CRAIG A. JEFFERY, Managing Partner and founder of Strategic Treasurer LLC, has more than two decades of financial and treasury experience as a practitioner and consultant. Previously, he was Senior Vice President and Practice Leader for Wachovia Treasury & Financial Consulting. Jeffery, regularly quoted in treasury and finance magazines, is a permanent Certified Cash Manager (CCM), an Accredited ACH Professional (AAP), a Fellow of the Life Management Institute with distinction (FLMI), and a graduate of the University of Connecticut with a BS in accounting.

The Strategic Treasurer

A Partnership for Corporate GrowthBy Craig A. Jeffery

John Wiley & Sons

Copyright © 2009 Craig A. Jeffery
All right reserved.
ISBN: 978-0-470-40777-6

Chapter One

Building the Case for Being a Strategic Treasurer

A successful Treasurer must not only manage traditional funding and relationship activities, but also must possess an integrated and strategic view of the organization and broadly manage risk, add value by effectively partnering with key business players, and manage complex technologies and relationships. To do less jeopardizes the company and significantly limits their career.

-Henry L. Waszkowski, Managing Director, Treasury Performance Group

When going through a period of tremendous market turbulence and upheaval, as we have experienced recently, Treasurers have two primary thoughts. The first thought centers on their responsibility of protecting their organization for the next situation that will arise. They plan and prepare themselves for the next event, so that they will be able to respond quickly and properly to protect their organizations. Their second thought, during a lull in the storm, is about how exciting it is to be a Treasurer during this time. There has never been a better time to be a Treasurer than now. The equivalent of many years’ worth of learning can be crammed into weeks or days.

With market turbulence at an unprecedented level, this environment will hone some Treasurers’ skills and identify opportunities to improve their preparedness. For other Treasurers, it will point out significant gaps in their thinking and plans. Some will look for positions other than that of Treasurer-on their own initiative or out of necessity.

As increasingly broad financial difficulties have emerged, there has been marked improvement in the perceived value of the Treasurer. During long periods of relative stability in the liquidity markets, it is easier for senior management and board members to become complacent about the importance of Treasury for the health and well-being of the organization. Strategic Treasurers bring value to the organization in ways beyond securing the necessary capital and protecting the organization’s balance sheet. They identify and manage a range of risks, assist the organization in making better decisions with analytical rigor, and partner with other departments to improve processes and performance.

A Strategic Treasurer brings great value to the organization and has a strong sense of career fulfillment. The fact that Treasurers continue to develop marketable skills and intellectual capabilities is an added benefit.

There is much a Treasurer can learn both from history and the more recent variety of events and from issues that continue to emerge. The thoughtful Treasurer will not only learn from the specific situations. She will understand with alacrity how to apply principles already learned to new and different situations.

It is an exhilarating time to be a Treasurer. And being a Strategic Treasurer has never been more highly valued.

Volatility and Turbulence as Opportunity

Different surfers have different reactions as they head out into the ocean as the waves build up ahead of a hurricane that is bearing toward shore. Some think, I must be crazy putting myself at such great risk. Another response is a smile at the thought of what a great time it will be navigating in the new and uncharted surf. The level of focus that is required in the extreme environment is exhilarating. The surfer’s skills will be refined. This difficult environment provides a testing ground that will make regular surfing seem far easier than ever before.

Now, not everyone really wants to head out into dangerous surf, but there are times when even the most prudent will find themselves in situations that have emerged in which a response is needed. For example, the events of 2007 and 2008 have created extreme financial risk management situations-some of which possibly could have been predicted, but most of which could not have been prevented.

Those Treasurers who have mastered the basics and have prepared for dealing with a variety of situations can respond most rapidly and can quickly improvise when needed to adjust for changing conditions. Extremely challenging events will make some quit, break some, or make some stronger and better able to handle the next situation. Appropriate, continuous preparation will help bring about the third result.

Resiliency, Diversification, and Due Diligence

Organizations need to be resilient. They must be able to weather multiple storms, absorb multiple hits, and survive. No single event should put a company out of business or imperil its very survival.

No area in the company plays a larger role than Treasury in helping the organization be resilient. Securing and sustaining adequate liquidity may be simple in good times and nearly impossible when times are challenging.

The Strategic Treasurer will ensure liquidity and resiliency through a variety of means. This resiliency requires careful planning, diligence monitoring, and quick analysis and responses to changing conditions.

Building resiliency also means diversification, even though that appears to add costs to the organization during more stable times.

Diversification alone is not sufficient. Treasury will need to perform due diligence with various counterparties and providers as a matter of course. For example, in the 2007-2009 economic climate, due diligence requires more intense focus-especially when blue chip companies are failing, rating agencies’ information is suspect, and no one is quite sure how the government will respond to the latest situation.

The Strategic Treasurer will communicate both how and why he is building resiliency into the business. The Strategic Treasurer will also recognize that the world of second-guessers-who have the benefit of 20/20 hindsight-will always question actions and point out what could have been. The Strategic Treasurer will stay the course, even if the true value of what he is doing takes three decades to be recognized by the board and senior management.

At the end of 2008, the Bernard Madoff Ponzi scheme scandal came to light. The fund was enormous, long lasting, and highly restrictive regarding who could invest in it. Warning signals that were released beginning in 2000 were essentially ignored or buried for more than eight years. Some individuals lost their entire personal worth as a result.

This disaster came to light over just a few days, and its impact was not just confined to individual investors. Several charities lost all of their invested assets, which had been held with Madoff, and many had to shut down. Other charities were gravely impaired by losses or by the loss of big donors whose financial position had suffered greatly. Such situations are sad but instructive. Whether for-profit, governmental, or not-for-profit, organizations should have a level of resiliency that allows them to handle any type of financial surprise or environmental disaster. One bad situation or counterparty should not be able to put an organization out of business.

Being a Strategic Business Partner

Treasury is never effective when it acts in an insular manner-disconnected from the organization’s business. Treasury needs to be proactive in seeking to help the organization fulfill its mission and to help specific departments achieve their goals efficiently and thoughtfully.

Treasury brings a unique set of skills to the organization, skills that need to be brought to the table and put to use. The Treasurer’s analytical rigor can help every area of the organization. Her ability to understand the broader environment and her ready access to external advisors allows the Treasurer to employ the dialectical method and challenge the status quo when it needs to be challenged.

Most Treasurers have an inherent fiscal conservatism that helps prevent their company or organization from entering into overly risky situations. They provide an intellectual and financial framework of stability that is essential for survival and confidence.

Chapter 3 discusses in greater detail the value to the organization and Treasury when the Treasurer acts as a strategic business partner.

It Is Good to Be Needed

During the years and even decades when much in the world that impacts Treasury is stable, the organizational view toward Treasury has ranged from bare tolerance to general acceptance. But when extreme volatility hits the markets, the organization’s need to survive creates a strong realization of how important it is to have a great Treasurer. Such Treasurers not only help the organizations survive, but also help the various business units improve their processes. And, as Treasurers and their department help the organization make prudent decisions about investments and risk, they will be viewed as increasingly valuable.

Strategic Treasurers set proper expectations of their role. They also recognize the need to explain their role to the organization, and they realize that communication must be a recurring activity. Astute Treasurers recognize that communication and education are not a single event. Relationship and expectation management are vital to the organization and for Treasury. Chapter 4 covers this topic in more detail.

Technology Has Improved

Treasurers, in order to marshal all of the resources at their disposal, need a clear view of the battle and the resources available. The technology tools and services that are available have recently seen significant advances on many fronts. There are software tools that can make it far easier and more complete than ever before to gather information and identify issues and exceptions to policies. These tools allow Treasury groups to devote far more time to analysis and strategic issues.

Indeed, services are now available to medium and small firms that were once exclusively the domain of the largest multinationals. These services are available through banks and various technology vendors.

The movement to Internet-based services has been dramatic. For most companies, these application service providers (ASPs) offer an ever-expanding level of capabilities with a fraction of the overhead of the previous technology platforms. The functionality of ASPs, also known as Software as a Service (SaaS) providers, benefit many organizations. They offer a pay-as-you-go method of using technology, which means a lower capital outlay and automatically updated software. This method also avoids the major challenges of owning the necessary hardware, which is leading to faster and more complete implementations. Reducing the amount and magnitude of the technical headaches and operational activities is welcome relief.

Strategic Treasurers will take advantage of these new and improved technologies to support their goals of owning cash, managing working capital effectively, and helping to ensure that risks are managed and mitigated appropriately. Having a clear Treasury information and technology plan remains important and is now easier to implement and will better support the business processes and goals that Treasury must achieve.

Chapter 14 on Treasury Technology describes the opportunity and necessity of leveraging this technology in more detail.

Summary

Clearly, going through major market and governmental turbulence is the best time to be a Treasurer. Perhaps, as never before, one’s plans and skills will be tested. The resilience and strength of organizations depend on what the Treasurer has done and how she will respond.

The Treasurer who acts as a strategic business partner, instead of being simply a dispassionate vendor to the organization, will serve her organization far more effectively, enjoy the work more thoroughly, and stay gainfully employed far longer than those who focus solely on operational and tactical matters.

Being a Strategic Treasurer requires a strong technical background and the ability to communicate effectively with various financial and nonfinancial people in a way that makes sense to each. The Treasurer must have an especially strong ability to identify and manage risks. He must be or become the clear owner of cash and liquidity and will be either the overseer or owner of working capital. The health and survival of the organization depends, in large measure, on how well the Treasurer manages its business, counterparties, and relationships.

Boards of directors and senior management now understand, more than ever before, the value of having a highly capable Treasurer. This is the time of the Strategic Treasurer.

(Continues…)

Excerpted from The Strategic Treasurerby Craig A. Jeffery Copyright © 2009 by Craig A. Jeffery. Excerpted by permission.
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