Managing Corporate Treasury Trends & Priorities in an Unpredictable Political Landscape

by Neil Hookway, Managing Principal, Business Consultancy, EPAM UK

August 29, 2017

When All About You Are Losing Their Heads

“If you can keep your head when all about you
Are losing theirs and blaming it on you.”
-- Rudyard Kipling, “If”

If you’re in corporate treasury, you can probably relate to Kipling’s lines above. While everyone around you seems to be losing their own minds, somehow you get the blame for it given your position in the company. After all, you don’t make the external laws that affect the corporate treasury, do you?

Over the last year, financial and political establishments have had to weather a wave of unexpected events that have affected global outlooks and markets. With so many commentators, pollsters and other experts forecasting the wrong outcome (or not predicting the realized outcome at all), it has become increasingly difficult for the corporate treasury to plan for the future given the uncertainty surrounding incoming tax, security and technology legislation across the world.

To recap what the corporate treasury has been up against in terms of an unpredictable political landscape, very few experts in 2016 expected the UK to vote for Brexit, the US to vote Donald Trump as its next President, or Italian Prime Minister Matteo Renzi to resign after losing a crucial vote on Constitutional reform in the Italian parliament. And then, in 2017, after the French and Dutch elections went as predicted – and even spurred a small Euro rate hike – the UK defied pollsters’ expectations yet again, leaving the country with a hung parliament after the June snap election.

Despite the best guesses of pollsters and commentators, all of these events did in fact happen. The next potential banana skin on the horizon is the September 24 Federal election in Germany, and it might be fair to say that the world is waiting with bated breath for the outcome. Suffice it to say, any pollster’s predictions will be treated with a fair degree of scepticism, at least for now.

2017 Treasury Trends & Where They Stand Today

With all this going on, it would be quite reasonable for many treasurers at both banks and large corporations to struggle with anticipating how markets are going to react in the short to medium term. At the beginning of 2017, studies were produced that indicated the following trends occupying treasurers’ minds:

  1. The shift toward political unpredictability: As described above, this raises questions over the availability of liquidity in uncertain markets over the next two years.
  2. Cybersecurity / fraud mitigation: The rise of the cyber-criminal over the last couple of years is leading to increasing focus on security and payment protection. Strong governance, culture and policies, coupled with increased training all backed with improved processes and automation should be the norm.
  3. Tax changes: With the advent of BEPS (base erosion and profit shifting – designed to prevent multi-national corporates from shifting profits from one jurisdiction to another to gain a favorable tax treatment) and the proposed tax holiday from the Trump administration (currently still a pre-election promise) for USD repatriated to only incur 10% tax as opposed to the normal 35%, tax will hold increasing weight on a treasurer’s consideration.
  4. Consolidation of banking and service providers: Many corporate treasuries are also looking at consolidating banking providers to improve efficiency and reduce risk. In many cases, this is being done in conjunction with a review of the treasury model itself (centralization versus de-centralized) as well as adopting shared services or setting up an in-house bank model. Carrying out this review work and any resulting model changes will allow a treasury to be flexible and more adaptable to any political, cultural or technological changes that may be around an unexpected corner. Alongside this review, many corporates are demanding statements of intent from their chosen banking partners. They are seeking re-assurance that their bank intends to stay in the GTS market, providing the services that the corporations rely on. This is also driving the banks to improve their business offerings and systems to make it easier for their clients to interact with and access their systems.
  5. Digitization and technology advances: Treasurers are very interested in new digital applications that improve processes and the automation of cash management and trade. This is part of an ongoing cost-cutting and efficiency drive within many treasuries in a desire to do more (or at least the same) with less. Treasurers are being deluged with buzzwords such as fintech, blockchain and bitcoin as well as technology solutions such as cloud and big data. Whilst the former, which may well lead to changes in consumer behaviors and business models, should be treated with a degree of caution at present (who wants to buy a cassette tape when the CD is just around the development corner?), the latter are actual solutions that are here today and should be investigated to ascertain the benefits they can bring to the business.

Where the Corporate Treasury’s Priorities Lie

Beyond these trends, a survey by OVUM at the beginning of 2017 found that treasurers’ priorities in 2017 included managing liquidity (a priority for 50% of respondents), cash visibility (27%), managing FX and credit risk (39% and 31% respectively), and data analysis to improve decision-making (36%). While these are not a surprise and are core activities for treasurers, the first four areas could be affected by global events and macro-economic tremors that might result from them, while the latter is entirely within the gift of the treasurer, and their IT department, to improve and remedy.

Big data solutions allow large data sets to be analyzed and reported in a far more efficient and accurate manner than before, while the cloud offers storage and access solutions that flex with volume requirements and do away with the need for expensive data centers or hardware, thus reducing cost and increasing efficiency.

So, by keeping what they can control in mind and not adopting an ostrich mentality in the face of global instability, treasurers would be well advised to look in-house and ensure they have the most flexible and adaptable treasury models, as well as accurate and timely access to data that enables them to cope with and react to whatever the rest of 2017 and beyond has to throw at them. After all, as Kipling said, “If you can keep your head...”