A New Opportunity in Risk Management?
The high-profile financial failures of world-leading companies such as Enron,WorldCom and Parmalat have put risk management and corporate governance firmly back on the agenda for companies and their treasurers.
Increasingly, it is recognised that an effective enterprisewide risk management approach is imperative in order to minimise the impact that unforeseen events can have on business profitability, not to mention the damage they can do to companies’ market reputations, their branding and investor confidence.
Greater controls are being called for by shareholders, investors and government regulators, with the onus placed on board directors to keep their houses in order. Corporate treasurers cannot be unaware of recent events – indeed, their role in the world of ‘corporate governance’ may only just be beginning.
Should we be doing more? Are we doing more and, in some instances, do we have to do more, have become key questions for most treasurers. For organisations currently seeking compliance with Section 404 of Sarbanes-Oxley – the answer is a definitive ‘yes’.
Much has been discussed in relation to what shape an effective regime of corporate governance should take. While many dismiss the possibility of the UK and Europe following the US down a similar path to a prescriptive system, tougher requirements may be just around the corner. Either way, the need for a regularly-reviewed system of enterprise-wide risk control cannot be ignored.
But what does this mean for corporate treasurers? Can they, and should they, have a great role to play in the new world of corporate governance?
In the first instance, it is never too early to get involved. While primarily responsible for the pursuit of ‘best practise’ within their own operations, treasurers could have an equally vital role to play in risk management processes organisation-wide.
Treasurers are used to risk – they are used to taking a long-term view and taking the necessary precautions to safeguard their operations. More to the point, they stand to lose much from an unforeseeable adverse event that results in damages to corporate reputation and a loss of investor confidence.
In this month’s issue of The Treasurer the Spotlight section focuses on Risk Management, with a special emphasis on corporate governance and how treasurers could, and should, get more closely involved. For some, corporate governance may be seen as an additional burden, but for others it may bring new opportunities, enabling them to develop their roles and profiles company-wide.
LIZ SALECKA
Editor
THERE IS LIGHT at the end of the tunnel: for the treasurer, e-commerce is rapidly moving towards providing a holistic set of products and services. Furthermore, there is a strong move towards facilitating the integration of these products and services alongside those provided by none- channels and continual development of new tools. It is estimated that within the next three years, 70% of all foreign exchange (FX) deals will be transacted online.
Implementing a new treasury management system has enabled Anglo American’s treasury functions to become truly global.
A change of treasury management system requires thorough planning and the right personnel, getting it right from the beginning is crucial.
Toyota Financial Services wanted greater control of its treasury operations – Integra-T.com came to the rescue.
Centralising its global treasury functions has not only meant improved business practices at Lucent Technologies but has led to significant cost savings too.
A reliable treasury management system was a key requirement for the Dixons Group and IT/2 has proved the ideal solution.
Shop until you drop – that seems to be the motto UK households have lived by for the past five years and despite widespread expectations that households would eventually buckle under the weight of record levels of indebtedness, there are no signs of them dropping just yet. Even the first rises in interest rates for four years – and the threat of more to come – appear to have done little to deter them from spending every available penny, if not more. Does the continued strength of household spending mean that previous doubts over its sustainability were unfounded? Or does it mean that overstretched households are heading for an even harder fall than feared?
These are a selection of bonds announced recently. The details, updated to the middle of last month, were supplied by Thomson Financial
Securities Data and other sources.
ACT proposes new ratings code
The credit rating agencies (CRAs) have been finding themselves the subject of calls for regulation and improved oversight of their industry, particularly over the past two years. Given the perceived failures of the CRAs to predict certain significant corporate failures, such as Enron and WorldCom, it can sometimes be thought strange that companies which play such an important role in the financial market remain virtually unregulated.
As Chancellor, Gordon Brown has often stated that he wants to create a more entrepreneurial culture, in particular by implementing changes to the tax system. However, every tax change creates the opportunity for tax planning, or tax avoidance, depending on your point of view. Much of the Budget was taken up with countering tax planning. Along the way, there were some worthwhile modernisation changes announced, as we will explain in this article.
During the past two years, credit rating agencies (CRAs) have been the subject of much criticism. They have come under fire for failing to warn investors of the collapse of industry giants such as Parmalat, Enron, WorldCom and other companies that later declared bankruptcy or financial restructuring. These events have led some to question whether the CRAs are meeting the needs of market participants.
The main focus of money laundering regulation has until recently been largely concentrated on the financial services industry. This has all changed with the coming into force on 1 March 2004 of the Money Laundering Regulations 2003 (the regulations), while other major changes have been introduced by the Proceeds of Crime Act 2002, which came into force in February 2003.
On 17 March 2004, the Budget gave one of the clearest examples yet of UK tax legislation being affected by European law. A German tax case was taken to the European Court of Justice (ECJ) on the grounds that the German thin capitalisation rules were discriminatory, in that they did not apply to domestic corporations. The ECJ found in favour of the tax payer and this created a ripple of domestic tax changes across Europe.
SITA is a leading provider of global information and telecoms solutions to the air transport industry.With more than 50 years’ experience, it provides a total service to some 740 air transport industry members and more than 1,800 customers, supporting them globally in more than 220 countries and territories.
Deficits have brought into the spotlight the conflicts between the different interested parties in a funded defined benefit pension scheme set up under trust (referred to here as a ‘scheme’). This article looks at the legal rules on conflicts and some ways of managing them. Table 1 below summarises the interests and ways in which conflicts arise in a deficit situation. In considering conflicts in relation to a scheme deficit, it is first important to establish what powers relevant to the deficit the trustees and the employer respectively have under the scheme’s trust deed, overriding legislation and trust law.
The survey that Ernst & Young carried out last year in association with the ACT examined various aspects of treasury operations. Some of the most interesting findings concerned the position of the treasury within organisations. For example, despite the recent high profile of risk management, treasury activity was monitored by the board in less than half of the organisations surveyed. The performance of treasury, meanwhile, was regularly measured in only a third of the organisations.
Corporate risk management is undergoing dramatic fundamental and far-reaching change. Its centre of gravity is moving from treasury and insurance departments towards line management and the boardroom, as a much broader enterprise-wide perspective on risk is adopted. The focus is shifting from operational hazards and pure financial risks to a much more strategic view of threats to business success and an appetite for upside risk.
Despite suggestions that the Turnbull Report should be toughened up, its author believes the recommendations his committee made back in 1999 are still highly relevant for UK companies. ditor Liz Salecka talks to Nigel Turnbull about his role in producing guidance on internal controls.
The collapse of Enron and WorldCom has focused increased attention on the importance of corporate governance, with governments, company shareholders and stakeholders and the media calling for the application of greater authority to the way that company directors effect and manage risk controls. In the UK, this has taken the form of expanded compliance with the Turnbull and the Higgs reports on corporate governance, both of which provide practical guidelines for company directors when assessing business risks and managing and implementing controls.
What are captives? And how can treasurers make them work in their favour in the continuing battle against risk exposure? Matthew Lee of IRMG explores the issues.
A large loss can have a severe impact on a company’s cashflow and financial statements. Therefore, firms seeking to reduce the damage a material loss can cause to their business may find it valuable to investigate the role alternative risk transfer can play in managing the risk of these losses.
All international trade carries inherent risk arising from the economic and political condition of the partner with whom you are trading, whether they are a private company or a foreign government department. Governments change, spending priorities are amended and the consequences for an exporter can be severe. It is also an unfortunate reality of life in the early 21st Century that any trade contract can be exposed to the risk of political violence, be it war or terrorist activity.
During the last month there have been a number of major issues that have especially taken our attention at the ACT – quite apart from the normal routine that includes, at this time of the year, completion of the tuition and revision programmes and preparation for the delivery of examinations in each of our three professional qualifications.
