The corporate treasurer plays a key role in a company’s finances. Given the many changes that have taken place in the financial world in recent years, providing an overview of that role may prove helpful.
Corporate Treasurer Responsibilities
The core function of the corporate treasurer is to manage balance sheet risks and make sure assets and liabilities are matched. Key responsibilities under that umbrella, particularly for companies that operate internationally, include managing risks associated with foreign exchange, interest rates, and inflation. Some of those factors influence credit ratings, which is another area of responsibility.
Finally, there is the responsibility for dealing with banks and monitoring counterparties that hold cash and provide loans and provide other financing options. Depending on a company’s business, of course, this area may or may not be important. But since the world has become much smaller and more connected, and since capital can be accessed globally, more corporate treasurers are becoming involved in these matters.
Dealing with Stakeholders
When carrying out those responsibilities, a treasurer must deal with a company’s key stakeholders: the board of directors, banks, investors, suppliers, and customers, as well as the accountants and lawyers who help with transactions.
Dealing with stakeholders can be a challenge. Some provide quick approvals while others can be quite slow. For a treasurer, therefore, it’s important to understand a stakeholder’s decision-making process as well as what drives them. I used to spend a lot of time and energy getting to know stakeholders so I could anticipate how they would react and to understand which ones I could rely on.
That influences another part of the treasurer’s job, which is helping to decide which financial institutions to use. In looking at counterparties, for example, reputation and capacity are important. A treasurer must understand a counterparty’s process for syndication as well as how much they are charging for the work they are doing and the level of risk they are assuming. If they are syndicating out a large proportion of a deal, for example, the fee they are charging should reflect their lower level of participation.
Interest Rates and Monetary Policy
Considering the tightening of monetary policy now underway by many major central banks, another area corporate treasurers must watch is interest rate hedging. In this new world of rising interest rates, treasurers must carefully monitor floating rate exposure as well as foreign exchange positions. There are many ways to meet the challenge. When my company had expenses in another country and we leased a product in that country, for example. we might try to generate local currency to be able to pay for some of those expenses. I also worked with inflation rate caps on interest rates and used a combination of swaps and caps.
Of course, one of the challenges of doing all that efficiently and effectively when treasury functions are decentralized is making sure the decisions made locally make sense for the entire corporation. For example, if we were at long U.S. dollars in one place, we may not necessarily have needed to hedge that position because we were short U.S. dollars someplace else. At the same time, there may be local tax and accounting issues that favor acting locally. Coordinating and making sense of local and global priorities, therefore, is now an important part of the treasurer’s job.
Capital Markets
Finally, helping a company access the capital markets in the most effective way possible in another key part of the treasurer’s job. To do that, a treasurer should be involved in planning the action as early as possible. If a capital expenditure is being planned for three or four months in the future, for example, it’s important for the money to be on hand when the spending begins, and that requires considerable preparation. Internal approvals for the kind of financing planned must be obtained, and rating agencies must receive notice as well — usually a week or two before the financing event.
Treasurers also must make sure to review their company’s reporting requirements to make sure that everything about the financing is disclosed in a comprehensive and timely way. Assuming all those things are done, the treasurer must then interact with the underwriter or group of financial organizations involved in the financing.
With any financing, and with much else in the treasurer’s purview, the rating agencies must be kept in the loop — even from a selfish perspective. I say that because one of the key performance indicators of the treasurer’s job is not only return on capital but also the company’s credit rating. While ratings are the result of everything the treasurer and company do financially, the treasurer is ultimately responsible for the relationship with the agencies and for trying to help them understand the company’s business. The better the treasurer does in that regard, the better for all concerned.
About Paul Rofe
Paul Rofe was formerly Vice President, Corporate Treasury and Group Treasurer at Aercap Holdings. Earlier, he served as General Manager of Portfolio Management at BAE Systems and as Finance Manager at Airstream International.
This financial industry article was adapted from the GLG Roundtable “The Life of the Treasurer.” If you would like access to events like this or would like to speak with financial industry experts like Paul Rofe or any of our approximately 1 million industry experts, please contact us.
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