A look at considerations for centralization, November 1994. Upshot? What’s the company’s philosophy?
The benefits of treasury centralization are well documented, with a good many members of the NeuGroup Peer Group universe agreeing it’s likely the best model. But embarking on centralization project or maintaining an existing structure still holds challenges – especially due to emerging-markets growth – including managing growth and profitability and complexity and regulatory demands. What’s more, add on a layer a lean team, which means operations need to be structured for maximum efficiency.
Seeing the trend taking hold back in November 1994, IT wrote about some of the considerations companies should think about as they prepare. One of the first suggestions in “Centralizing the MNC Treasury,” was to make sure the company as a whole had a mind for centralizing. Don’t do it if local managers need to be fleet-footed decision-makers.
“One of the most important preconditions for a successful centralization effort is a supportive corporate culture/philosophy,” IT wrote. “For example, if the company believes that moving into and operating successfully in international markets requires the entrepreneurial skills of local managers, trying to push head office treasury ideas may not be wise.”
Thus the recommendation that a centralization effort shouldn’t be about grabbing the reigns and yanking in the direction the company wants to go but more about a subtle touch and seeing where the business needs go given the current environment.
“Ideally, centralization should be less about the ‘control’ of treasury globally, and more about creating a common philosophy and dedication to specific treasury principles, e.g., a global policy foe FX and interest-rate risk.
However, a caveat: “controls over transaction execution (e.g., FX trading and hedging), often a reason to centralize, are a possible exception” to the above suggestion.