The New Role of the Corporate Treasurer: Emerging Trends in Response to the Financial Crisis
International Research Journal of Finance and Economics, No. 78, 2011
22 Pages Posted: 12 Dec 2011
Date Written: December 12, 2011
This paper discusses the role of the modern corporate treasurer in a multinational company and its transformation in response to current challenges companies and treasurers face. The most significant incident driving change in the role of the corporate treasurer is the credit crisis that occurred in 2007-2009. The crisis replaced a focus on earnings with a focus on cash and liquidity, and marked the end of easy availability of cash for most corporates and the beginning of a situation in which the financial markets were no longer able to reliably supply corporate demand for financing. The crisis saw the end of a credit expansion initiated in the 1980s by the deregulation of the financial markets. Increased focus on liquidity and financial risk management changed the role of the treasurer dramatically. During the crisis, many sectors of the markets totally ceased to function, e.g. the ability to hedge foreign exchange and interest rate exposures was constrained for certain emerging markets and certain structured securities, such as Auction Rate Securities, became wholly illiquid. These disruptions led to an inability to hedge, manage liquidity or even properly measure certain risks any longer. Embedded risks - e.g., in vendor and customer contracts - also emerged as a critical focus and corporations were forced to take a broader view of risk in light of weaknesses and risks exposed by the crisis. As a result of these changes, treasury is no longer merely a function for cash management, funding and hedge accounting. Treasury is now a strategic function securing liquidity and understanding the true risk profile of the corporation. The treasurer is now much more involved in the management of the business and has become a business leader instead of an administrator. This transformation in role has placed a much higher demand on the skill sets of the treasurer and he or she must command the arts of communication and sales as any business area manager would.
While the changing role of the treasurer resulted in new requirements, multinational companies maintained their focus on efficiency – particularly in response to the economic downturn. Yet executive managers and treasurers must not concentrate solely on cost International Research Journal of Finance and Economics - Issue 78 (2011) 49 savings, as this would fail to recognize and prioritize critical strategic benefits such as improved quality, resiliency and scope of work. As Treasury has become a strategic role, the legacy operational mandate has lessened in importance but Treasury must still determine the optimal organizational structure that meets both strategic goals and supports overall efficiency. In optimizing the organization of roles, treasurers and business leaders must also consider multicultural and other barriers - in many countries, 'custom and practice' inhibit 'pure' efficiencies that might be achieved via centralization or even regionalization. Further, an excessive focus on 'rationalization' of functions can fail to attract and motivate key and highly qualified specialists required for critical knowledge centers, such as treasury departments. While a purely centralized model may, on the surface, appear optimal due to enhanced control and efficiency, competing factors that argue for local structures make it difficult for treasurers to determine the optimal balance between centralization, regionalization and locally sourced activities. Thus, treasurers must explicitly assess multinational organizational structures at the same time they face an expanding and more complex set of responsibilities.
Keywords: corporate treasury management, centralization of treasury, standardization, efficiency, financial risk management, cash management, assets and liabilities mgmt
JEL Classification: G30
Suggested Citation: Suggested Citation