C-suite and board members need to comply with treasury share-of-wallet guidance.
The return of “old-normal” banking practices are being seen increasingly. However, one old-favorite banking practice that treasurers should beat back is the bankers’ circumventing treasury to pitch deals to the CFO and board. While it may be impossible to expect a complete cut off of communication over strategic finance, M&A and other high-minded advisory activities between investment bankers and those above the treasurers’ pay grade, it is consistent with best practice to ask everyone (no matter how senior) to be aware of—and seek to follow—the treasurers’ guidance on bank selection.
Discussions in recent NeuGroup peer meetings indicate that treasurers have made headway post-crisis in beating back bank expectations for business (e.g., “We are the franchise leader, so you need us….”) without reciprocal credit commitments. Moreover, smart treasurers have applied a new strategic thinking to reforming their bank groups to emphasize both the mutual advantages of lasting relationships, history (including the most recent experience through the crisis) and geographic coverage and capabilities (typically emphasizing banks with coverage and critical capabilities in higher-growth emerging markets).
The best way to prevent a banker lunch with the CEO to upset treasury’s work is to ensure that the strategic bank relationship planning and matching share-of-wallet considerations are well-communicated and regularly reported up the chain. The board presentation could build off their very recent concerns over bank safety and soundness, for example, and how the firm needs to allocate its business to cement relationships with those banks that came through in the crisis. The CFO especially should also back-up the treasurer as enforcer. Depending on treasury’s relationship with internal audit, the chief audit executive may usefully make the risk management case of compliance with bank relationship policy to the audit committee.
The CEO lunch with his or her “old friend” at Goldman may yet mean they are the lead on your next deal, but if the CEO has internalized treasury’s talking points well enough the outcome may be better—and perhaps even any final agreement on the deal will be conditioned upon a necessary conversation with the treasurer to ensure compliance with objectives that the CEO has articulated as important.