Corporate treasurers have barely had a moment to catch their breath. A pandemic, geopolitical conflict, rising interest rates, financial market volatility, bank collapses, and other major issues have caused a relentless amount of disruption.
But what some treasury teams might not yet be adequately grasping is that it is not a temporary state: volatility is the new normal and corporate treasury teams must adapt with urgency or risk getting caught unprepared if the next adverse event impacts their organization’s financial health even more directly.
In particular, corporate treasury teams must take steps to build their own safety net—not for “normal” fluctuations in operating conditions, but for a world where regular volatility is itself the norm. Doing so is key to ensuring alignment with the CFO and broader C-suite’s strategic goals in ever-changing conditions.
Don’t let past stability mislead you into overconfidence in your financial strength and flexibility. Effective corporate treasury planning and execution are challenging even in the best of times, and it’s become an order of magnitude more difficult given now-ubiquitous choppiness in virtually every industry.
Corporate treasurers and the office of the CFO can strengthen their organizational alignment and stability if they take proactive steps to adapt. Consider these three strategies for doing so.
- Refocus on the fundamentals.
Particularly within any organization that has not yet felt the effects of such regular macro disruption, it may be tempting to adopt an “if it ain’t broke, don’t fix it” mindset. But that risks ignoring the realities of the past three years. Instead, it’s time to proactively and holistically revisit and optimize treasury fundamentals, including a thorough understanding of your cash positions, your forecasting, and other core treasury activities.
Making an effort (now) to do this creates the foundation for fostering organization-wide stability, but it also empowers the business to more rapidly pursue new strategic opportunities or competitive advantages. To not do this likely means you’re not maximizing your working capital and operating from a position of strength.
The rising interest rate environment is a great example of the need for agility. There’s regular movement into and out of various asset classes as a means of chasing and optimizing yield, yet many organizations aren’t positioning themselves to take advantage. They can’t react quickly enough or do things like real-time payment transfers, which subsequently means they’re underutilizing their valuable capital.
2. Go beyond the basics.
In volatile capital markets and macroeconomic conditions, the basics—an ERP system, your bank portal, etc.—are no longer sufficient on their own. You need a comprehensive, single source of truth about your cash positions. Otherwise, depending on the specifics of your FI structure, you’re probably missing out on interest rate arbitrage opportunities. And if you’re a multinational business, your FX strategies are probably not working optimally.
The pandemic, in particular, underscored the need for systems that codify data and knowledge, so that when employees leave, there is minimal “brain drain” effect.
This is all the more crucial because volatility isn’t just a matter of macroeconomics. Big-picture conditions constantly intersect with a company’s microeconomics, and when the latter isn’t well understood by the people who need to know it best – the treasury team – then missed opportunities and major problems are more likely to happen.
Without actionable, visible knowledge, treasury teams can’t make decisions in real time. Recent bank failures are a stark reminder of the need to understand how macro conditions intersect with company specifics on a 24-7 basis. Corporate boards are asking more direct questions about the business’ cash positions, risk exposures, and organizational readiness to adapt in the face of significant disruption. Clear, actionable answers to those questions require clear, actionable information.
Sub-optimal interest rate hedge programs are a direct outcome of disjointed approaches to cash management and forecasting. Traditional hedging programs have focused too much on “easing” the CFO and other stakeholders into a changing rate environment. But what if the C-suite wants to act with urgency? That’s no longer sufficient in terms of how you manage risk in a volatile rate and FX environment.
If you’re still running the same generic program put in place a year (or more) ago, it’s time to revisit it.
3. Invest in automation and digitalization.
Underpinning all of this is a lack of digitalization and automation in the corporate treasury realm. Teams are relying on manual, legacy processes because that’s what has always been done, not because that is the best path forward.
True strategic alignment with the C-suite and board requires the visibility and nimbleness that comes with increasing automation and optimizing processes for the digital age. This is both a technology and culture endeavor of “the way we’ve always done things” can’t be treated as sacrosanct.
As Catherine Portman, VP, Treasurer at global cybersecurity firm Palo Alto Networks told me recently: “Automation has been critical to modernizing our treasury operations, and the improvements are stark. We’ve spent the last 18-24 months increasing our use and integration between our global Treasury systems, our banking partners, and ERP system. Instead of manual banking logs, downloading documents, and tracking balances across a myriad of spreadsheets, we’ve fully automated our process. This not only reduces manual work but ensures a more timely, less error-prone operation that can accommodate increased volume as the Company’s activity grows. These efforts align with our CFO’s vision to simplify, build systems to scale, and enable efficient global processes across the organization.”
The bottom line depends on accurate, real-time data. Boards demand it, C-suite leaders demand it—and corporate treasurers should, too. It’s the only viable way (especially given that treasury teams are being asked to more than ever with the same headcount) to ensure stability and strength.
By adopting automation and adapting processes for the age of disruption, treasury teams won’t just survive – they’ll thrive and help their businesses do the same.
Renaat Ver Eecke is the CEO at GTreasury, a treasury and risk management platform provider.