A marriage of true minds
Akey issue for any treasurer is dealing with a new finance director. Whatever the situation – whether it is the treasurer or the finance director who is joining the organisation – the two senior professionals need to build an effective working relationship in a bid to enhance shareholder value.
Turnover among senior financial professionals is rapid these days and like other senior positions in corporates, FDs and treasurers moving on to pastures new must build a good rapport and grasp how their new colleague works and the ideas they bring to the company.
At a recent ACT seminar, the former Chief Financial Officer and Treasurer of Allied Domecq – Graham Hetherington and Bob Williams, respectively – revealed the secrets of their successful working relationship and shed some light on the murky world of managing interaction between the treasurer and CFO.
For a treasurer weighing up how to handle the FD, the vital question is how much the latter knows about the treasury function. An FD with a treasury background will speak the treasurer’s language and will understand the challenges and the constraints. The downside may be a desire to be a little too hands on. A non-treasury-aware FD will need more coaching in the nuances and sensitivities.
Either way, communication is vital. Gone are the days when businesses are split into silos with each department operating independently. Keeping business processes separate does not aid communication and can stifle progress. That means the FD and treasurer must see eye to eye over company strategy. A clear corporate strategy that encompasses the whole business sends a strong message to the market.
A corporate’s strength in the market comes from strength within the company. A united front presented by the FD and treasurer over financing strategies that the market understands is key. As well as managing stakeholders, the treasurer and FD have to work together to manage the treasury and finance team. The overarching theme of a strong treasurer and FD relationship is creating, nurturing and maintaining a skilled team of people.
The skills of every person in the treasury team should be used to their full potential, and achievements should be recognised to create a professional environment.
Attitudes to risk management are an important part of any FD and treasurer relationship. Both need to understand the risk appetite of the board and to work together to decide how to manage and mitigate risk. For a company to succeed, it has to take risks but these must be controlled and consistent with the wider strategy. With a solid and welldefined risk strategy, the FD and treasurer can make appropriate decisions without complications.
Above all, a successful relationship requires a level of trust. Treasurers and FDs have to know the starting point for key decisions and where the boundaries lie. That meeting of minds is the hardest to define, yet is the vital ingredient for long-term harmony and success.
JULIA BERRIS
See In the right spirit, page 38
Moody’s backs down on transforming events
Ratings agency Moody’s has decided not to press ahead with its proposals to change its methodology for downgrading companies affected by sudden transforming credit events such as a takeover.
European leveraged loan and secondary debt markets have surged in recent years and traditional banks now hold only a small proportion of the leveraged loans they arrange.
Moody’s covenant framework comes under fire from ACT
The ACT has raised a number of concerns with credit ratings agency Moody’s about its plans to introduce a covenant research and assessment framework for non-financial issuers (see The Treasurer, October, page 8). The agency plans to analyse indenture covenants to provide investors with a formal matrix that would score more highly those covenants that Moody’s considers offer greater protection to the bondholder in the event of corporate financial distress.
Some in the capital markets are already calling it a drought bond and there are suggestions it may be the first of a trickle, if not a flood, of similar deals in the water sector.
Is liability-driven investment the way to plug the pension gap?
In the last financial year the government collected £3.3bn in inheritance tax and projects to rake in £3.6bn from the tax in this financial year. Over the past five years alone there has been a 49% rise in government revenue from inheritance tax. In 1996 only 15,000 estates paid inheritance tax. By March 2004, according to the latest available data, the number of estates paying inheritance tax had more than doubled to 30,451, and the government’s own estimates put the number of estates paying inheritance tax this financial year 22% higher at 37,000.
Working as Group Treasurer for one of the world’s leading retailers stacks up to being an extremely challenging and exciting job. As a seemingly unstoppable corporate success story, Tesco continues to provide challenges every day says Nick Mourant, who has worked in the supermarket chain’s treasury department since 1988.
With nominations for the Deal of the Year Awards due in by 20 November, Peter Williams reminds readers of just how big a year it has been by looking back at the deals highlighted in The Treasurer over the past 12 months by Robert Lea, City Correspondent of the London Evening Standard. Members of the ACT and EACT member associations may vote for any deal, not just those listed here.
Risks are rising for defined benefit pension schemes, driven by financial, sponsor credit, regulatory and demographic change. Such risks must be first identified, and then quantified. A battery of measures, such as inflation and interest rate swaps, are effective ways to control much of the risk. The burgeoning market for bulk annuities could offer the best opportunity for scheme trustees and sponsors to manage risk.
In the last few months, credit ratings agency Moody’s has issued a series of proposals including changing the system of rating transitions for investment-grade issues subject to event risk and proposing a new framework for evaluating bond covenants. The third area where change is certain is in response to the evolving debt capital market. Moody’s is attempting to enhance its methodology for speculative-grade corporate ratings, introducing new probability of default and loss-given default rating methodologies.
While treasurers have long used Swift messages, until recently banks jealously guarded access to the network itself. In the 18 months up to summer 2006 the number of corporates using Swift trebled, but it remained the preserve of the few as Member Accessed-Closed User Groups were seen as unwieldy. Swift-based access will widen but corporates are still getting mixed messages from the banking sector.
Banks have responded to the revised tax treatment of long-funded leases by generating innovative and integrated forms of lease finance.
The Markets in Financial Instruments Directive (MiFID) legislation has been written to ensure consistency across Europe and to avoid “gold-plating” the rules. Implementation is less than a year away but financial services organisations lack awareness of MiFID’s implications. Impact of MiFID across Europe will vary but it is the equity markets that will be most affected. Clients are likely to see changes to the nature of the relationship, to the way business is conducted, and the information required of them and provided to them by financial institutions.
At a recent symposium organised by the ACT, Graham Hetherington and Bob Williams examined the working relationship between the treasurer and the finance director and explored how the relationship can have a beneficial impact on the company’s shareholders.
An external good practice review identified how best to take Acergy’s treasury management system forward. Its conclusions led to automatically updated worldwide balances, the upcoming roll-out of an electronic dealing platform, the creation of management information reports, and streamlined accounts.
We live in an ageist society where youth is highly valued. You only have to look at the youth of our political and business leaders to realise that. But it is important that emare appraised on the basis of their relevant skills and ability.
