Treasurers looking for bright-line numbers to define world-class may be missing the point.
In a project completed in March, The NeuGroup’s FX Managers’ Peer Groups set forth what for them constituted best practice principles for corporate FX management. Now, the Global Cash and Banking Group is embarking on a similar project in the cash management realm. One of the key discussion points going into these initiatives is determining how to define what is world-class, or best practice. In deliberating this question, peer group members have encouraged us to think in terms of qualitative principles that can be interpreted to fit a variety of company types and circumstances. The alternative is to set quantitative metrics based on the KPIs of the top quartile or a more discriminate percentage of companies thought to be comparable and define these as best-practice.
No one-size-fits-all rules
Given their emphasis on principles-based benchmarks, treasurers looking for hard and fast rules to becoming world-class may be disappointed in the path chosen by NeuGroup members. While we have heard compelling arguments that certain processes within treasury can be formulated to define a single, best-practice approach, what’s practical and pragmatic for a Fortune 10 company to implement is not always appropriate for a firm outside the Fortune 1000. Industry variances will also be determinative, as will culture and management objectives.
This explains why the members of our FX peer groups were quick to emphasize a principles-based approach to world-class practices in FX management. Just within the 30-plus companies of their groups, there exists a variety of FX management programs with various levels and types of exposures, as well as risk management objectives in response to them. It would be impossible, they thought, to define specific rules that would apply to all. Defining guiding principles instead, the members wanted to be able to picture world-class in the context of their own firms and also allow them to evolve that conception as their context changed. The latter point also shows why recurring self-assessment, even against principle-based benchmarks, is encouraged: it is not just to motivate improvement over time, but a reapplication of the principles to practices as the FX program and the firm evolve.
Don’t ignore the narrative
Dig deeper into the some of the benchmarking that emphasizes comparisons to KPIs of the top quartile of your peer group and you will likely find a narrative seeking to explain how the so-called best practice or world-class companies are achieving the results that they are. This narrative is where the principles-based benchmarks are found. And the better your opportunity to probe the narrative, the greater is your understanding of the principles underlying best practice. You may prefer to start with the numbers rather than the principles, but don’t’ ignore the narrative. Indeed, having come around to the principles-based approach of our members, we’d argue that if you start with a discussion of principles you encourage more the narrative that will get you to the numbers you seek to achieve.