations of the US Census data and makes clear to partners that it views the benchmark as more aspirational; it emphasizes using the scorecard to assess the managers relative to each other.

Move money? In response to peers’ questions, the treasurer said the company will not move assets under management based on the results of this initial analysis of the firms’ scores. The goal is for the firms to show progress over time. The corporate will consider moving assets from a firm if it shows no progress over a longer period.

  • Companies that use DEI scorecards will need to figure out how to weigh the scores in the context of the return performance of a given manager, especially close partners that hold significant, sizable assets.
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Justin Jones
In Banking, Crypto

Navigating Crypto’s Liquidity Crisis: Diversification is Key

A tumultuous March has shaken confidence in crypto markets’ liquidity; major players like BNY are Mellon rebuilding trust.

As the Fed addresses the ongoing crisis of confidence in the banking sector, the mostly unregulated cryptocurrency market is still reeling from the spillover effects of the collapse of Silicon Valley Bank and Signature Bank: both were active supporters of crypto market transactions.

A tumultuous March has shaken confidence in crypto markets’ liquidity; major players like BNY Mellon are rebuilding trust.

As the Fed addresses the ongoing crisis of confidence in the banking sector, the mostly unregulated cryptocurrency market is still reeling from the spillover effects of the collapse of Silicon Valley Bank and Signature Bank: both were active supporters of crypto market transactions.

  • The closure of Signature and Silvergate Bank meant the elimination of Signet and Silvergate Exchange Network—two 24/7 digital payment networks used by most in the crypto industry. Now, corporate treasuries must adapt to the new environment.
  • For treasury teams that use cryptocurrencies for payments, the events of the past few weeks have raised two concerns:
    • A lack of access to liquidity.
    • The risk of custodial overconcentration.

A liquidity squeeze. In a recent session of NeuGroup’s Digital Assets Working Group, one member discussed challenges working with crypto custody firm Anchorage Digital, which in March told him they had paused all conversion from crypto to fiat currencies. This essentially trapped the company’s crypto holdings indefinitely.

  • This member uses cryptocurrency as working capital, including to pay some employee salaries, and aims to minimize balance sheet holdings by converting any excess digital tokens into USD. Because the company keeps its crypto exposure low, it has only worked with a single custodian for crypto reserves: Anchorage.
  • While Anchorage did not provide a direct business justification for pausing conversion, the member believes it was because Anchorage banked with Signature, which is no longer servicing cryptocurrency firms after its acquisition by Flagstar.
  • “It’s been a big scare,” he said. His company’s immediate focus is to convert everything it can back to dollars but “there’s just no liquidity right now.”
  • “The lack of other conversion options is really throwing sand into the face of crypto,” he said. “It’s supposed to be open, decentralized and deregulated, but if you can’t swiftly move your money into an asset and take it back, then what’s the point?”

Unleashing trapped cash. “It’s just like what other corporates face with trapped cash in China, it’s the same thing,” the member said. “Should this have occurred? With proper risk management, I don’t think so.”

  • He is now looking for other brokerages to take the company’s crypto and do the conversion. But KYC and due diligence won’t be a quick process.
  • Over the long-term, the member’s team is working to improve forecasting to minimize its crypto exposure—a tall order.
  • “Like any new business, it’s very difficult to forecast that because we don’t know what kind of products we’ll be dropping in three to six months that are supposed to generate crypto revenue,” he said. A better forecast would allow the company to use that revenue to make future payments.
    • “But we’re not the business unit that does planning and analysis. I’m just treasury, and there’s a bit of a disconnect,” he said.

Diversification. One member who works at a crypto-native company that deals with digital assets as a regular part of its business said that having a single custodian increases liquidity risk substantially. It’s therefore crucial for treasury to have a diverse crypto-custody infrastructure.

  • “We can’t just all wait until these banks fail, we need to find more partners, and more diverse partners,” she said. “You need to put extra scrutiny on these banking partners now.”
  • But she added that there are only so many banks that are working with corporates in the crypto space. Her strategy is to open accounts with every bank that’s willing to work with her company, and then let the treasury team figure out how to divvy up its assets.
  • “Utilizing a bunch of different banks and making sure we’re sweeping excess balances and tracking credit metrics of institutions is the best we can do.”

A silver lining. The liquidity crisis is not without an upside. Major banks such as BNY Mellon are fast-tracking their engagement as custodial banks and crypto transaction enablers.

  • The member who works at a crypto-native firm said the company has been looking to open an account with a bank “only tangentially related to crypto” like BNY Mellon—though KYC may be a long road.
  • Matt Thomas, who leads NeuGroup’s Digital Assets Working Group, said, “Six months ago, BNY Mellon was kicking the can down the road because there was so much competition.” He added, “I think the silver lining of all this is it has brought BNY Mellon into the use case for real, which lends legitimacy to the crypto use case for corporates.”
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Justin Jones
In Risk Management, Technology

DIY with RPA: A Tool Removes the Pain of CSA Collateral Exchange

UPS and Coca-Cola describe automation solutions they made using UiPath to cut time exchanging cash, reconciling.

Artificial intelligence and machine learning may ultimately be major forces in the digital transformation of finance orgs. Right now, though, more NeuGroup members are bringing the future forward and scoring wins with robotic process automation (RPA) solutions that can relieve the pain and drudgery of manual processes that take way too much time.

  • To wit: two members of NeuGroup for Mega-Cap Assistant Treasurers—UPS and Coca-Cola—recently explained how they used RPA software from UiPath to build bots that have slashed the time required to manage the collateral exchange process for credit support annexes (CSAs) from hours to minutes.

UPS and Coca-Cola describe automation solutions they made using UiPath to cut time exchanging cash, reconciling.

Artificial intelligence and machine learning may ultimately be major forces in the digital transformation of finance orgs. Right now, though, more NeuGroup members are bringing the future forward and scoring wins with robotic process automation (RPA) solutions that can relieve the pain and drudgery of manual processes that take way too much time.

  • To wit: two members of NeuGroup for Mega-Cap Assistant Treasurers—UPS and Coca-Cola—recently explained how they used RPA software from UiPath to build bots that have slashed the time required to manage the collateral exchange process for credit support annexes (CSAs) from hours to minutes.
    • CSAs define the terms of the collateral put up by counterparties in derivative transactions and are used by many corporate risk managers as part of hedging programs for interest rates and currencies.
  • ATs at UPS and Coca-Cola responded in NeuGroup’s online community to a peer asking about technology solutions to manage daily exchanges of collateral and reconcile differences with banks—which in his case number 20. Reval is this company’s TMS—the same system used by UPS and Coca-Cola.
  • The member then organized a follow-up Zoom meeting that, in addition to ATs, included the individuals at the two companies who used UiPath to build the bots. Both companies are willing to help other corporates navigate the RPA landscape as they look for solutions to automate the collateral exchange process.
    • “We love the sharing of ideas, so keep it coming,” said the Coca-Cola AT in agreeing to answer any questions peers have about developing their own RPA tools. The AT at UPS echoed that sentiment.

The problem. “The daily management of our collateral exchange process with the banks is operationally burdensome,” the AT in search of a solution wrote. “Each day, we need to open 20 emails from banks and hand key the banks’ [mark to market] on derivatives into spreadsheets in order to compare it to our internal valuations. When there are discrepancies, the reconciliation process is very manual,” he explained.

  • The AT said this manual process can take more than two hours a day. “It’s not a particularly rewarding process or daily responsibility,” he added.
  • The company has looked into third-party outsourcing options but found them expensive. Another drawback: treasury would still be required, daily, to provide all its derivatives positions to a third party to calculate valuations. And it would still have to do all reconciliation itself.

Investing time to save time. The manager in UPS’s treasury technology group who developed its bot said the daily, manual collateral exchange process that used to take humans between 90 and 120 minutes now requires just three minutes of automation. (See next section for a description of the automated process at UPS.)

  • The manager, who had prior experience using UiPath, said it took about three months to get this RPA tool up and running. That included discussing the bot’s purpose and controls with the treasury team and then developing and testing it. Auditors did a code review to ensure the bot met the company’s security standards.
  • UPS has been using the bot for more than a year while Coca-Cola’s bot has been working since before the pandemic. UPS uses an enterprise version of UiPath and received licenses through the company’s RPA center of excellence team. Coca-Cola, meanwhile, built its bot using a free, desktop version of the software.
  • After hearing about the development process and the time savings, the AT in search of a better way for collateral exchange said, “It sounds like you’ve both found a really great solution. And if three months of effort is what it takes to put in place, it’s absolutely worthwhile, especially given that the upfront and ongoing cost seems modest to negligible.”

How it works at UPS. The AT at UPS offered this overview of the improved collateral exchange process: “The bot extracts the data from our TMS (Reval), extracts the attachments from the bank emails, does the math on the expected settlements in either direction, and sends the summary to the members of the team that need to input the wires or validate receipt.” The UPS treasury technology manager elaborated on how the bot interacts with Reval:

  1. “The first instance is the bot pulls a prior day bank statement from the system and stores it for audit purposes. It is used to validate that the planned collateral settlements from the prior day actually occurred and were recorded by the bank. This statement pull is the first thing that happens in the bot process.
    • “In order to get this bank statement, the bot logs into our Reval using an ID we created specifically for the bot. It navigates to the “Statement” screen in Reval and selects a pre-created report from a dropdown list. From there, it will open and then download the statement into a daily folder that the bot created.
  2. “The second instance is a few steps later, but still early in the process. In this case, the bot doesn’t actually log into Reval; instead, it grabs an email that was sent by Reval. We have set up an automated email from Reval that sends our daily Fair Value Report, which contains all of our outstanding trades and their valuations.
    • “The bot will pull this report from email, then copy and paste the entire Fair Value Report into our main [Excel] file that does all of the math mentioned before.”
  3. The bot will build an email template, create a PDF from it and send the margin call information to the bank on UPS’s behalf. Then the process reverts to the treasury team to take any necessary action. The bot does not make payments—UPS wants to keep human eyes on that.
  4. While the bot runs, it creates its own audit trail and validation, the manager said. It flags any difference between a bank’s reported mark-to-market number and the UPS figure that exceeds $1 million. That or any other issues the bot encounters are highlighted in red and sent to the treasury team to review manually.

The hardest part. The tech manager said because each of UPS’s banks has a unique file format, he had to build a specific automation to read each individual file. “That was probably the hardest part of the process,” he said. Also, some banks change their formats occasionally, which causes problems for the bot. UPS employs an exceptions process when this occurs, he said.

Coca-Cola’s twist. Like UPS, Coca-Cola’s bot inputs numbers into a main Excel file which shows daily valuations, collateral balances and daily movements with counterparties. The business data and visualization analyst at Coca-Cola who designed the bot said the process is almost identical to UPS’s. One difference: Coca-Cola also uses Power BI.

  • “We connect this file to Power BI to show a few reports,” he said. That may include how much collateral is held by each counterparty, how much money will be moving the next business day or the collateral balances of various CSA agreements. “This gives us the ability to reconcile daily instead of monthly.”

Follow the leaders? One AT on the call whose company pays a third-party to manage the collateral exchange process liked what they heard about the RPA solutions UPS and Coca-Cola built using UiPath.

  • “It’s definitely an intriguing concept that we will investigate further,” they said. “Any change would involve meaningful evaluation, planning and coordination–so not necessarily easy.”
  • The AT whose question prompted the Zoom call said this: “We see it as a good, viable solution for our situation and intend to pursue it further.”
  • The good news is that RPA leaders among NeuGroup members are willing to share what they can with other corporates facing the same collateral exchange challenges. “If you have the same banks and have the same formats, you may be able to leverage some of the stuff we already have,” the UPS manager said. “I do think there are places where we would be able to share and help speed along the process.”
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Justin Jones
In FX, Technology

Fed Up With Fees but Finding Few Options to Bloomberg Terminal

Members express frustration with Bloomberg’s data licensing fees and some explore alternatives.

The cost of paying Bloomberg’s data fees on top of what the company charges for a Terminal subscription sparked complaints and conversation at a recent meeting of NeuGroup for Foreign Exchange 2. The prices present a dilemma for treasury teams that don’t use the high-end tool on a daily basis but haven’t found alternatives they really like.

  • One member said her treasury team only logs on to Bloomberg Anywhere three times a month, using the Data License to publish the company’s 65 spot exchange rates for monthly internal reporting.

Members express frustration with Bloomberg’s data licensing fees and some explore alternatives.

The cost of paying Bloomberg’s data fees on top of what the company charges for a Terminal subscription sparked complaints and conversation at a recent meeting of NeuGroup for Foreign Exchange 2. The prices present a dilemma for treasury teams that don’t use the high-end tool on a daily basis but haven’t found alternatives they really like.

  • One member said her treasury team only logs on to Bloomberg Anywhere three times a month, using the Data License to publish the company’s 65 spot exchange rates for monthly internal reporting.
  • In 2021, this member’s total annual charges topped $140,000. That included $1,000 a month for the Data License and $75,000 to access to Bloomberg’s Multi-Asset Risk System (MARS), which treasury uses to extract much larger datasets every few years.
  • “I understand if you’re charging a big bank this kind of money because they’re using it every day, but we don’t,” the member said. “To even put us on the same pricing tier as a big bank seems a little outrageous. Other members and I are in agreement that we just don’t use the Terminal enough to justify these types of costs.”

Bloomberg’s response. In response to questions from NeuGroup Insights about pricing, a Bloomberg spokesperson provided this statement:

  • “Every client’s data and product needs are different. Bloomberg offers solutions for both desktop data use and enterprise-wide distribution, and we encourage clients to work closely with their account rep to find the best combination of products to meet their unique needs.”

Underwhelming options. Despite their frustration, some members said Bloomberg’s competition doesn’t stack up—leaving treasury teams to make tough decisions.

  • One assistant treasurer said his team tried using FXall for delta hedging instead of Bloomberg to cut costs, but said the pricing ended up being higher. FXall, an FX aggregation tool owned by Refinitiv, charges a fee on transactions.
  • Another member who expressed a great deal of unhappiness with Bloomberg’s fees said that the service significantly outperforms competitors, including Reuters, for equities pricing.

Forced to cut back. But the looming threat of recession and pressure on many companies to cut costs means some members will have no choice but to find other vendors if Bloomberg does not offer more competitive pricing.

  • One member is exploring multiple options to Bloomberg. They include hiring a full-time employee dedicated to manually finding FX rates on less expensive platforms like Reuters and FXall.
  • The member said this approach would not be as automated or fast as using Bloomberg’s Data License or MARS, but it could cut the price she pays in half.
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Justin Jones
In D&I, Senior Executive, The NeuGroup Insights Interview

She Told the CFO She Wanted To Be Treasurer One Day. Now She Is.

Advice on advocating for yourself from Sandra Ramos-Alves, treasurer of Bristol Myers Squibb.

Sandra Ramos-Alves was an assistant treasurer at Celgene when Bristol Myers Squibb bought it in 2019. By June of 2021, she was acting treasurer of BMS. And in October of that year she was named senior vice president and treasurer of the pharmaceutical giant that had acquired the company where she had worked for more than 14 years.

In a Strategic Finance Lab podcast episode you can hear by heading to Apple or Spotify, Ms. Ramos-Alves says she may not have her current position if she hadn’t taken the advice of an insistent mentor and mustered up the courage to set up a meeting with the CFO. At that meeting, she told him she was interested in being BMS treasurer “when the time is right.”

Advice on advocating for yourself from Sandra Ramos-Alves, treasurer of Bristol Myers Squibb.

Sandra Ramos-Alves was an assistant treasurer at Celgene when Bristol Myers Squibb bought it in 2019. By June of 2021, she was acting treasurer of BMS. And in October of that year she was named senior vice president and treasurer of the pharmaceutical giant that had acquired the company where she had worked for more than 14 years.

  • In a Strategic Finance Lab podcast episode you can hear by heading to Apple or Spotify, Ms. Ramos-Alves says she may not have her current position if she hadn’t taken the advice of an insistent mentor and mustered up the courage to set up a meeting with the CFO. At that meeting, she told him she was interested in being BMS treasurer “when the time is right.”
  • That experience taught her the importance of advocating for yourself and telling people what you want. Because someday, when an opportunity arises, they may deliver for you. “We all do own our careers,” she says.
  • She also tells NeuGroup’s Nilly Essaides that mutual trust and integrity are the foundation of her leadership style. Trust in her team allows Ms. Ramos-Alves to empower people to make decisions and only bring her in when needed. By not wading too deep into the details of every issue, she avoids being an impediment, she says.
  • Even better, the trust allows her to step away and spend time with her family—her top priority. That includes taking vacations and leaving her laptop at home. But she never completely disconnects, she admits. Her iPhone is always on.
Sandra Ramos-Alves
Treasurer, Bristol Myers Squibb

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Justin Jones
In Risk Management

Hedging Commodity Risk: How Polaris Put the Pieces Together

Treasury, backed by the C-Suite and Chatham Financial, worked with procurement to better manage risk exposure.

Starting or reviving a commodities hedging program requires risk managers in treasury to collaborate with procurement teams and secure the backing of the C-Suite to overcome challenges in securing changes in contracts that facilitate the use of hedge accounting. In addition, some corporates will benefit from having a knowledgeable advisor help navigate the complexities of hedging commodities.

  • Those are few of the takeaways from the first meeting of NeuGroup’s Commodities Working Group, which focused on the commodities hedging program at Polaris, a NeuGroup member company that makes off-road, on-road and marine products.

Treasury, backed by the C-Suite and Chatham Financial, worked with procurement to better manage commodity risk exposure.

Starting or reviving a commodities hedging program requires risk managers in treasury to collaborate with procurement teams and secure the backing of the C-Suite to overcome challenges in securing changes in contracts that facilitate the use of hedge accounting. In addition, some corporates will benefit from having a knowledgeable advisor help navigate the complexities of hedging commodities.

  • Those are few of the takeaways from the first meeting of NeuGroup’s Commodities Working Group, which focused on the commodities hedging program at Polaris, a NeuGroup member company that makes off-road, on-road and marine products.
  • At the session, advisors from Chatham Financial joined Matt Koller, a Polaris treasury manager who oversees currency, interest rate and commodities hedging. Polaris engaged Chatham to help it hedge commodities.
  • A growing number of NeuGroup member companies have discussed hedging commodities in the past two years amid rising costs and their negative effects on corporate earnings. Recent declines in some commodity prices have not dampened interest in the topic, even if some risk managers face more questions about timing.

A cross-functional hedging program empowered by the C-Suite. Polaris had dabbled in commodities hedging in years past but had paused the program, in part because of the impact on earnings from mark-to-market accounting prior to the ability to apply hedge accounting to commodities. The significant headwinds created by rising prices for base metals including steel led to new conversations with executive leadership about mitigating the risk of price volatility.

  • With backing and direction from the CFO, Mr. Koller’s team engaged Chatham on the feasibility of reducing risk through hedging and the risk of not hedging. Chatham helped visualize the impact of remaining unhedged by looking at the historical price ranges of commodities through the lens of outcomes that were possible, probable and expected. “We were not comfortable with the unhedged basis,” Mr. Koller said.
  • The full support of senior finance executives helped treasury conduct some challenging conversations with the procurement, or sourcing, team about modifying existing contracts—including those settled with a handshake—to include indices and be eligible for hedge accounting—a condition of the program Polaris established. Discussions between executive leaders from sourcing and finance helped pave the way for contract changes.

Risks, objectives and alignment. Treasury needs to dig into the risks (and embedded derivatives in some cases) within commodities contracts and define a corporate’s exposure, its size and the indices related to it, Chatham director Matt McGill said. Chatham begins by identifying and consolidating all of the exposures that may lurk in various contracts.

  • Quantifying risk includes measuring how movements in, say, metals prices, will affect a corporate’s expenses and bottom line. Statistics help decide “if the juice is worth the squeeze,” as Mr. McGill said.
  • Objectives for programs range from capping costs, fixing them or establishing a budget rate for the commodity. “The objectives are not as simple as FX and interest rate hedging programs,” Mr. McGill said.
  • The complexity in part reflects differing objectives of stakeholders affected by a commodities hedging program: procurement wants to reduce costs; treasury wants to reduce exposures; and accounting wants to reduce volatility on the income statement. These three groups, Mr. McGill said, “have to get aligned.”
  • At Polaris, clarity and alignment on the objective of using the hedging program to reduce risk and volatility in addition to minimizing cost was critical to establishing a program that will prepare the company for future periods of significant price volatility, Mr. Koller said.

Keeping it simple, transparent. While Chatham helped Polaris understand the potential benefits of using at-the-money calls, collar strategies and more complicated approaches, Polaris decided to go with a swaps strategy for hedging commodity risk. “We want to keep it pretty vanilla,” Mr. Koller said. Mr. McGill said using less exotic products often results in “the most effective accounting” outcomes for corporates.

  • Polaris uses Chatham to: initiate trades Polaris executes with banks within its credit facility experienced in commodities trading; measure the effectiveness of its hedges and help with reporting; and determine how long a hedge stays in other comprehensive income (OCI) before being released to the P&L.
  • Mr. Koller said it’s important that business units and executive leadership are not surprised if cash flow hedges produce losses when the underlying commodity price declines. The good news is that lower prices for the commodity will help offset the losses to some extent.
  • In the same vein, it’s essential to be clear with the C-Suite on the objective of the hedging program and make clear, for example, a given time may not be optimal to layer on hedges for 80% of the company’s exposure. But it’s also key to keep the program in place no matter what direction prices head and avoid market timing.
  • Mr. Koller recommended peers give themselves “plenty of runway” to start a program. Polaris started the process about 18 months ago. It took six months, Mr. Koller said, to put hedge designation memos in place for hedge accounting and to update documentation and connections with banks regarding ISDAs.

Follow a road map. The implementation road map in Chatham’s presentation listed these five steps:

  1. Define the risk profile.
  2. Quantify the economic risk.
  3. Establish institutional objectives.
  4. Evaluate available strategies.
  5. Implement a competitive program.

Questions to answer. To establish an effective commodities risk management program, Chatham identified three main areas of activities and decision-making: economics, accounting and operations. Within each category were questions, including:

  1. What is the worst-case financial impact of a given exposure?
  2. Can suppliers offer fixed pricing? If so, your hedging needs may be reduced.
  3. How much risk can be mitigated through hedging given forecasting and accounting constraints?
  4. Is the commodities contract a derivative?
  5. Do we need to minimize the P&L impacts of hedging?
  6. Is the contractually specified component in a contract eligible to be hedged?
  7. What is the optimal hedge strategy given the objectives and constraints?
  8. What tools do we need to manage the program?
  9. What metrics will be used to measure program effectiveness?
  10. How will we report program performance to key stakeholders?

Key accounting elements. Chatham listed these six aspects of accounting when hedging commodities, which can be complex, in part because not all commodity indices are liquid and forwards aren’t always available. This can result in proxy hedges or additional charges.

  1. Contractually specified risk. Understand if contracts have a specified index included in the pricing.
  2. Derivative qualification. If a contract qualifies as derivative, can normal purchase, normal sale (NPNS) be applied?
  3. Multiple indices. Need to prove correlation and pool into single designation.
  4. Exposure window. Compare historical forecasts vs. actuals to determine probability assertion window.
  5. Effectiveness assessment. Identify the index of the hedging instrument and test effectiveness vs. a hypothetical derivative.
  6. Exposure lifecycle review. Perform a walkthrough of the exposure to determine proper lifecycle events.
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Justin Jones
In Diversity & Inclusion

Seeking Out Mentors Who Balance Advocacy With Frank Feedback

The best advocates are also willing to give honest appraisals of where there is room for improvement.

Mentorship and sponsorship are recurring themes at sessions of Women in NeuGroup where women in finance discuss the benefits of having supporters who help sharpen their skills, guide their careers and stand up for them.

  • In a video you can watch by hitting the play button below, Kristen Michaud, a principal in PwC’s Finance Transformation group, talks about the support of colleagues who have stepped in and called attention to her expertise if other people in a meeting were not including her in a discussion where she was the expert.

The best advocates are also willing to give honest appraisals of where there is room for improvement.

Mentorship and sponsorship are recurring themes at sessions of Women in NeuGroup where women in finance discuss the benefits of having supporters who help sharpen their skills, guide their careers and stand up for them.

  • In a video you can watch by hitting the play button below, Kristen Michaud, a principal in PwC’s Finance Transformation group, talks about the support of colleagues who have stepped in and called attention to her expertise if other people in a meeting were not including her in a discussion where she was the expert.
  • But she also speaks about the importance of having advocates who are willing to dole out tough love and frank feedback when they think you’re getting too comfortable or not taking advantage of an opportunity.

An MBA, not med school. Ms. Michaud studied biology and planned to go to medical school; but she became fascinated by finance and IT and got an MBA instead. Her resume includes a decade at IBM, where she rose to manager of global treasury systems, and more than nine years at GE Capital. Today, she helps guide treasury teams through digital transformation initiatives.

  • On the next episode of NeuGroup’s Strategic Finance Lab podcast (available on Apple and Spotify), Ms. Michaud talks with NeuGroup’s Julie Zawacki-Lucci. They discuss their experiences as women in finance, the individuals that aided them along their journey and the skills they’ve developed that have helped them thrive.
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Justin Jones
In Treasury Management

Clearing a Path to Effective Change Management

Finance teams in the throes of change need leadership, resources and collaboration with HR to overcome obstacles.

Recession fears are intensifying the pressure on finance and other G&A functions to cut costs. The result is often a reduction in headcount. To meet the challenge of doing more with less, treasury and finance organizations are looking for new ways to work more efficiently.

    • At the spring meeting of NeuGroup for Mega-Cap Treasurers, one member reported that his group has already been asked to match the budget-reduction mandate issued to other functions.

        • As a result, treasury had to let go of staff and find ways to leverage the company’s offshore business process outsourcing provider (BPO) to execute critical activities.

    • But outsourcing to third parties isn’t the only way treasurers are responding to rising demand to decrease headcount; some are migrating activities to shared services centers and fast-tracking digital transformation projects.

Finance teams in the throes of change need leadership, resources and collaboration with HR to overcome obstacles.

Recession fears are intensifying the pressure on finance and other G&A functions to cut costs. The result is often a reduction in headcount. To meet the challenge of doing more with less, treasury and finance organizations are looking for new ways to work more efficiently.

  • At the spring meeting of NeuGroup for Mega-Cap Treasurers, one member reported that his group has already been asked to match the budget-reduction mandate issued to other functions.
    • As a result, treasury had to let go of staff and find ways to leverage the company’s offshore business process outsourcing provider (BPO) to execute critical activities.
  • But outsourcing to third parties isn’t the only way treasurers are responding to rising demand to decrease headcount; some are migrating activities to shared services centers and fast-tracking digital transformation projects.

It’s about the people. Redesigning and automating legacy processes is critical to the sustainability of the finance organization. However, getting staff on board can be a significant obstacle to the success of a transformation initiative.

  • Respondents to NeuGroup’s February 2022 Change Management Survey ranked fear of change as the second largest hurdle to effective change management (see chart below).
  • In many cases, new tools like machine learning raise concerns about job losses.
  • Also common: ML algorithms can be viewed as black boxes and thus rejected by staff who prefer using Excel. “You have to have transparency,” said a member of NeuGroup for Mega-Cap Heads of FP&A at a recent monthly session. “If that means using a less-complex algorithm that people can understand, that is better than pushing a highly sophisticated one that no one wants to use,” she said.
  • In another case, a member company rolled out Tableau to global finance staff to empower them to conduct on-demand analysis. “The result was a proliferation of models and data definitions, which did not deliver the desired outcomes.” Cognizant of people’s inclination to build their own model, the company is developing a standard dashboard that everyone can use.

Changing for the better. An effective change management program is essential to the success of transformation initiatives; however, the survey revealed that:

  • Only 7% of respondents have highly effective change management programs.
  • More worrisome: 43% said their change management project plan is not aligned with the overall transformation initiative.

During the FP&A group’s February session, members shared challenges and recommended opportunities for improvement.

Strained resources. To sustain the program over time, finance needs dedicated leadership and resources. On a positive note, the survey found that 64% of companies already have a dedicated change management leader or team and 62% have a change management budget as part of their overall transformation budget (typically under 5% of that total cost).

However, as cost pressures mount, companies are pulling back on what they consider soft spending; NeuGroup members are reporting they are losing critical resources.

  • “We used to have four people dedicated to change management,” according to one member. “Now we have one.” That single resource supports four FP&A groups and is pulled in too many directions, she said.
  • Another member initially had a team of dedicated HR staff assigned to collaborate on the program, but no longer does. “We have a single resource who is now embedded in finance.”
  • With change being a constant, and limited specialized resources, the question arose whether the capability should be embedded in everyone’s job. One member cautioned against this approach: “When you make something everyone’s job you make it nobody’s job.”

Fuzzy accountability. The survey also showed that change management is often owned jointly with HR. But the respondents said the current level of collaboration leaves a lot to be desired.

  • Half the respondents said working closely with HR is very important or even critical, yet 71% ranked the effectiveness of their collaboration with HR at three or less out of five (see chart).
  • While finance may own the transformation change management program, HR typically runs talent development programs at the enterprise level, and the two may not be aligned. The result is a disconnect in terms of building staff’s long-term skills and competencies. “We end up doing only very short-term training and upskilling,” a member said, thus not providing continuity of support.

Finding the right KPIs. Ultimately, in order to assess the effectiveness of the change management program, members need hard data. But to measure the success of the effort, finance requires a set of KPIs that are aligned with its transformation objectives.

  • Only 43% of respondents said they use KPIs to measure the change management program’s success.
  • And, as a member at one large company found, “just because you have KPIs does not mean you have the right KPIs.” After a three-year transformation process, “we found that we weren’t necessarily measuring the right things,” she said.
  • “The first time around, we used quantitative and qualitative metrics, but going forward, the path is less clear,” she added. “We decided that the KPIs we used before were not truly effective in assessing our success.”
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Justin Jones
In Banking, Risk Management

Finance Fallout: SVB’s Head-Scratching Risk Management Failure

SVB insights from NeuGroup founder Joseph Neu and senior executive advisors Paul Dalle Molle and Jerry Olivo.

Financial crises like the failure of Silicon Valley Bank reveal the grit, dedication and skill of first-rate treasury and finance teams—and their ability to manage risk when battling forces they can’t control. Upheaval, volatility and uncertainty also test the mettle of NeuGroup, whose mission is to help members, sponsors and partners withstand the blows.

  • Hours after regulators shut down SVB last Friday, the NeuGroup team ran an hour-long session where more than three dozen members shared what they knew and what they’d done so far. They answered each other’s questions and provided a path for their peers through the fog.
  • The Silicon Valley Bank Crisis Community session and two others have been hosted by senior executive advisor Paul Dalle Molle, a former head of technology banking in North America at Societe Generale.
  • In a video clip you can watch by hitting the play button below, Paul offers his observations on a bank failure that he says did not have to take place, as well as takeaways from hearing how members have navigated the crisis and lessons the collapse of SVB holds for corporates and their finance teams.

SVB insights from NeuGroup founder Joseph Neu and senior executive advisors Paul Dalle Molle and Jerry Olivo.

Financial crises like the failure of Silicon Valley Bank reveal the grit, dedication and skill of first-rate treasury and finance teams—and their ability to manage risk when battling forces they can’t control. Upheaval, volatility and uncertainty also test the mettle of NeuGroup, whose mission is to help members, sponsors and partners withstand the blows.

  • Hours after regulators shut down SVB last Friday, the NeuGroup team ran an hour-long session where more than three dozen members shared what they knew and what they’d done so far. They answered each other’s questions and provided a path for their peers through the fog.
  • The Silicon Valley Bank Crisis Community session and two others have been hosted by senior executive advisor Paul Dalle Molle, a former head of technology banking in North America at Societe Generale.
  • In a video clip you can watch by hitting the play button below, Paul offers his observations on a bank failure that he says did not have to take place, as well as takeaways from hearing how members have navigated the crisis and lessons the collapse of SVB holds for corporates and their finance teams.

Deep bench. Paul is one member of a NeuGroup bench deep with talented individuals with a wealth of experience in banking and capital markets who have stepped up to connect and help guide members dealing with the fallout from SVB’s collapse.

  • They include Jerry Olivo former head of intraday liquidity at Citi treasury, senior director Scott Flieger (formerly of Deutsche Bank) and director Chris Hall (Mizuho, Deutsche Bank).
  • Jerry’s observations include this take on SVB’s shortcomings and the run on the bank: “Every bank with meaningful corporate and institutional deposit levels should be monitoring depositor concentration risks. This was a discussion topic at each of Citi’s Institutional Client Group ALCo (asset and liability committee) meetings.
  • “Also, this is where management skill comes into play. There’s no historic model out there that could be relied upon to forecast the very unique monetary and fiscal environments of the recent past, but common sense should suggest that if concentrated deposits build up as fast as they did, they could also exit at an accelerated pace and should be invested accordingly.”

Running the team. Overseeing the NeuGroup team’s response to the SVB crisis is founder and CEO Joseph Neu, whose experience guiding members during tough times includes the Great Financial Crisis of 2008. Here are some of his insights on the SVB debacle:

  • There is a need for cross-organizational collaboration during the developing banking crisis. Treasury has to work with AR to determine which customers were exposed to SVB or Signature Bank. Procurement must determine which suppliers lost funding, and the AP team needs to reroute payments away from frozen accounts in trust.
  • There is also a need to work with all of the finance team to validate new payment instructions, to avoid falling victim to cybercriminals. This is a good time for a payment security assessment.
  • It might also be time to work with HR to see how employees could be exposed, including via payroll services. Even if they are through a solid bank counterparty, is there a plan B if they go down operationally due, for example, to a cyber incident?
  • All the focus on uninsured deposits should also trigger treasury to review where it has cash and if it’s putting all idle cash to work securely in money funds or treasury bills earning 4% to 5% or more.
  • Following board presentations on risk, bank counterparty risk dashboards may return—if they went away—and some new KPIs might be inserted, such as the percentage of investment portfolio classified as HTM, interest rate swaps relative to fixed income assets, and the diversification of the deposits base.
  • If you don’t feel good about your own liquidity right now, do something about it by pre-funding, upsizing the revolver, and improving working capital efficiency—a big area demanding cross-organizational collaboration. Consider tapping the breaks on share repurchases.

A treasurer’s thanks. Following the first Silicon Valley Bank Crisis Community session, a NeuGroup member who is treasurer of a consumer retailer wrote, “As I finally sit down at the end of a very long week which was topped off by the SVB situation (which took up my entire day—I really could not afford the time), I wanted to offer thanks for everything the NeuGroup team does.

  • “The ability to pull together a short notice, emergency meeting on SVB that so many members participated in is just another example of the tremendous value associated with being part of NeuGroup. Thank you!”
  • NeuGroup in turn extends its thanks to you and every member committed to sharing knowledge with peers in need—a commitment grounded in trust that you’ll receive their help when you need it most.
  • Trying times like these require finance professionals to support each other with even greater determination than when times are good. And NeuGroup’s mission is to enable and enrich that support, whenever and wherever possible.
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Justin Jones
In FX, Technology

Advancing Analytics: FX is Embracing AI and ML

Rising pressure to protect earnings from currency volatility is prompting FX risk managers to pursue more advanced analytics.

Sixty-nine percent: That’s the percentage of participants in a recent NeuGroup for Foreign Exchange monthly session who are already using or are exploring the adoption of advanced analytics solutions. Their reasons include improving the quality of the FX exposure forecast, conducting scenario planning and having a more refined capability to measure hedge program performance in terms of volume, effectiveness and cost.

Rising pressure to protect earnings from currency volatility is prompting FX risk managers to pursue more advanced analytics.

Sixty-nine percent: That’s the percentage of participants in a recent NeuGroup for Foreign Exchange monthly session who are already using or are exploring the adoption of advanced analytics solutions. Their reasons include improving the quality of the FX exposure forecast, conducting scenario planning and having a more refined capability to measure hedge program performance in terms of volume, effectiveness and cost.

A sweeping trend. The pursuit of more AI- and machine learning-enabled tools is not confined to the FX department. While a little late to the party, treasuries are now joining the rest of finance in looking to produce more sophisticated and actionable insight to support business and senior management decisions.

Learning ML. Most members are still in the experimentation stage, but according to one participant in the session, the only way to come up the learning curve is by doing.

  • “We’ve been on a journey,” the FX manager said. One area of focus has been enhancing the accuracy of the forecast using machine learning algorithms. “Forecasting is a challenge,” he said, “because our cash flow forecasting process involves reaching out to over 150 entities worldwide.”
  • This corporate has been helped by the establishment of a finance center of excellence (COE) for analytics, staffed by data scientists who can write and update algorithms. “We are using data scientists to do more of a top-down format,” he explained. “We added the data scientists internally to help with this.”
  • While the company has had some success in forecasting net exposure, “We still don’t have visibility to explain variances.” With pressure from management, getting to the root cause is essential.
  • “We’re not perfect today,” he admitted. “We need to update the algorithms so we can get more details and set new parameters. We are making progress in improving accuracy but also automating part of the job to free up staff capacity.”

Leveraging embedded tools. Like the company above, other treasuries are taking advantage of finance-wide automation initiatives to gain access to better tools, for example through the implementation of SAP S/4HANA.

  • “We have been on a journey almost for almost five years to integrate all of treasury into SAP, initially using SAP Treasury, but now in a migration to S/4HANA,” one member shared.
  • Having an all-in-one solution was a big draw. “It has allowed us to get rid of third parties and give us more direct information for reporting,” she added. The third parties include vendors of FX risk management solutions.
  • “Our first step is to aggregate and clean the data, so we can all pull from the same source,” she said. “Data analytics is huge for us, and we’re working to build those models.”
  • Another member who is implementing S/4HANA said that the immediate benefit for treasury has been real-time visibility into data. “We’re very much in the limelight right now because of the extreme volatility and having this technology has helped us tremendously.”
  • “Once [SAP] gets full functionality in the platform, they will give other vendors a run for their money,” the participant predicted.

Three key considerations. The migration to SAP S/4HANA is a trend across NeuGroup finance and treasury peer groups. For the company referenced above, the transition was relatively smooth because it was on a single instance of SAP from the start. The FX manager acknowledges the migration is more challenging for organizations with multiple ERPs or even multiple instances of the same ERP.

Here are three things to consider, as the pressure to improve analytics mounts:

  1. The acceleration of finance digital transformation is bringing new opportunities for treasury teams that do not require securing a dedicated budget. With cost pressures mounting, it’s a lot easier to build a business case for benefiting from in-flight implementations.
  2. At organizations with a fractured system environment, treasury should consider whether a TMS vendor is adding or planning to add AI-enabled analytics, for example for forecasting. Another option is to adopt a standalone analytics solution to speed up the development of modeling capabilities; some tools may already be in use in another part of finance, e.g., FP&A.
  3. Finally, if treasury and finance are looking to build analytics core competency, there are ways to leverage a COE model to amplify the reach of a small group of data scientists. The benefit is the ability to try out different use cases and improve on the go.
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Justin Jones
In Diversity & Inclusion, The NeuGroup Insights Interview

Nurturing a Finance Career and a Family: One Woman’s Journey

How Emily Backstrom of General Mills navigates career and family, and how the company supports women in finance.

In this Strategic Finance Lab podcast marking Women’s History Month, Emily Backstrom, vice president for corporate finance at General Mills, shares with NeuGroup’s Nilly Essaides how she has successfully managed a 21-year career at the company, rising to her current position overseeing enterprise FP&A among other responsibilities.

  • Ms. Backstrom also discusses the value of deciding to lean into your career at certain times and, at other times, to step back to devote more time to family, as she did when she was a new mother.

How Emily Backstrom of General Mills navigates career and family, and how the company supports women in finance.

In this Strategic Finance Lab podcast marking Women’s History Month, Emily Backstrom, vice president for corporate finance at General Mills, shares with NeuGroup’s Nilly Essaides how she has successfully managed a 21-year career at the company, rising to her current position overseeing enterprise FP&A among other responsibilities.

  • Ms. Backstrom also discusses the value of deciding to lean into your career at certain times and, at other times, to step back to devote more time to family, as she did when she was a new mother.
  • In addition to offering advice for women juggling work and family and describing how General Mills supports women employees, Ms. Backstrom walks through her career journey, including a decade of experience in commercial finance leadership roles across the company’s operating segments and four years in Singapore, where she served as vice president of finance for Asia & Latin America.
  • Listen now by heading to Apple or Spotify.

In the interview, Ms. Backstrom also talks about the importance of making decisions based on values. That approach is one key reason she decided against returning to Wall Street after getting her MBA and sought out a company that would provide work-life balance and pursue her interest in business strategy.

  • “My learning is that if you make a choice based on culture and one that’s going to give you space to grow, you can build a really long career even if it is only under one roof of one company,” she says in the podcast.

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Justin Jones
In Risk Management

Striking a Balance: Simplicity and Complexity in Audit Reports

How internal auditors manage audit ratings and opinions is key to clear communication with the audit committee and management.

There is no one way to present an update to the audit committee (AC) of a board of directors. But there is a general consensus that internal auditors must be succinct and not drag AC members into the weeds with too many details.

  • That takeaway emerged at a recent monthly meeting of NeuGroup for Internal Audit Executives designed to help one group member create an internal audit (IA) rating and opinion program for her company.

How internal auditors manage audit ratings and opinions is key to clear communication with the audit committee and management.

There is no one way to present an update to the audit committee (AC) of a board of directors. But there is a general consensus that internal auditors must be succinct and not drag AC members into the weeds with too many details.

  • That takeaway emerged at a recent monthly meeting of NeuGroup for Internal Audit Executives designed to help one group member create an internal audit (IA) rating and opinion program for her company.
  • Members offered differing approaches to building an audit structure and communicating findings to management and the AC. This variance produced an illuminating discussion about the granularity and parameters of reporting structures.
  • A NeuGroup Peer Research survey conducted before the session revealed that 60% of respondents use a three- or four-level system for overall audit opinions and 91% of the companies used a three- or four-level system in providing risk ratings.
  • Some members offer overall audit opinions along with risk ratings, while others have abandoned providing opinions. One member said at previous companies he’d worked for, “CEOs and CFOs preferred not to have opinions for the report because they didn’t like the way it looked.”

Striking a balance. A balance must be struck to build a common understanding between internal audit, the AC and management. At several companies this has been achieved, in part, by simplifying the ratings scale used by IA to bring more efficiency to the IA function.

  • One member said, “We were spending a lot of calories over ‘which side of the line does it fall,’ rather than, ‘does everyone agree on the facts,’ and can we just get on with fixing the issue.”
  • Another member mentioned that it often comes down to leadership’s preferences, and that their audit committee wanted to keep the detailed ratings system because it helped them see which direction the process or control was trending.

What to include in a report. Internal auditors must also come to an agreement, sometimes with the input from the AC chair, about the level of detail in audit reports. Several members agreed that too much detail in the report might “excite the audit committee, perhaps unnecessarily,” opening up a can of worms about a finding that they didn’t need to worry about.

  • One member said a previous employer changed its color scheme for ratings from red, yellow and green to dark blue, medium blue and light blue so nobody was unnecessarily alarmed.
  • Some member companies provide their full audit report, including low-risk issues, to management but give a trimmed down executive summary to the audit committee. Other members provide all findings in an appendix to their executive summary that the AC can access.

Tracking issues. Beyond performing the initial audit, internal auditors must decide which issues should be tracked and which left to management to correct based on a management action plan (MAP). Some members track all of their findings, even low-risk issues, while others rely on attestations from management that they will follow IA recommendations.

  • One member transitioned from tracking all issues to using management attestations, he said, “because I was spending an inordinate amount of time validating MAPs, [even] low-risk ones. If they’re risk-rated why are we spending the same amount of time on a high one as a low one?
  • “My assessment was: ‘Does your dentist go and check that you’re brushing your teeth all the time?’ At some point you have to rely on people doing what they said they would do. Now if we find in a subsequent audit that they have misrepresented something, then we almost always mark that as a [high-risk issue]. I have to rely on management to understand the importance of the control.”

Bottom line: There are many ways to go about running an internal audit team, but the one commonality is finding the solution that leads to the most trust and understanding between IA, executives, and the AC.

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Justin Jones
In Technology

Making the Leap: SAP Treasury Solutions That Run on S/4HANA

PwC insights on corporates using SAP treasury tools and S/4HANA to ease automation and data analytics.

Implementing S/4HANA, the SAP ERP, and using SAP’s growing number of treasury modules is one way to accelerate treasury’s digital transformation—a route being taken by some multinationals that are deciding to forgo the use of a traditional treasury management system (TMS). PwC consultants discussed the benefits of this approach at recent NeuGroup meetings, including one that focused on the role of cloud-based ERPs and in-house banks.

  • It’s a route that makes the most sense for treasury teams at companies adopting S/4HANA across the enterprise—and in some cases having treasury and finance teams implement it first.

PwC insights on corporates using SAP treasury tools and S/4HANA to ease automation and data analytics.

Implementing S/4HANA, the SAP ERP, and using SAP’s growing number of treasury modules is one way to accelerate treasury’s digital transformation—a route being taken by some multinationals that are deciding to forgo the use of a traditional treasury management system (TMS). PwC consultants discussed the benefits of this approach at recent NeuGroup meetings, including one that focused on the role of cloud-based ERPs and in-house banks.

  • It’s a route that makes the most sense for treasury teams at companies adopting S/4HANA across the enterprise—and in some cases having treasury and finance teams implement it first.
  • “If SAP is your main ERP solution, then transitioning to S/4HANA will provide the best capability and experience for treasury needs,” according to a PwC presentation demonstrating that S/4HANA connects to SAP treasury software and also to third-party solutions for functions including trading and working capital management.
  • In a follow-up conversation, Karsten Kohl, principal at PwC, said that adopting SAP treasury solutions can give corporates the ability to better leverage ERP data, including for cash forecasting, balance sheet hedging and payments. SAP, he added, is a reliable vendor, while some “niche [treasury] systems are getting consolidated or lack attention from their respective vendors.”

Roadmap for the future. The treasurer at one NeuGroup member company said that by implementing S/4HANA and adopting SAP treasury software solutions, his company is “buying a roadmap for the future” and expects to benefit by having all its data in one spot.

  • He said by using a data analysis tool like Tableau with just one database—the case with SAP S/4HANA—“you can get the data generally faster, quicker and more up-to-date” than if Tableau is pointed at multiple databases. He also likes having a system that’s cloud-based and offers the company robust support.
  • This company will employ a private cloud that is an individual instance of the ERP with customization options. “This is the solution that most [MNCs] are using and that offers both comprehensive treasury functionality and the option to interface to SaaS TMS solutions,” Mr. Kohl explained. “It also offers flexible connectivity.”
  • Smaller companies may elect to use the public cloud, using “exactly the same instance” of the ERP as other SAP customers, he said.

Evolution of SAP treasury tools. Improvements SAP has made to its treasury and risk management solutions have persuaded more finance teams to use them. For example, SAP responded to pressure it received about its cash management and short-term cash positioning modules, Mr. Kohl said. “The solution has come a long way over the last few years and is a serious competitor in the treasury system market.”

  • PwC’s presentation showed a timeline of the steady development and expansion of SAP treasury technology in three categories since the debut of S/4HANA in 2015:
  1. Banking and payments.
  2. Cash and liquidity management.
  3. Financial risk management.
  • Among other milestones, the timeline displays SAP’s cash flow analyzer and hedge management “cockpit” for FX cash flow hedging coming online before 2018, followed in subsequent years by a payment factory solution, an FX balance sheet hedging tool, a new AI-based cash forecast solution in the last year and a new in-house bank solution in 2023.
  • SAP has also shown a willingness to collaborate with some corporates on standardized treasury solutions that work with S/4HANA that benefit other companies. NeuGroup Insights reported in Nov. 2021 that Google’s treasury team worked with its own engineers and SAP to make multiple enhancements to the software’s hedge management capabilities and exposure management trading interface.

Weighing pros and cons. Some NeuGroup members say that while SAP’s treasury tools have improved, the software is not intuitive and can require multiple keystrokes to do a simple task. They also recommend that treasury teams read SAP contracts very carefully to avoid agreeing to pay for services they don’t need.

  • PwC’s Mr. Kohl says that while SAP’s treasury system will never be as flexible as a standalone solution, adopting S/4HANA and SAP treasury tools allows corporates to achieve a level of integration and transparency that will serve them well on the journey to treasury transformation.
  • Another key benefit to weigh, he says, is the quality of the functionality SAP has built into the software for in-house banks and payment factories, which it redesigned from scratch.
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Justin Jones
In Capital Markets, Diversity & Inclusion

Win-win: Prioritizing D&I Firms for Share Repurchase Programs

Many NeuGroup members say diverse-owned firms excel at open market share repurchases.

A long-simmering debate over share repurchases is heating up, generating headlines featuring President Biden and Warren Buffett. But there is no debating that stock buybacks remain a hugely significant tool for corporate capital allocation: they’re projected to exceed $1 trillion in 2023.

  • Bigger insight: Comments about buybacks by NeuGroup members at recent meetings also reveal growing agreement that diverse-owned banks and brokerage firms are distinguishing themselves on share repurchases, providing treasury teams with top-rate service and achieving pricing on open market repurchase (OMR) programs that equals or surpasses other banks.

Many NeuGroup members say diverse-owned firms excel at open market share repurchases.

A long-simmering debate over share repurchases is heating up, generating headlines featuring President Biden and Warren Buffett. But there is no debating that stock buybacks remain a hugely significant tool for corporate capital allocation: they’re projected to exceed $1 trillion in 2023.

  • Bigger insight: Comments about buybacks by NeuGroup members at recent meetings also reveal growing agreement that diverse-owned banks and brokerage firms are distinguishing themselves on share repurchases, providing treasury teams with top-rate service and achieving pricing on open market repurchase (OMR) programs that equals or surpasses other banks.

Focused eyeballs. Size is one factor explaining the high marks corporates give diverse-owned firms. “They’re smaller, they’re really focused, they’re really driven, they’re not as overextended across the large numbers of programs,” one member said. “And at the same time, I noticed many bulge brackets shrinking their support of share repurchases.”

  • Sobani Warner, co-head of corporate finance at Siebert Williams Shank (SWS), one of the nation’s top diverse-owned firms, told NeuGroup Insights, “We probably have more eyeballs watching buybacks; we have the head of our desk watching, making sure that we are able to deliver within the parameters clients set forth, following their instructions, communicating with them.”
  • Participation in bond deals may be more lucrative for banks, but lower fees for OMRs are not a disincentive for many diverse-owned firms. “There’s no question that the business is lower margin, but it’s a solid margin relative to trading for institutional equities—it’s all about what your perspective is,” Ms. Warner said.
  • “The more touchpoints you have, the stickier you are,” she added. “Then clients understand the importance that we place on them by seeing us handle different types of their business with white glove service.”

High performance, high service. “Our experience has been excellent, the performance vs. volume-weighted average price (VWAP) was just as good as all the bigger banks from our revolver and better than average,” said one member who uses a D&I firm for OMRs. He added that he’s had no back-office or administrative issues, and “it was certainly a positive experience, and we have no reservations about continuing to use them.”

  • The member first vetted the broker’s repurchase desk, checking the number of traders and their experiences, and seeking references from other corporates. The member has since been used as a reference by the diverse-owned firm numerous times.
  • “If you use them all the time, your bank group might get upset because they’re losing fees, but we don’t have any problems sharing that business around,” he said.

Limitations and ways around them. Despite high performance on open market repurchases, just 40% of members who work with diverse-owned investment firms who responded to a recent NeuGroup research survey said they use the firms for buybacks. One reason, suggested by the member quoted above: many corporates would have to go outside their existing bank group to find, vet and choose another firm.

  • Also, as Ms. Warner explained, diverse-owned firms like SWS have balance sheet limitations, an obstacle for accelerated share repurchases (ASRs), which require principal trading and forward transactions.
  • However, SWS recently formed an alliance with a bulge-bracket bank that allows clients who may not be interested in OMRs to engage with SWS on ASRs, despite the size of its balance sheet.
  • The larger bank manages the risk on the deal, as well as doing the derivatives trading, which Ms. Warner said leaves SWS to “contribute by doing the baseline open market trading.”
  • “The larger firms realize that many companies want to be able to engage with the D&I brokers for their repurchase activities,” she said. “This arrangement allows a company to incorporate a D&I firm in their share buyback process and do an ASR.”
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Justin Jones
In Regional, Treasury Management

Reimagining the Regional Treasury Center’s Strategic Role

Post-pandemic thinking on the role of Asian regional treasury centers, often based in Singapore.

By Joseph Neu

I was excited to return to in February for the first time since 2019 to address NeuGroup for Asia Treasury, a group launched in 2011 to connect member companies to this vital region. While much has changed in a dozen years, Asia in 2023 remains crucial for MNC growth plans, so the group’s bridging mission remains more important than ever.

Post-pandemic thinking on the role of Asian regional treasury centers, often based in Singapore.

By Joseph Neu

I was excited to return to Singapore in February for the first time since 2019 to address NeuGroup for Asia Treasury, a group launched in 2011 to connect member companies to this vital region. While much has changed in a dozen years, Asia in 2023 remains crucial for MNC growth plans, so the group’s bridging mission remains more important than ever.

  • When I met with members before the pandemic, I wanted to help them navigate a more strategic role for MNC regional treasury. Since then, NeuGroup has pivoted further to embrace strategic finance professionals who move beyond SG&A support roles to become valued business partners.
  • It is my mission now to see regional treasury centers (RTCs)—especially those in Asia—join this pivot. The roles and responsibilities of RTCs must elevate to deliver more value. Treasury operations and low-value transactional work belong elsewhere—ideally in the hands of machines.
  • The good news is that discussions with members suggest that RTC roles will be more customer- and supplier-facing—aligning them with the strategic finance focus.

Innovation that drives growth. Singapore has gained in strategic significance for MNCs as a gateway to Southeast Asia—becoming even more expensive as a result; the economics support the continuing trend toward local hires vs. expats doing “study abroad programs.” The city-state, meanwhile, has continued to successfully position itself as a finance and innovation center, including for liquidity structures, especially payments.

  • Chinese tech and other companies are setting up shop to support their international businesses and leapfrogging traditional cross-border structures.
  • The Monetary Authority of Singapore, the central bank, is supporting numerous projects to unlock value from the (regulated) digitalization of payments across borders. Among these, Project Ubin, has resulted in experimentation with blockchain-based payment rails for programable money.
  • In 2021, DBS, JPMorgan and Temasek formed a special tripartite technology company “to reimagine and accelerate value movements for payments, trade and foreign exchange settlement in a new digital era.”
  • Not all programmable money has to live on a blockchain, yet what banks are learning from experimentation with digital currency is showing up in the fiat world, segregating firm funds from those of ecosystem “marketplace sellers” and integrating bank accounts and digital wallets.
  • Separating real solutions from hype is a role for Singapore-based RTCs. Speaking to experts there will help MNCs do this.

RTCs should be bridging all this innovation to drive business growth.

  • Technology-enabled treasury operations with programmable money will free up time to do this.
  • The data from digitalization of transactions will make forecasting and planning that better serve business ecosystems less time-consuming.

RTC incentives no longer tax driven. The other major change from 2011 is that tax incentives are no longer a driver of treasury center location. OECD corporate minimum tax and BEPS have taken tax incentives further off the table in 2023—if not eliminated them as an RTC consideration.

  • Today, financial infrastructure, policy and government support are what matters. Grants to support strategic finance investment, including the training and development of future-oriented, strategic finance professionals have replaced incentivized tax rates.
  • Cost and quality of living also count in our post-pandemic world. This is why Thailand is making a bid to attract start-ups and finance types who would rather not have to fly to play at the beach.
  • Tax structures, of course, never fully go away, so check with your tax department to see if there isn’t something they can design that still works from a cash perspective.

Agility centers. The final lesson from the pandemic being applied at RTCs is how to remain agile and promote agility out to the periphery and back to the center. Indeed, promoting agility from the regional center may be the answer to unlocking the most growth and innovation in Asia.

  • Supply chains are shifting and MNCs need to be agile to keep them both resilient and sustainable. Let RTCs support these shifts from a finance perspective.
  • Shared services are transforming with the opportunities empowered by technology. What was once a RTC coordinating role with a low-cost center might become one for higher-value activities with a center of excellence.
  • Finally, RTCs can educate local monetary authorities and other government policymakers to adjust policies to better promote direct investment and become more agile in how they manage their balance of payments.

The mission. Working with our members and their partners in the region, NeuGroup remains committed to:

  • Supporting MNCs in Asia.
  • Making regional treasury centers more strategic and agile.
  • Connecting members with all finance-business partner activities in the region.
  • Bridging those finance-business partner activities in Asia with those HQ is planning to bring into the region.
  • Making the career paths for finance professionals in the region more rewarding.
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Justin Jones
In FX

Lowering the Volume on FX Noise in the P&L

Higher interest rates and economic uncertainty have treasuries taking a long look at FX risk management programs.

Recent signs of economic strength and enduring inflation have raised the specter of more interest rate hikes. This does not come as a surprise to NeuGroup members: In the Treasurers’ 2023 Agenda Survey, they ranked political and financial volatility as second and third on their list of risks for this year. That’s up from fourth and fifth place in 2022.

Increased scrutiny. While economic and financial market volatility influence every part of treasury, they have the most direct impact on FX risk management. Fluctuations in the value of the US dollar against other currencies are threatening to deliver a double blow to companies’ financial performance, i.e., injecting volatility into the P&L, just as earnings are diminishing.

Higher interest rates and economic uncertainty have treasuries taking a long look at FX risk management programs.

Recent signs of economic strength and enduring inflation have raised the specter of more interest rate hikes. This does not come as a surprise to NeuGroup members: In the Treasurers’ 2023 Agenda Survey, they ranked political and financial volatility as second and third on their list of risks for this year. That’s up from fourth and fifth place in 2022.

Increased scrutiny. While economic and financial market volatility influence every part of treasury, they have the most direct impact on FX risk management. Fluctuations in the value of the US dollar against other currencies are threatening to deliver a double blow to companies’ financial performance, i.e., injecting volatility into the P&L, just as earnings are diminishing.

  • “Treasury is under a microscope,” said a participant in a recent agenda survey debriefing session for members of NeuGroup for Foreign Exchange.
  • 60% of participants reported they are working more closely with the CFO and the board, and one-third are revving up their collaboration with investor relations.
  • “If your hedging program is effective, you shouldn’t have a ton of noise, you should be talking to investors about everything else besides FX,” one member said.

Building a partnership with the business. The adverse effects of changes in currencies’ value are also highlighting the important role FX managers can have in supporting business decisions, from providing more accurate forecasts to build business plans to acting as a bridge between treasury and operational functions like procurement.

  • The focus is on “helping our commercial finance teams or CFO to explain how the financial impact has changed,” one session participant said. “We’re not trying to predict the market, but we’re looking at things that can happen, what to expect internally, and what’s driving financials.”
  • “We have been working with FP&A and providing them information on expectations of forward effects and gains/losses based on our findings,” another member added. “We communicate much more often with them to try and compare and get a more accurate forecast to help drive business decisions.”

Focus on the balance sheet. C-Suite concerns about FX impact on the P&L are prompting members to review risk management strategies, for example balance sheet hedging.

  • While 44% of participants have been hedging balance sheet risk all along, 22% reported they are working on launching a new program to reduce fluctuation in the FX gain/loss line. (See chart above)
  • “We are being asked to validate our hedging programs, and how we’re hedging,” one member shared. “We are looking at how to improve the balance sheet side of hedging, since misses are magnified due to FX volatility.”
  • “Even a small variance in hedge volume can provide positive or negative P&L impact,” agreed another, “and we’ve been tasked to fine-tune the balance sheet and cash flow hedge programs, and rethink if we’re hedging the proper volumes.”
  • As part of fine-tuning balance sheet hedging, one member conducted in-depth analysis comparing the plain-vanilla rolling forwards strategy to determine if they would do better by using collars, long forwards and participating forwards. After intense analysis of hedging cost and risk reduction benefits, “we decided to stay with our original approach,” the member said.

Bookending volatility. As the primary purpose of hedging is to insulate earnings per share (EPS) from FX volatility, members are taking steps to measure how their programs perform against this objective.

  • To determine performance, “we perform a [value-at-risk] analysis per currency pair looking back over the past year,” said one member who had completed the analysis in Q4 of 2022.
  • However, others suggested a more frequent review is necessary, given the wide movements in the market.
  • “We review what percentage we’re hedging and the overall performance result,” one member said. “VaR analysis used to be annual, but we started doing it twice a year in 2022.”
  • Another member questioned whether analyzing the exposures by currency is producing a holistic picture of the company’s currency risks. “Why not do the analysis on a portfolio basis?” he asked.
  • The first member noted that correlations “change all the time.” Plus, he is concerned that reporting on the portfolio level would be too confusing for his stakeholders. “You have got to know your audience,” he said.

Action items. “FX is in the limelight,” one session participant concluded. It therefore behooves risk managers to:

  1. Consider whether they should also hedge the balance sheet, given the amplified effects of frequent currency moves in order to bookend EPS volatility.
  2. Work directly with the CFO and investor relations to develop a qualitative narrative to explain the FX data to investors.
  3. Work closely with FP&A to create a more accurate forecast to support business decisions.
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Justin Jones
In Diversity & Inclusion, FP&A, The NeuGroup Insights Interview

A Finance Leader Balances Work, Family and Helping Other Women

In two video clips, General Mills’ Emily Backstrom shares her experience juggling work and family and describes General Mills’ Women Across Finance program.

March is Women’s History Month and NeuGroup is recognizing the achievements, challenges and experiences of successful women in finance. Below you’ll find two video clips with insights from Emily Backstrom, vice president for corporate finance at General Mills. She has worked at the company for more than two decades; today, she oversees enterprise FP&A, financial capabilities and systems, and financial support for several global functions.

  • Later this month, Ms. Backstrom will be a guest on NeuGroup’s Strategic Finance Lab podcast—available on Apple and Spotify. In an interview with NeuGroup’s Nilly Essaides, she discusses her career journey, including a decade of experience in commercial finance leadership roles across the company’s operating segments, including four years in Singapore, where she served as vice president of finance for Asia & Latin America.
  • In the first video clip below, Ms. Backstrom describes her personal experiences managing her career, including when she was a new mother, and discusses the value of deciding to lean into your career at certain times and, at other times, to step back to devote more time to family.

In the second clip, she shares how General Mills supports women throughout the enterprise and within the finance organization via a group called Women Across Finance. It organizes circles of like-minded women to foster professional relationships and mentorships, and allows senior leaders like Ms. Backstrom to give back as they rise through the ranks of the company.

In two video clips, General Mills’ Emily Backstrom shares her experience juggling work and family and describes General Mills’ Women Across Finance program.

March is Women’s History Month and NeuGroup is recognizing the achievements, challenges and experiences of successful women in finance. Below you’ll find two video clips with insights from Emily Backstrom, vice president for corporate finance at General Mills. She has worked at the company for more than two decades; today, she oversees enterprise FP&A, financial capabilities and systems, and financial support for several global functions.

  • Later this month, Ms. Backstrom will be a guest on NeuGroup’s Strategic Finance Lab podcast—available on Apple and Spotify. In an interview with NeuGroup’s Nilly Essaides, she discusses her career journey, including a decade of experience in commercial finance leadership roles across the company’s operating segments, including four years in Singapore, where she served as vice president of finance for Asia & Latin America.
  • In the first video clip below, Ms. Backstrom describes her personal experiences managing her career, including when she was a new mother, and discusses the value of deciding to lean into your career at certain times and, at other times, to step back to devote more time to family.

In the second clip, she shares how General Mills supports women throughout the enterprise and within the finance organization via a group called Women Across Finance. It organizes circles of like-minded women to foster professional relationships and mentorships, and allows senior leaders like Ms. Backstrom to give back as they rise through the ranks of the company.

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