Important alliance between Treasurer and CFO Important alliance between Treasurer and CFO Important alliance between Treasurer and CFO

Crises such as the Covid-19 pandemic and the Russian invasion of Ukraine are first and foremost causing dire human fates that affect us all. For the treasury community these crises also mean having to be prepared for constantly changing economic conditions with respect to the core tasks of securing liquidity, hedging market price risk, considering dynamic sanction regimes and monitoring counterparty default risks.

Therefore, it doesn’t seem surprising that CFOs are placing more importance on the role of the treasurer due to volatile foreign currency markets, the need for increased supply chain resilience, increased commodity prices and a tighter interest rate regime from central banks. When it comes to these issues, which significantly affect nothing less than a company’s future financial security, CFOs expect strategic answers from their treasurers.

An HSBC report published in September 2021 titled "Rethinking Treasury: the road ahead”¹ states that the challenges of the pandemic have led to much greater collaboration between CFOs and treasurers worldwide.

According to the HSBC survey, more than 50% of CFOs at large companies said their treasurer plays a key role in strategic decisions, compared to 28% at smaller companies. Most of all, treasurers are playing a greater role in setting growth strategies, while introducing even more rigorous risk management into their organizations.

According to the HSBC survey, CFOs recognize that treasurers deserve a seat at the strategic table and expect them to be involved in advising on executive-level decisions. More than 78% of CFOs surveyed in the EMEA region said they consider treasurers to be part of the C-suite. 60% of the CFOs of larger companies surveyed said that treasurers take responsibility for digitalization projects for financial data and processes.

Across the EMEA region, 56% of CFOs surveyed also said that their finance departments provide comprehensive support for strategy development related to corporate mergers and acquisitions, not only with data and analysis, but also with advice. Treasurers support the M&A journey by accessing a range of data sources for forecasts and cash flows, which are useful bases for calculating rating capacities, for example, and in the choice of optimal financing methods. On top of that, treasury departments have teams that are skilled at navigating IT architecture and proceeding in data analysis to provide the necessary support. Their expertise comes into play when discussions on M&A and capital allocation are held on a large scale in the areas of corporate development and strategy, and Treasury provides figures to back up the likely consequences of the various courses of action and to highlight implications.

¹HSBC September 2021, "Rethinking Treasury: the road ahead”

Driving forward harmonization and standardization is a key success factor for being able to react dynamically in one of the situations described above.

At first sight, this may sound rather banal, but the importance of digitization for treasury departments is particularly evident in times of crisis: What is needed are automated, digitized processes so that employees can concentrate on the content that is essential for the company. The time taken up by treasury accounting and other areas by lengthy exception handling, for example, should be minimized as much as possible.

Liquidity and liquidity transparency are going to be at the top of the agenda as overall economic conditions remain challenging and costs continue to rise due to various global supply chain and energy issues. There is a lot of focus on interest rates as they are likely to rise, which could result in higher leveraged companies having to restructure or refinance at an inopportune time.

Data is key in addressing these scenarios. This results in a consistently high demand for analytical applications and users. Indeed, it has been a growing trend in recent years, owing to the automation of the more transactional aspects of treasury. As a result, the requirement for treasury to be strategic, forward-looking and proactive will only increase.

All this is made possible by stringent and harmonized data flows, which are in turn based on a self-contained IT architecture.

Any IT landscape that is tailored to these dynamics is characterized, among other things, by standardized process flows, minimal manual intervention in reporting and, last but not least, integrated master data management. In this way, it can be ensured that the treasury is able to provide information on specific queries - for example, questions about a potential covenant breach in the case of a change in a commodity price increase with a simultaneous decline in sales and increased default risks in characteristic corridors to be defined. It soon becomes apparent that such scenario analyses are only possible with an integrated data architecture (seamless integration of the treasury management system with the ERP landscape including a suitable reporting system).

The skill requirements of new employees should be derived from the topics discussed above. What does this mean for human resources management? The increased importance of the treasurer leads to the need for CFOs to find someone who has both the technical and transactional expertise for this role and the strategic mindset and ability to build strong relationships with internal and external stakeholders. Treasurers, on the other hand, should increasingly look for new personnel outside of the traditional educational paths and, for example, take on board new recruits from IT and/or quantitative study programs and inspire them for the treasury profession in order to realize valuable synergies between the disciplines.