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Risk Management

Treasurers Can Help Boards Reduce Risk

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February 08, 2018

Here’s where treasury will be invaluable to corporate boards in 2018

Soft SkillsGlobal multinational corporations (MNCs) face a multitude of risks this year, including activist shareholders pressuring them on how to best use excess cash following US tax reform. Then there’s adapting to rising interest rates; and don’t forget the inexorable force of the digital revolution that’s forcing companies to embrace modern technologies or get left behind.

These risks and others are of particular concern to boards of directors, says Susan Keating, CEO of WomenCorporateDirectors Foundation (WCD), a not-for-profit group that advocates for greater diversity on corporate boards. “As companies struggle to understand the impact of shifting economic markets around the world, boards of directors are up against some very tough governance and strategic challenges," she says.

WCD recently published a list of 10 ways corporate boards are tackling risk in 2018, and several of the challenges the group cites present opportunities for treasurers to step up and help directors and senior executives mitigate risk. Here are a couple of them:

Rethinking fintech. The race to embrace financial technology by banks and technology companies that once viewed it as a threat is based, WCD argues, on the recognition that “these technologies are critical to enhancing the customer experience, opening new channels, and improving productivity.”

Treasurers, too, continue to hop on the fintech bandwagon: NeuGroup meetings and NeuGroup Peer Group Research make clear the pressure many face to modernize, digitize and automate with the help of fintech. A recent cross-group survey found 85% of treasury transformation projects involve changes to treasury systems infrastructure, including treasury management systems (TMS) and other fintech.

That number is striking, given that more than two-thirds of responding members have completed a recent treasury transformation project, have one currently underway or plan to begin one in 2018. “Fintech risk and reward” was one of the key takeaways from the 2017 annual meeting of NeuGroup’s Bank Treasurer’s Peer Group, with the post-meeting report noting that fintech innovations “continue to drive efficiency for banks that investors read as positive, especially since the pressure from startups is starting to abate and the competition is shifting to incumbent banks and large tech firms.”

Another key takeaway from NeuGroup meetings in the second half of 2017 speaks to the role treasury can play in communicating to the board about technology: “Treasury can burnish its strategic role within the organization by keeping abreast of digital treasury and complementary fintech developments, assessing which solutions warrant buy-in from senior management.”

Creating a stakeholder engagement plan. WCD notes that activist shareholder campaigns are going strong, and says a robust stakeholder engagement plan is critical. To minimize a company’s weaknesses, it recommends board members “think like an activist and ask yourselves, ‘Do we have undervalued shares, weak leadership, poor strategy, or excess cash?’”

The prospect of excess cash looms large for treasurers at US MNCs. Tax reform lowered the corporate rate from 35% to 21% and made repatriating overseas profits less onerous. A recent NeuGroup Peer Research report on treasury transformation noted, “Pressure from shareholder activists will complicate the balancing act senior management must perform with treasury’s help to recast capital structures in light of new opportunities to deploy cash.”

And NeuGroup’s key takeaways for the second half included these recommendations: “Treasury needs to keep pondering the right capital structure and balance sheet mix, plus a strategy to deal with an influx of untrapped cash; members must grapple with the question of what’s excess capital, and be prepared to defend their answer, as shareholder activists prepare to confront companies.”

In addition to fintech and stakeholder engagement, several other points on the WCD risk mitigation list should resonate with many treasurers as well as board members. One is “Collaborating with Regulators,” which recommends a proactive approach instead of trying to avoid regulators. “Go to the regulators, talk about what you’re doing, and get guidance,” WCD says.

A related item with relevance for treasury is “Going above and beyond compliance.” WCD notes that society’s expectations of companies today mean it’s not enough only to comply with laws and regulations. To create long-term value, WCD says, “transparency and perception are both essential…when trying to maintain stakeholder trust and create long term value.”

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