If the CFO of a company is charged with driving forward the finances of the organisation, the treasurer will ideally be the one who plots the route and looks out for any potholes along the way.
Given the importance of the treasury role in an ever more fraught financial landscape, the relationship between these two officials is crucial to corporate success. Given that few CFOs come from a treasury background, although that number is increasing, often the alliance will depend on what makes a successful treasurer in the eyes of the CFO.
The fact that there is little standardisation of treasury functions across industries means that a clear understanding of the department’s role is essential from the perspective of the CFO. Although traditionally one of the leanest areas of finance, treasury now has many functions including cash-flow monitoring, funding via banks and capital markets, risk management, capital investment assessment, hedging and in-house banking. Once the many roles of treasury are understood, the potency of the department can be released.
Given the increased importance of treasury, most CFOs will identify communication skills as something they look for in a good treasurer. There are two aspects to this. Firstly, the treasurer must be able to explain the complex aspects of any transaction in simple language. This will help the CFO make the necessary decisions in a timely manner and explain policy to other major stakeholders.
Secondly, by clearly identifying the issues, treasury ensures the CFO will not be met with surprises along the way. This kind of transparency ensures the company executes decisions in an orderly fashion.
In a fast-changing world, reflecting an external environment which is impacting on all financial transactions, being fact-based and transparent means that a treasurer can play a crucial role in advising the CFO and cementing the collaboration needed among key decision makers. This is crucial when dealing with higher levels of risk.
Another major responsibility of a CFO is resource allocation, where the company is investing assets and funds. This task cannot be carried out without absolute trust in the information treasury is providing. With transparency comes trust.
All CFOs understand the need for a strong accountability focus within their organisation, and again this is where the relationship with treasury can help. The latter can provide an understanding of value drivers and how they are reflected in the company’s financial metrics.
In the current financial world, the role of the CFO is changing and involves more than protecting shareholder value. Now they must balance opportunity with risk. This involves making the right investment decisions, turning revenue into strong cash-flow and earnings, and finally optimising capital with strategic use of the monies generated.
Control of this environment is only possible with the strong CFO-Treasurer relationship outlined above. All companies look for a natural fit, so what makes the cogs mesh to drive the company forward?
The requirement for tight cash management is greater than ever with elevated financial-counterparty risk increasingly an issue over the past decade. This is where treasury expertise comes to the fore and CFOs recognise the pattern. The treasury department’s role in this context is highly valued and it now plays a pivotal role in protecting the company’s financial assets.
Screening capital investment, overseeing working capital, mitigating financial and commodity risk, reading the debt capital markets and managing banking relationships are all tasks which a CFO will expect from their treasurer. Spotting the landmines in the financial markets is a priority. Simply checking credit rating reports of lenders will no longer cut the mustard with diligent CFOs. They will expect treasury to continually scrutinise institutions using indicators such as moves in credit default swap spreads and market capitalisation.
A top treasurer will not only keep communications open with their major lenders but leverage the relationships. Some companies will want to work with suppliers by helping them obtain credit, lowering their own costs and helping working capital management across the supply chain.
CFOs may also want their treasury department to be more active in managing working capital, setting targets for net cash, especially in an age when locked-in cash could be better used. Strategic investments can be tricky and this is where CFOs expect accurate information from treasury.
The nature of the job means treasury covers a lot of ground. CFOs want to be comfortable about where every dollar is on their balance sheet and need treasurers to advise on the safety of investments and soundness of counterparties.
With the correct relationship in place, the CFO and treasurer become co-pilots driving the business’ financial strategy and achieving sustainable growth.
Simon Lynch is the owner of Treasury Talent.
Treasury Talent is a specialist treasury talent provider solely focussed on the treasury market with offices in Sydney covering Australia, Singapore covering Asia, and San Francisco covering California and the USA. To make contact firstname.lastname@example.org