New thinking on how treasury can expand on recent strategic visibility.
In a recent survey of The NeuGroup’s Tech20 Treasurers’ Peer Group, 65 percent said that their board relationships over the last 18 months could be characterized as elevated interaction due to the crisis that has been sustained or further elevated (13 percent) as the crisis ebbed. What then might explain these sustained or elevated treasurer-board relationships?
• Greater attention to capital structure. More board-level focus on capital structure has certainly boosted treasurers’ face time and reporting to directors. The tech treasurers cited debt structure, cash levels and investment of excess cash as principal concerns.
• More focus on risk management. Part of the focus on capital structure is to better position companies to stand up to uncertainties. Thus, the counterparty risk discussions begun at the height of the crisis, focused on banks and financial counterparties, have broadened to include exposures faced across the business. This evolution has further strengthened treasurers’ seat at the table and their leading roles in enterprise risk management initiatives.
• Realization of treasury’s value in fulfilling M&A mandates. For many tech firms, the capital structure discussion is often focused on maintaining flexibility to support acquisition strategies. Thus, some treasurers have become “joined at the hip” with corporate development groups and their involvement at the C-suite and board level.
Taken together, these factors also contribute to a greater role for treasury in strategic planning or corporate strategy. In a recent discussion on the subject, led by consultants from Booz & Co., the Tech20 treasurers reached the conclusion that treasury provides useful” analytical rigor” to support corporate strategy decisions and optimize their implementation. As examples, treasury can improve the free cash flow generation analysis of a planned acquisition using growth-option binomials, support a better means of financing with bond math, or it can overlay risk-based thinking (plus exposure measurement models) onto corporate planning and strategy formulation (which is said to be the holy-grail of enterprise risk management programs).
All these sorts of inputs also tie into the current governance trends emphasizing risk management, which can only be enhanced if treasurers extend their interactions further to the development of new board-level finance and risk committees, including the recruitment and vetting of the directors appointed to them. This is a step the Tech20 treasurers have not yet taken. When treasurers do, their elevated board interactions will only intensify further.