Treasury departments increasingly expected to provide strategic direction

Treasury departments are increasingly being relied upon for strategic insight. According to a new report, the shift reflects changes in risks and opportunities, as geopolitical and technological changes usher in new business models, investment priorities and financial risks – however strategic maturity for most treasury departments remains a distant prospect.

Rapid technological advances and altering investment priorities are quickly changing key areas in which risks and opportunities manifest. A decade after the global financial crisis highlighted considerable risks latent in economic systems, and the finances of individual companies, the new ‘AFP Strategic Role of Treasury Survey’ from Marsh & McLennan Companies and the Association for Financial Professionals (AFP) explores the strategic role that treasury departments play in wider organisations. The survey involved 344 senior-level corporate practitioners.

Respondents primarily highlighted that treasuries continues to take on a greater strategic role within the wider company than three years previous, with 38% saying that they strongly agree and 42% saying that they agree, and only 8% disagreed to either extent. The result reflects long-term trends, with similar levels of respondents agreeing in 2011, and 2013, that the role was becoming increasingly strategic.

The consulting firm noted a number of possible reasons for the shift in strategic relevance to the role. Principal among them is the often de facto attribution of risk management to the role – which is of increasing importance in light of rapidly advancing technology and changes in consumer behaviour. The position has also increased its portfolio of responsibilities to include, among others, investor relations, insurance risk management, integrating with supply chain management and real estate.

The findings also follow another recent report from Enigma Consulting and Rabobank, whose annual 'Treasury Barometer' study found that in order to respond to the new challenges, treasurers are expected to add more value to the business, especially in the more strategic fields of their frontiers.

While there was increased reliance from the C-suit and board are placed on the treasury role for strategy, maturity of treasury departments varies significantly across the organisations surveyed.

The treasury maturity model provides a framework in which to identify the general strength of strategy departments at the organisations surveyed. The research found that almost half of organisations with less than $1 billion in revenues are still developing their treasury departments, with 41% sporting a dedicated treasurer with some support staff. For companies with more than $1 billion in revenues, 39% have an established department, 215 have an enhanced treasury function and 16% have a strategic/optimised treasury department – the most mature form.

“With the extreme uncertainty and volatility in the economy, senior executives and boards increasingly demand more actionable insights from treasurers, at a faster rate than ever before, and treasurers have stepped up to the challenge,” said Jim Kaitz, president and chief executive of AFP. “It’s up to treasurers to maintain their focus on liquidity management, forecasting and financial risk management, while also fulfilling a broader mandate to serve as strategic advisors to their organisations.”

Treasurers turn strategists

Respondents were also asked to identify what they believe to be the key reasons for the treasury department’s increased strategic role within the wider business.

The top most cited reason, by 73% of respondents, is ‘senior management seeking greater visibility to organisation’s liquidity and risk exposure’. 68% of respondents said that ‘liquidity management is increasingly important today’, while 49% believe that the ‘organisation has been more closely monitoring financial metrics’.

The areas of least impact on a shift to role of strategic input from treasury were ‘organisation has reduced finance staffing’, cited by 14% of respondents, and ‘senior finance professionals have a greater focus on regulation and are delegating strategic responsibilities’, cited by 18% of respondents.

The key areas of geopolitical changes generating risks and opportunities to which the treasury department is sensitive in its setting of strategic priorities are ‘loss of customers/revenue’, cited by 53% of respondents, and ‘currency volatility risk’, cited by 49%. Supply chain disruptions (30%), counterparty risk (27%) and loss of infrastructure operations (21%) are other areas in which the department notes strategy setting.

“As leanly staffed treasury departments take on a wider span of responsibilities, there is a greater opportunity for banks and others serving treasurers to provide robust insights, guidance and tools to help corporate treasurers excel at their traditional and expanding roles,” said Elizabeth St-Onge, Partner, Oliver Wyman, a wholly-owned subsidiary of Marsh & McLennan Companies.