Saturday, July 16, 2011

The Treasury Vision


Ever since first becoming part of the executive ranks, one of the questions I have continuously pondered is “what is the vision / mission of Treasury?” For me, that is a question that has an amazing variety of answers, or variations on a theme, and is worth re-visiting from time to time.
When I first moved into this role, my cash management staff suggested that it was “protecting company cash assets”. That certainly seems plausible, and indisputably it is a worthy objective, but I was never convinced that it was the overriding mission. Shouldn’t it be a little more lofty? A little more awe-inspiring?
Later, one of my former bosses suggested we conceptualize the mission as “being in charge of the balance sheet”. This view is somewhat more appealing as it covers, to a large extent, activities that we perform:
·         Short term assets and liabilities fall under the cash management and cash forecasting headings, as well as capturing the very trendy concept of managing working capital (maybe this isn’t so trendy anymore, it has been a topic for at least 6 years now - but it still generates its share of magazine article, free whitepaper offers, and industry award contestants).
·         Long term liabilities and equity are an important treasury focus. Debt issuance and structuring is almost always under its purview, and equity is probably a toss-up - 50/50 - whether it is a Treasury or a separate CFO function.
·         Long term assets is where the company’s investments lie, and in practice this is the most shared category. The company operations (or business units in larger organizations) certainly is the operator of these, and in general would like to add more. The performance of the assets fall under the finance field (CFROI, EVA, shareholder value, corporate performance, ongoing value, etc.) and play into the finance area’s valuation capabilities more than any other function in the company. In addition, if your debt is rated, then the performance of the assets has as much to do with your company’s credit rating as its capital structure.
Logical? Yes. Mystical and transcendent? No.
Perhaps looking externally would add something to the mix. Finance is a profession, and there is a certain camaraderie that exists amongst us across all fields and industries. Sometimes you can sense more of a common purpose from your professional peers than you can from those within your company.
Viewed from this angle the vision needs to include professional as well as company acceptance. Are you actually involved with working capital since it has been such a hot topic for what seems like the last decade, or are you not? Have you achieved straight-through-processing for a significant portion of your activities or have you not? While the company may not care, or have its reasons for not pursuing - these objectives, the answers to these questions - still determine whether your head is held high or your tail is between your legs when you show up at the Association of Finance Professionals annual conference, or the next local chapter meeting of Finance Executives International, or at your quarterly meeting with your savvy commercial banker.
The final thread I’d like to pull into this is as follows: one of the companies I worked with had an entire area called “Decision Support”. However, what this area’s primary function entailed was comparing budget data to actual results. You can certainly find links all over the web that deal with the fact that focusing on past performance, i.e. stale data, is like driving in reverse using a rear-view mirror!
Finance professionals are trained from school onward to produce pro-forma (that is, future) models. This is an important component of a comprehensive decision support function, which attempts to answer the question of how do we deal with what is going on now and will likely occur tomorrow versus what happened last month and how did that compare to we thought was going to happen a year ago when we set the budget?
Decision support connotes just that – a support function. Finance’s role is not necessarily to decide, it is to provide information and inputs that are important factors in the decision from its professional perspective.
At one time I went through the “develop the vision and mission exercise” with my staff, and they managed to incorporate most of what has been discussed in this blog into two simple sentences:
·         To inspire in others confidence in our abilities, knowledge, and expertise
·         To serve as an approachable and dependable partner
The first bullet addresses both the internal organization and the external professional aspects while simultaneously incorporating the ongoing, functional aspects of Treasury work, while the second item addresses the decision support and advisory functions.
I would love to hear your thoughts about this take on the finance function’s vision and mission if you have them.
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