Survey: Treasurers Playing More Strategic Risk Roles
Over the past 10 years, treasury’s role in organizations continues to be more strategic, with treasurers and their departments taking on additional responsibilities. Why? As the de facto financial risk managers at most companies, treasurers are increasingly assuming a wider range of responsibilities and roles outside their traditional ones.
These roles include investor relations, insurance risk management, integrating with supply chain management and real estate. As companies continue to evolve through digitization and the Internet of Things (IoT), the treasurer’s role can be expected to continue expanding to include, for example, helping organizations leverage new technologies to improve supply chain performance and customer relations.
According to the 2017 AFP Strategic Role of Treasury Survey, 80 percent of respondents revealed that over the past three years, treasury has played a more strategic role at their organizations. Additionally, 80 percent believe the role of the treasury function will continue to grow and become even more strategic in the future. The results were drawn from nearly 350 treasury and finance executives.
Other key findings:
- 73 percent of respondents cite the close attention paid by senior leadership and the board to their organization’s liquidity and risk exposure as a primary reason why treasury plays a more strategic role today.
- Over 90 percent of respondents view skills such as communication and business judgment critical for an effective treasury team.
At the 2017 AFP Executive Forum, subsequent to the release of the survey, three treasury executives provided insights into how their roles have expanded into new areas. All of them focused specifically on how risk management has become a key responsibility.
At the forum, we had a discussion about the types of conversations treasury executives are having on risk. “Do you take into consideration that fourth pillar of political or geopolitical risk?” I asked.
Perspective One: VP and Treasurer of a Large U.S. Multinational Electronics Distributor
For this executive, who co-chairs enterprise risk management (ERM) at his organization, different business segments will reach out to him to better understand a term or condition.
Beyond just managing financial risk, treasurers must also serve as strategic advisors to their organizations.
“We’ll support the contracts group as we’re negotiating a global accounts agreement, which will have us servicing a large data company in seven countries for their data center needs,” he said. “We’ll look at the political risk, we’ll look at the contracting risk from an insurability standpoint in each of those countries. We’ll try to devise language to protect the company and ultimately our profit margins from any erosion.”
Perspective Two: VP and Treasurer of a Large Financial Services Company
Another vice president and treasurer, who also holds the title of chief risk officer for the entire company, noted that while all treasurers understand the business at a certain level, owning risk management across the entire organization completely changes your perspective. “The challenge for me wasn’t getting to know people across the company; that was pretty well-established. The challenge was really getting to know our risks,” he said.
Perspective Three: VP of Treasury and Investor Relations for a Large Global Food Company
A third panelist explained that he is the chair of a newly “reincarnated” risk oversight committee at his organization that his CFO asked him to take over as part of an effort to reboot risk management. This new committee has a very different focus than the previous one. “The risk oversight committee is a forum where financial risk is being monitored,” he said. “So, it’s FX, commodity risk—it’s the risks that are easier to quantify.”
And at a recent AFP Treasury Advisory Group meeting, about 15 treasurers and assistant treasurers across many different industries discussed how treasury is becoming more strategic and how their roles and responsibilities have continued to expand. Across all members of the group, beyond the traditional treasury roles of cash management, financial risk management, short-term investing and banking, the various roles ranged from debt issuance and other capital markets activities to risk insurance, M&A, leasing analysis, capex analysis and pensions.
Treasury’s role will continue to expand due to several key factors:
- With the extreme uncertainty and volatility in the global economy and markets, senior executives and boards increasingly demand more actionable insights from treasurers at a faster rate than ever before. Fortunately, treasurers have stepped up to the challenge.
- While it’s still up to treasurers to maintain their focus on liquidity and financial risk management, it is becoming very apparent that they must also fulfill a broader mandate to serve as strategic advisors to their organizations.
- Advances in technology such as fintech, IoT and digitization will require treasurers’ roles to grow even further as they assist their organizations in leveraging these new innovations.
Treasury departments in general need to be prepared to answer questions from other departments on a widening range of risk issues.