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Yes corporate treasury departments DO have a purpose, but …

Bruce Lynn, Managing Partner, Financial Executives Consulting Group, commented on our recent post on “Does corporate treasury have a purpose?”:  

He wrote, “Not sure Treasury is prepared to answer this question without some context considering:

  • Lifespan – no entities, especially corporations, are sustainable over long periods of time. Problem is that no one knows what is the natural life of an entity?
  • Company – whatever treasury’s purpose it cannot exist outside of the company’s purpose. I doubt senior management is willing to pay for treasury to answer the question on its own.
  • Market – company’s purpose must “fit” within the constructs of a market composed of other corporate entities usually constructed to obey a variety of economic principles.”

Outside forces and pressures

Lynn goes on to argue that the ‘Market’ is the defining outer barrier “of whatever treasury’s purpose is / should be.” 

He believes that companies exist to pursue economic returns. These economic returns are influenced by the amount and proper use of resources (inputs) to deliver valued outputs. Since the future by definition is uncertain, there will always be a risk that the value of outputs may not exceed the value of inputs over a given (sustainable?) time period.

That output risk is further compounded by the thoughts/actions of others who may / may not be employing the same principles. Example: 

  • Governments do not operate using the strict economic principles of a company. Unlike a company that can pick/choose its “customers” a government exists to serve all and is driven by the “greater good” which, I would argue, has only an indirect association with economic principles, at least in the short run a reason why governments often run budget deficits, spend on healthcare or education, even declare war which is ruinous to most economic entities and shortens their lifespan)
  • Individuals within an organization get to vote with their feet about whether a company or the part they work for is meeting its purpose as it and “the market” define it. These decisions employ not only economic ideas, but social and political considerations too. 

What purpose depends on

Lynn continues, “In other words, the question about a purpose depends as much on the entity (and the individuals within) as well as that entity’s counterparties. If one side does not wish to “play” with the other for whatever reason (e.g. bank refuses to lend; customer refuses to buy; vendor refuses to ship ) then that entity’s (economic?) purpose is compromised regardless of what it is. The history of business is littered with the corpses of companies that failed to consider the actions/reactions of their counterparties.”

So what is treasury’s purpose?

In our earlier article, we suggested that the purpose of corporate treasury could be: “To ensure the survival of the company sustainably”.

Lynn commented that:

  • “The principles enumerated in the early part of your article should be the core portions of treasury’s purpose. 
  • “Sustainability” should probably be embedded in the core purposes but only if viewed strictly within an economic context of what “counterparties” may think/do.”

Lynn concluded his comments by writing that, “Unsaid from treasury’s perspective is the very real risk that, despite its adherence to its purpose, there is a definite (unquantifiable?) risk others outside of treasury may not agree when social or political considerations are included.” And then added a reminder that we should not get too far away from the realities of corporate treasury: “Now, how much cash did I have in the bank yesterday?”

CTMfile take: Peter Drucker wrote in the 1950s that the only purpose of the business is: “To create (and keep) a customer”. In a way that could be said to be the purpose of the corporate treasury department too, e.g. the customers are the business operating units, the finance department, etc. However, corporate treasury cannot get away from Social Responsibility, e.g. Drucker also wrote in the 1950s that Social Responsibility was one of the eight key areas for setting objectives. Corporate treasury has Social Responsibilities too, e.g. to use responsible and sustainable banks and suppliers.


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