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Is corporate treasury messing up and being mismanaged?

Nordea's 2019 Treasury KPI report revealed, see, that treasuries are embracing KPIs, and the business is paying attention to the outcomes. But just like in 2016, treasuries are not using KPIs to evaluate their own performance or for benchmarking towards peers despite the accelerating pace of digitisation. Many treasuries also have a short-term focus. Increasingly lean and streamlined, they are often focused on mission-critical priorities like liquidity and funding.

Bruce Lynn at The Financial Executives Consulting Group, “found the results of the Nordea survey to be roughly equivalent to the more domestic survey done by the AFP which stated that most treasuries do not have KPIs that measure their ‘success’ or that the KPIs in use are ‘wrong’.” 

AFP 2017 survey results were disturbing

Lynn found that the AFP 2017 Strategic Role of Treasury Survey results were really disturbing because they showed that:

  • “The number of treasuries looking at their internal operating cash flows (e.g. cash position, working capital) is declining.
    • This result could lead one to believe that the companies in this survey are either over-borrowed, under-invested or overexposed to market forces. 
    • In other words, they are sensitive to funding costs and FX exposures (i.e. the top KPIs in the survey) because they know less about their own internal 'flows'
  • Compensation: where treasury is not being rewarded for attaining KPIs.”

Lynn points out that, AFP’s 2017 survey showed also that:

  • Aspirational treasury – a long way from home? 
    • While 80% of treasuries believe they are playing a “strategic” role, while the survey showed that only 12% of treasuries are actually strategic
  • Treasury’s ability to lead / success metrics in use:
    • Liquidity and risk are the key elements of a treasury function but only 49% of organizations have financial metrics that track the “success” of this 
    • Treasury leads in management of working capital (i.e. a key component of liquidity) in only 64% of companies, i.e. in 36% of companies DOES NOT lead in working capital management 
    • Only 51% of treasuries believe management is effectively utilizing their skills despite the fact that 64% of treasuries say they have “good” communications with the C suite
  • Constraints:
    • Technology - Treasury’s ability to effectively use technology is in doubt. Only 51% strongly agree that treasury uses technology effectively
    • Staff – Implications from charts imply that a small treasury staff is hard-pressed to “cover the waterfront” and training is primarily self-taught

The survey showed a disturbing picture of the corporate treasury department:

Source & Copyright©2017 - Association for Financial Professionals, Inc. 

State of corporate treasury today

These two surveys reveal an unhealthy corporate treasury profession with corporate treasury departments:

  • Mostly not really being strategic, even though they claim they are
  • Many (about 50%) are not tracking their performance in financial metrics
  • Many are being mismanaged:
    • Only some 50% believe they are being effectively utilised
    • Being starved of resources and the ability to fulfil their potential contribution
    • Not being set meaningful KPI, e.g.  liquidity and risk i.e. balance sheet cash flow management, optimizing FX impact on both Earnings-at-Risk vs. Cash-Flow-at-Risk
    • Not being rewarded for achieving meaningful corporate treasury KPI.

CTMfile take: To correct this state of affairs requires a rethink of the role of the corporate treasury department, its contribution to the whole business organisation and how it is rewarded. The chart above shows how far corporate treasury has to go. Corporate treasury departments can do so much more.

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This item appears in the following sections:
Cash & Liquidity Management
Best Practices & Benchmarking
Operational Risk Management
Treasury insights

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