Festival of Treasury Transformation - a roundup from Day 1

Notes from Festival of Treasury Transformation – Day 1

Opening Keynote: Leading through change

Kim Wylie, Global Director of People Development & Change, Farfetch

Change is the only constant. In the current environment we are having to deal with:
1.    Impacts of COVID-19 (personal/organisation)
2.    Industry designation
3.    New ways of working/digital transformation
4.    Impacts of Black Lives Matter movement/ Diversity & Inclusion
5.    Changes in customer expectations
6.    Changes in employee expectations
7.    Change in strategy
8.    Mergers/acquisitions
9.    Change in operating model
10.    Changes in team structure/ leadership team/ organisational design

We can have great technology, a brilliant project plan, processes and procedures in place and people still struggle with change. Why?
•    The brain is hard-wired to react as we did when we were ‘hunter-gatherers’.
•    Our brain is scanning for threat and reward all the time – if we see a threat we move away; if we see a reward we move towards this.
•    Our brain has a bias towards the negative, which is known as the ‘negativity bias’, and therefore we are more prone to spot and react to a threat than a reward.

Neuroscience of change
1.    Uncertainty. The worst stage for the human brain. It causes more anxiety than the certainty of bad things. We can help to combat this by bringing some level of certainty, such as highlighting what hasn’t changed.
2.    Inclusion. Being excluded from something triggers the same part of the human brain (the anterior cingulate) as is triggered when we experience physical pain. As managers, we should look at who may not feel included and what can we do to help this?
3.    Problem-solving. When we solve our own problems, we get a rush of dopamine, a natural high. By allowing your team to solve their own problems you will enable them to benefit from this as well to feel in control. 
4.    Simplify. When we are overwhelmed by unfamiliar concepts it triggers our amygdala, making us feel anxiety, fear, fatigue and anger. As a manager you need to think about how to create change conditions with this in mind.

To engage people in transformation you need to connect with them on three levels:
1.    Head: rational connection. Think about how to tie this change to the bigger picture? If you can show how it will help them/the company to move to where they need to be, it will help people to understand and support the change.
2.    Heart: emotional connection. Firstly, as a manager, you need to show what is in it for the individual/population. Secondly, you need to get them involved, engagement comes when individuals feel they have contributed.
3.    Feet: behavioural connection. This is tied to egos and personal brand and you need to give people the skills/ability to work in the new environment e.g. by providing training in new skills.

What are the attributes of the highest performing teams?


Research by Google in 2014, showed that these 5 attributes were the most important to teams performing at their best, shown in ranked order:

1.    Psychological safety
2.    Dependability of team members
3.    Structure and clarity
4.    The work is meaningful
5.    People feel they have personal impact

Amy Edmundson, a professor at Harvard, identified the concept of psychological safety. If people are able to be their true, authentic selves, and they are able to contribute without fear or judgement, then they will be at their most productive. 

Final thoughts on how to manage transformational change.
-    Lead by example: role model the behaviours you wish to see in others.
-    Be inclusive: include people and allow them to solve their own problems.
-    Provide certainty: Provide certainty wherever you can – even if it is bad news.
-    Be realistic: be positive but set realistic expectations
-    Communicate and engage with people: connect using ‘head, heart, feet’
-    Create conditions for success: psychological safety, dependability, structure, meaning and impact.

Shared service centres: is the future virtual?

Diana-Iulia Macarascu, Head of Global Treasury Operations, British American Tobacco
Mike Foye, Director, Treasury Operations Global, Mondelez
David Munday, UK Group Treasurer & Business Partner, Innogy

The ACT has been working with treasury operations teams for over six years and undertook research into shared service centres in 2017. Over 75% of respondents had a shared service centre. More recently there has been a shift to have global business centres and/or global areas of excellence – these look after more global operations, while shared service centres tend to be more regionally focussed.

The COVID-19 pandemic has affected treasury operations in the following ways:
•    Everyone is working from home, and this is working well with technology being key 
•    Teams are using new IT, such as Zoom and Microsoft Teams, which is proving extremely useful
•    Teams are talking to each other more, using virtual technology
•    There is more interaction around liquidity and supply chain management
•    Recruitment is proving more challenging, as well as training new team members which is taking longer – although this does depend on the role 

The current crisis has acted as a catalyst for implementing treasury specific technology in relation to robotic process automation and AI 
•    Companies are using robotics for routine processes, such as month-end processes e.g. interest rate changes
•    This frees up time for value-added activity; team members have more time to do less routine tasks
•    When using AI/robotic automation you need to work out the cost/time benefit to the company – how much time will it take to ‘roboticise’ the task?
•    There needs to be a clear allocation of responsibility and the treasury team must work with the IT department and have a clear outline of who takes ownership of the automated processes including who is logging and who is doing the regression testing.
•    How can business partners self- service so that there is greater efficiency?

In order to implement AT/robotic process automation you should look at the following issues:
•    What you can do to increase the efficiency of the processes driven by the Global Business Centre.
•    Building robots into the ‘business as usual’ activities
•    How robots can help with projects – they can often collect data very quickly and save a lot of time.

Everyone is currently working from home, so can shared service centre personnel work from home on a permanent basis.
•    This depends on the activity. The core treasury function is as an advisory team and therefore it’s important that the teamwork in close proximity to the senior management team, in part to be able to provide the best support/advise quickly and in part to maintain the required relationship/closeness with this senior team.
•    There will be more flexibility in the workplace in the future, so working from home for some of the week will become a new ‘norm’, although there is still a need to spend some time in the office (when we can).

Supervision and governance – has this changed in lockdown?
•    Most companies had internal measures and controls in place, and this carried on remotely
•    A key (positive) change has been that banks now accept scanned copies of documents – e.g. do not require wet signatures – and it is hoped that they will continue to do this post-pandemic.
•    Teams are using IT to talk to each other more and therefore there is increased visibility which helps with supervision and governance

Recruitment and retention can be challenging within shared service centres and the current pandemic has its own, additional challenges.
•    Working from home may enable a more mobile workforce and individuals who would not have applied for roles previously may now be attracted to these roles – this increases the recruitment pool
•    Training new members of the team can be challenging when this is done remotely, although this comes down to the role and maturity of the position. It is easier to onboard with more senior positions.
•    Physical location has its place and process-driven tasks probably need a physical location so it’s important to keep a physical shared service centre.
•    Shared service centres have a separate identity and form a ‘shared service centre family’. This would be lost if everyone was in a different location and could lead to a lack of identity. 

What’s next for your TMS?

Naresh Aggarwal, Associate Director, Policy & Technical, ACT
Chris van Dijl, Treasury Trainer & Consultant, Cugavadi
James Kelly, Group Treasurer, Pearson
Ben Beach, Head of Global Business Development, Treasury Xpress

TMS is being adopted as an operational tool but has potential value in supporting risk management and other strategic functionalities within treasury teams. The invention of APIs provides a great opportunity for TMS and EPR to enhance its data reporting and integration and ultimately provides a holistic view with forward-looking abilities. 
Despite TMS providers having all raw materials in place, treasurers do not find the system advanced enough in some areas of meeting individual’s special needs. Therefore, the panel appeals to the ACT to lead on initiating the conversation and demonstrating an industry demand for further TMS development. 
48% of attendees who participated in the live poll suggested that they would go ahead with their existing technology investment plan. The panel echoed this and agreed that treasury teams see short and long-term values out of this. It is important to balance the short term ‘quick win’ and long term ‘return on investment’ by involving all stakeholders in the development process. For large organisations with more established treasury team, managing the correlation with different teams will be key. For SMEs who may not have best practice of treasury experience, they will require assistance in driving conversations with suppliers and taking on a more consultative approach in the whole process. 

Transfer pricing for financial transactions

Melanie Beirens, Senior Consultant, Zanders Inside
Casimir Leuridan, Manager, Zanders

This is relevant because:
•    New OECD guidance being developed
•    Greater scrutiny of transfer pricing by tax regulators

OECD Guidance
4 key takeaways
1.    Accurate delineations
2.    Transfer specific credit ratings
3.    Use of Comparable Uncontrollable Pricing (CUP) method
4.    Financial guarantees

Treasurers’ reaction
•    Approx. 50% rethinking TP strategy
•    66% looking to improve TP documentation
•    82% looking to use technology for TP
•    98% rely on outsourcing for TP

4 step process for TP
1.    Credit rating assessment
2.    Terms and conditions
3.    Pricing assessment
4.    TP documentation

Key features for pricing assessments:
•    Reference rates:  Short term – IBOR, long term IRS
•    Credit risk premium – using loan pricing model
•    Sovereign risk premium – Using country of borrower
•    Liquidity risk premium

Guidance for Cash pooling and in-house pricing

(General guidance only, different types of cash pools may have some differences)
OECD highlights 4 key points
•    Functional analysis – Which entity generates the most and where is the risk?
•    Synergy benefits – what synergies are generated? Synergy calculations can be automated
•    Structural balances within in the pool – If 1 unit is always in credit, probably should be converted to an inter-company loan
•    Documentation of all aspects is required

The CEO and transformation

Thomas Davies, Founder & Chief Executive Officer, Temporall
Inger Ashing, Chief Executive Officer, Save The Children International
Peter Cheese, Chief Executive, Chartered Institute of Personnel and Development (CIPD)

Key quotes from this session:
Inger Ashing: ‘This is the time for mindset change for organisations and society’.
Peter Cheese: ‘The culture of connection, communication and the way of working have changed. Addressing the communication needs internally and externally will be the key.’
Thomas Davies: ‘Transformation is accelerating across the board. The world is never going to be less digital than it is today’. 
Smart leaders are already eyeing on the growth agenda for their business, with more aggressive strategies taking on innovation and transformation. Transformation and acceleration drive a gap between those companies that are successful and those that are at risk of not being so. 

The way leaders run business will be different going forward and the sense of purpose will be changed. Business leaders will be more focused on what role the business plays within society and what value it stands for. Business can no longer solely be viable financially but much more around its social purposes. 

This COVID-19 crisis and other global events, such as Black Lives Matter have driven a massive shift in business culture to more connected and more agile. Having to work in this new/next environment makes all leaders pause and reflect what has been done in the past. The panel suggested a ‘pervasive leadership’, with a deliberate but constant and reflective approach in communicating and listening to their employees, including 

  • Being transparent to their employees on tough changes and decisions they are making; 
  • Being supportive of promoting and improving staff wellbeing; 
  • Being more visible during crisis; 
  • Bringing more connectivity and equalization to their employees.

Negative interest rates

Charles Wood, Head of Balance Sheet Risk, Nationwide Building Society
Colin Johnson, Chief Product Officer, ALMIS International
Chris Blake, Education Director, UK Asset & Liability Management Association

Given the possibility of a severe and prolonged recession, there is an increasing likelihood that interest rates could be cut into negative territory. 
Bank customers may have the financial awareness broadly, however, they may not fully understand the concept of negative interest rate just yet. If the event of negative interest rates occurs, the panel believes that banks will need to lead on a huge level of education around what negative interest rates means for the UK economy. 
It is also a question mark for the UK in terms of how negative interest rates to be implemented, as there was no historic model for reference. In the case of negative interest rates, the panel argued it might be too early to assume that lending rates will automatically follow the policy rate down. 
A re-evaluation of investment strategies will be driven as a consequence of negative interest rates, because it encourages banks to hold minimum liquidity in place. It is more important than ever to take a more global, diverse investment approach for banks to maintain their liquidity profile while minimizing the costs of doing that. 
If negative interest rates were to be in place for a long time, it would require the entire banking sector to re-order the hierarchy of their stakeholders and re-consider the financial impacts as well as the socio-economic impacts. 
The complexity of negative interest rates and its impacts mean that those are in charge of managing balance sheet will need to reset their risk mitigation strategies. 

One of the panellists remained uncertain about the effectiveness of having negative interest rates in the UK and whether it would serve the purpose it intended to. However, the panel agreed that interest rates would likely be staying low for a long period of time post-COVID-19 and beyond.

An interview with The Most Revd. Justin Welby, The Archbishop of Canterbury

When faced with crisis situations, as a business leader what are the right things to do?
1.    Look at the short-term challenge of survival.
•    What does this mean for the business? 
•    Short term survival requires quick analysis – this can’t be done by one person. No one person has all the answers.
•    It is essential to work collaboratively and collegiately. Suppress your ego and listen to others.
•    Small groups, meeting frequently and in an open, honest and accountable way will yield the best results.

2.    Do not allow the critical to hide the chronical.
•    We are dealing with 4 key crises: COVID-19; the economic effect of COVID-19, Black Lives Matter and other systemic injustices; and for those in the UK the implications of Brexit.
•    Ensure you have crisis management systems in place that will address the chronic alongside the crisis.

What have been your experiences of the current pandemic?
•    People exist beyond what we see of them in the office and the pandemic has really made people see each other – the human vs the resource.
•    Humanity has to be the first priority – support and care for the individual helps that individual to do better and motivates them.
•    People are getting to know each other more – using Zoom and Microsoft Teams.
•    There are stresses and strains to being isolated and some people have thrived while others have struggled. We need to be sympathetic to all responses.

How does society deal with a lack of diversity and inclusivity, shown most recently in the Black Lives Matter movement? What can leaders do to help with this?

1.    The importance of listening. Many of us unconsciously do the wrong thing and awareness of this is critical. Microaggression is common, and listening to others helps us to understand when we do the wrong thing.
2.    Speak truthfully. By having an active commitment to listening and action we can make positive changes.
3.    ‘We’ versus ‘I’. As leaders we have a choice – society has discovered the importance of ‘we’ versus ‘I’ – and the importance of ALL people. Now is the time to think about what you can actually do to make a difference and how you will monitor this. It is your chance to set things on a better course.

Treasurers are at the centre of this pandemic – liquidity is key. What should treasurers be looking at?

•    Focus on: people, ethics and integrity.
•    This crisis is different from past crises as you need to look at the financials and psychology.
•    Treasurers are in the best place to make financial decisions as cash is key to the current situation.
•    Make sure you are surrounded by people who challenge your strategies – challenge ensures you get the best outcome and encourages reflective practice.
•    Keep an eye on the mid and long term – the danger here is if you focus on the short term to the detriment of the long term.
•    Be mindful of your attitude, especially with regard to ethics. 
•    Be kind to yourself and ensure you balance your work and home life.

What has surprised you most about the pandemic, both positively and negatively?

Positives are:
•    Everyone has risen to the challenge
•    We have rediscovered the collective society – ‘we’ versus ‘I’

Negatives are:
•    A lack of understanding of the difficulties that some of our leaders are faced with and the resultant negativity surrounding this. People are not perfect, and no-one could have trained for this situation. We need to rediscover forgiveness and appreciate the complexities of other people’s worlds.

As leaders and individuals, how do we ensure we go back to a kinder and more environmentally friendly world?

•    We need to keep doing the things that make a difference. Keep well-being and inclusion, environmental issues etc. on the agenda, even if it is more expensive to do this.
•    Ensure you have long term scenario planning in your diary so that you are thinking about the future as well as the present.
•    Appreciate the individual and recognise the importance of mental health and well-being.

What are the bigger transformational things?

On a personal note, what did you miss during the pandemic?

•    Family and friends
•    Travel – meeting people and spending time with them and being able to show real compassion as well as developing a real feeling of connectedness with them.

And what were the benefits?

•    Time with my immediate family.
•    Time to connect with friends and just chat with them.
•    Spending time on a hospital ward, and watching people helping those in need. It was humbling to see courage amidst fear.

What treasury skills have you valued since moving from treasury to working as a clergyman, and in particular, in your current role as Archbishop of Canterbury?

•    Organisation skills
•    Juggling skills – the ability to keep many balls up in the air.
•    Relationship skills – working with others with honesty and getting things done.
•    Having become more cautious and more confident at the same time.

Final remarks
•    Nurture your own relationships.
•    Nurture your eternal values, whether they be spiritual or not.
•    Understand and know your value.

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