Melissa Cameron:  One is that there's a strong mandate and opportunity for treasury to be strategic. Ten years ago, most treasury departments weren't adding the same kind of value for their CFO, their board, and their business that treasurers are adding today. I've mentioned this in previous discussions with Treasury & Risk, but I often feel that treasury is the poor cousin in finance. It doesn't have the same head count, and may not have the same kind of technology infrastructure, as the FP&A [financial planning and analysis] group or the controllership group. Nevertheless, the profession has reached a place where treasurers can be very strategic and their teams can really have a positive impact on the businesses they support.

In the survey, we asked what treasury activities are important to the respondent's CFO and corporate leadership. Just about everybody said liquidity risk management and access to capital markets. But close to 90 percent of respondents said treasury has a mandate to be a strategic adviser to the business, and nearly 80 percent said treasury is expected to be a value-add partner to the CFO. (See Figure 1, below.) It's great that the vast majority of treasurers now see themselves in the role of a strategic adviser. If you don't think you're strategic, then you're certainly not, so I think this is a very positive sign.

T&R:  Around 90 percent of your survey respondents also said treasury is a steward of risk management for the company. What types of risks are treasurers responsible for these days?

MC:  Treasury functions today are not just focused on foreign exchange and interest rate risk. Treasurers are increasingly asking themselves: Are we covering the operational risks in our markets? And are we doing a good job of looking at countries that have major issues going on? Some companies will continue to have a risk function and a chief risk officer, and they will obviously have a head of internal audit. But from an operational perspective, treasurers and their teams might be the first to see a deterioration in the cash conversion cycle coming through on a cash forecast. They will be the ones who are looking at protecting operational cash flows in the different markets where the company does business.

The current situation in Russia is one example, but at times last year we might have said the same thing about Venezuela or Argentina or certain other markets. Increasingly, treasury is helping the business units figure out pricing strategies, re-pricing frequency, currencies in which products should be sold, where to pass risks to vendors if possible—even where to locate manufacturing because of issues around cash repatriation, cash conversion, and foreign currency risk. These are all ways in which treasury can contribute strategic value to the business.

T&R:  Are you seeing a lot of treasurers getting involved in decisions like pricing?

MC:  Yes. Product pricing, particularly in volatile markets, is a key value-add for treasury. Procurement and sourcing teams can go only so far in their analysis and ability to think about things like historical performance of currency pairs, what derivative alternatives are available, and how they should be benchmarking returns on capital. I recently worked with a company where the finance director was talking about doing some incremental business in a region with high geopolitical risks and getting a 15 percent return. The response from the treasurer was, 'I can put the money in the bank and get 20 percent. Why is this a good deal?' Treasury has unique insights into where returns should be in certain higher-risk countries.

T&R:  I noticed in your survey that about a quarter of all respondents (24 percent) said entering restricted markets is one of the key strategic challenges affecting their treasury function.

MC:  This is an area where treasurers need to have a greater voice. When companies are moving into new markets, we usually see an emphasis on top-line growth at the expense of cash flow generation. You can go into certain Latin American markets, for example, and have blow-out years where you increase sales by 30-plus percent. The trick is, how long is it going to take you to get the cash back? Is it a nine-month exercise, from the time you ship the inventory over until you can get the cash out? Are you going to be exposed to huge currency volatility in the meantime? Treasurers need to have a higher profile within the company in evaluating these types of risk-return tradeoffs.

T&R:  And half of the respondents to your survey said cash repatriation is a strategic challenge for treasury.

MC:  True. That's not surprising. Just under half of these companies are headquartered in the United States; if they have international operations, they probably have some cash repatriation issues. And many U.S. companies are waiting for tax reform, waiting to see what's coming with the change in political power. Tax professionals are a little gun-shy about doing anything drastic right now. So treasurers may be looking at interim measures they can take around in-house banking, further consolidation of offshore cash, maybe factoring intercompany receivables, but they're always going to have to deal with offshore cash and onshore cash.

What did surprise me, though, was that 40 percent of respondents cited lack of visibility into global operations, cash, and financial risk exposures as a challenge, and 40 percent said their treasury systems infrastructure is inadequate. Over the past five or so years, companies have been investing very heavily in treasury infrastructure. Perhaps some of these projects haven't been scoped effectively in terms of the reach of how many countries they're tapping into. Or perhaps companies have made acquisitions since the technology deployment and haven't yet brought those new businesses on board with their treasury platform. Either way, many treasury teams don't have the visibility they need.

To change that, treasurers need to focus on improving the data extracts around cash flow and balance sheet currency exposures that come out of the company's different ERP systems and other tools. We often see treasury teams dealing with multiple sources of data on currency exposures, inconsistent means of aggregating data from different source systems, and confusion among sales and accounting teams about what details to include in transaction-level information feeds. It's very important to get all that right. Treasury staff need to spend time with IT and with local-market teams to educate them about what treasury requires. If there are questions around data governance and data quality, resolve those before importing the information, and use those conversations as an opportunity to work out appropriate strategies with local and global finance and sales executives.

T&R:  What do you make of the fact that one in 10 respondents faces challenges related to poor understanding of treasury issues on the part of the board or executive management?

MC:  First of all, it means 90 percent don't think this is a problem. In some companies, the treasurer isn't even high-profile enough to be called in to educate the board on certain matters, so this is always going to be an issue for a small proportion of organizations.

Keep in mind that board members come from very broad backgrounds. You can't expect them all to be experts in treasury. A treasurer needs to be able to frame challenges or business opportunities in a way that someone who is a business professional, but not a treasury expert, can understand. That's an important skill. But treasurers also need to proactively stay aware of how to deal with this issue when it comes up.

T&R:  How should a treasurer deal with it?

MC:  Primarily through briefing and education. There may be an opportunity during board membership on-boarding for treasurers to educate incoming board members about their function and explain treasury issues in the context of the business. That investment up-front might be able to prevent misunderstandings down the road.

T&R:  So that's one place where treasurers should be inserting themselves?

MC:  Yes. Another would be in the global restructuring of tax. Anytime the tax function is thinking about supply chain optimization, transfer pricing, or intercompany loans, as examples, that is a great time for treasurers to also be collaborating with the tax department about things like 'How do we optimize our financing and FX strategies? And is there an opportunity for us to establish or improve on an in-house banking operation?'

T&R:  What about reducing the number of legal entities? Nearly half (47 percent) of respondents to your survey said their company is currently engaged in legal entity rationalization.

MC:  That's usually the last thing that's done. Even after companies are merged and the businesses are integrated, it often takes years to actually shut down the redundant legal entities. Perhaps the company has more tax returns to file and figures it should keep the acquired entities open for a while longer. But doing so may saddle the treasury team with excess bank accounts, and with monitoring and looking after redundant entities. The rationalization of those entities presents a great opportunity for streamlining treasury.

T&R:  Speaking of streamlining treasury, your survey respondents who came from the largest companies expect, in the near future, to significantly reduce the proportion of treasury responsibilities that are managed by decentralized functions. (See Figure 2, below.)

MC:  Yes, this was very interesting to us. Currently, in the largest companies, 63 percent of treasury activities in the organization sit in a central corporate treasury function, and 13 percent are incrementally handled by a treasury center of excellence or in-house bank, which is typically at a regional treasury center. For a company with U.S. headquarters, this might be a European or Asian regional treasury team; big corporates tend to have one to two treasury centers outside of headquarters. Then, the biggest companies in our survey have about 1 percent of treasury responsibilities residing in a shared service center that is not treasury-controlled. These might be centers where the company is doing a lot of operational finance, like accounts payable, accounts receivable and collections, maybe some accounting or procurement. And the company might decide to bring a little cash management in there as well, or bank account reconciliation.

So in total, between 73 percent and 76 percent of treasury activities are being covered by core regional or global teams, which means they're likely to be managed using standardized processes. The interesting element was that for the largest companies 4 percent of treasury activities are outsourced and 19 percent take place in a decentralized environment. This means 23 percent of treasury responsibilities are not being looked after by a central or regional treasury capability.

Now, some of that may be put down to recent mergers or acquisitions that haven't been fully integrated. And some of it may result from doing business in restricted markets, where regulations mandate that local treasury staff must do certain things. But having circa 20 percent of treasury activities in decentralized functions creates risks, and I think this result may be closely linked to the 40 percent of respondents who said they lack visibility into global operations. If you're decentralized and you don't have that connectivity into a common treasury system to know what's going on with cash in that market, what the currency exposures are, and so on, then you have a big challenge.

The good news is that the largest companies are expecting to reduce their level of decentralized operations, so they see the risks too. For the most part, they're shifting those decentralized functions into centers of excellence. That is a very good move.

T&R:  Why move to a regional treasury center rather than the centralized corporate treasury function?

MC:  Well, it's really hard to run a business in, say, Australia and have it served by a treasury team out of the United States. The business won't get any support on their Monday. On other days, time zones will severely limit when treasury staff is available to talk. Having a treasury center in Europe or Asia who can provide treasury support for Australia in a comparable time zone is very useful.

T&R:  Your survey revealed that about two-thirds of treasury professionals see standardization as a key benefit of using a center of excellence or in-house bank. The second most commonly cited benefit was control (55 percent of respondents), while cost-efficiency came in third (50 percent). How should a company go about moving to an organizational structure that depends more heavily on regional treasury groups?

MC:  Treasuries have to be savvy. If they want to evolve their operating models to be more centralized, they should expect resistance. Many wise initiatives are derailed by lack of alignment, so treasurers really have to look at this as a global change management exercise. For example, if you want to move cash management into a regional treasury center, consider involving a local representative in the design to make sure the initiative takes into consideration their unique local market conditions. Good planning, good process design to address the issues of centralization and standardization, and making sure the scope is fulsome and properly budgeted for are all crucial elements of the project.

T&R:  What are some other trends that you see changing the role of the corporate treasurer in the near future?

MC:  One trend we're seeing right now is that a lot of companies are breaking up. They have business lines that would be valued higher individually than the aggregate value of the single company. So organizations are breaking apart and relisting as multiple businesses. In our view, the treasury team needs to work with the corporate development team to value the different businesses. They should look at it from a shareholder perspective, and they should not let the investment bankers drive that strategy.

This is a key topic where treasurers can play in both strategy and execution. They would need to be proactive about learning how to value the parts, learning about the different divisions' business models, understanding their supply chain, and understanding cash conversion cycles. Different groups might also have different liquidity requirements, different collection profiles, different margins. If this is something that might be coming in the future of their company, treasury staff should start now to get ahead of it.

Another trend is that some foreign tax authorities, in making decisions about whether to allow interest deductibility, are increasingly looking at a company's overall leverage and structure of global operations. They are looking for greater substance in foreign treasury operations, so companies might need to move more decision-making or more money into their regional treasury centers.

T&R:  What about the cash hoarding that some companies are reportedly engaging in?

MC:  For me, one of the biggest surprises of our survey is that although corporate cash and investments have built up to record levels, most treasury teams remain focused only on capital preservation. Very few are looking to be a profit center, rather than a cost center, in their business. In fact, the survey revealed that only about 10 percent consider this an important goal.

As we continue to see declining bond rates, is that the right strategy? Are we going to get to an inflection point where greater exposure to different asset classes is going to become more of the norm? Will boards expect treasurers to consider other approaches to asset allocation, and will treasury start to think about its investment operations, at least, as a profit center? I think the answer is yes. That's one of the next transitions we'll see for corporate treasurers.