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Solving the oncoming treasury department staffing crisis and ……

Our posts on “Corporate treasury department staffing crisis is coming”, and on “US CFOs admit that they are not prioritising treasury management” had over 1,000 of views and generated much discussion.

Corporate treasury department staffing crisis is coming - Bruce Lynn’s solution

Bruce Lynn at the The Financial Executive Consulting Group agreed that “doing more with the same (or less)” treasury means that the company is increasing their operational risk.” He then pointed out that, “In an era of rising interest rates (last seen 10 years ago?) and other market forces (e.g. US/ China trade war? Brexit?) the combination of operational risk and market risk (over borrowed? Underinvested?) just compounds over all risks.

His solution is to:

  • Step 1 – adopt the appropriate corporate performance measures that reflect both business goals and market (i.e. rating agencies?) perception :.
    • More profits are desirable, but more debt or more FX exposure, not so much
    • Enhance profits goals with the concept of:
      • How much liquidity is “enough”?
      • How much risk is “too much”
    • Unfortunately there are no right answers, but companies should strive to stay within their predesignated control limits whatever they are
  • Step 2  - translate corporate to treasury performance metrics
  • Few treasuries today actually have performance metrics that matter, even those with a TMS or other technology
  • Multiple AFP surveys show this lack of metrics to be an issue
  • Starter set of metrics could be:
    • Free cash flow (by period, by business, etc)
    • Length of cash conversion cycle (more cash faster is better)
    • Ratio – use “Cash Days outstanding” (i.e. cash as % of current liabilities expressed in number of days) to control financial risks.
    • Set Cash as % of total debt. Start by assigning cash targets by business, bank, etc
    • Frequent use of after tax cost of debt as % of debt. Note: Lower US tax rates have actually increased this cost regardless of where market rates go
    • Use other ratios per bank debt covenants
  • Step 3 – hire the “right” staff that can interpret variances to performance.
  • Even airlines which have adopted technology which yells “PULL UP! PULL UP!” as planes are about to crash rely on pilots that do so
  • Make sure this staff has the right tools they can rely on (hint: NOT spreadsheets, so 1980s).

Generating respect

Our post on “US CFOs admit that they are not prioritising treasury management” showed that no-one has the solution as the entries on LinkedIn showed:

  • Peter Matza at the UK’s ACT. Wrote. “Well, it's an indictment of the AFP mainly as they are the largest domestic association. For the rest of us it's a question of bandwidth
  • VP in corpoate finance: “It's also because neither ERP nor treasury management systems are designed to provide useful cash flow reporting. We had to manipulate our workstation's data structure (and rig our own output) just to get simple direct cash flow statements.”
  • Tom Hunt at the AFP wrote, “A better question, why aren't there more CFO's coming from Treasury vs. the Accounting/Controllers Group.  After the Crisis, Treasury was elevated in utility to the company for their liquidity expertise and analytical capabilities. I still see it to this day.”

But they didn’t answer the question, why aren’t corporate treasury departments generating enough respect and confidence?

CTMfile take: Are the corporate treasury department staffing crisis and the lack of respect linked? How can corporate treasury generate respect?

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This item appears in the following sections:
Best Practices & Benchmarking
Control & Compliance in Operations

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