If ever there was a year to turn our assumptions upside down and put our views into perspective, 2020 has been that year.
We asked seven treasury professionals how 2020, the pandemic and ensuing economic crisis have changed their thinking and that of their organisations.
This is what they told us.
Group treasurer, Thames Water, UK
Having joined Thames Water as group treasurer in January, I had expected 2020 to be an interesting year, bringing many new challenges.
I am not sure many people would have foreseen what was just around the corner with the significant impact on our lives and businesses brought about by the COVID-19 pandemic. How many companies’ risk registers included that before it happened?
The resilience of many businesses has been tested in 2020 and many corporates acted to protect their liquidity through drawing on committed loan facilities.
The resilience of many businesses has been tested in 2020 and many corporates acted to protect their liquidity through drawing on committed loan facilities
Money market funds faced increased withdrawals and – without governments stepping in to provide liquidity and funding to the market – there could have been some even more difficult scenarios to navigate. Market support is likely to be needed for some time to come.
Perhaps surprisingly, the focus on ESG has continued to grow during 2020. Investment funds are actively seeking green assets and, in many cases, they are willing to pay a premium.
There has also been an increase in focus on the ‘social’ aspect of ESG, where ‘doing the right thing’ can add additional appeal to the credit story.
At Thames Water, during 2020, we have fully integrated generating public value into our strategy, and initiatives such as providing public access to some of our green spaces during lockdown and committing additional support to vulnerable customers have proved to be of relevance to some debt investors’ views of the company.
The focus on ESG is only likely to grow during 2021.
VP global treasury operations, Unilever, Switzerland
The pandemic has introduced unprecedented levels of volatility and change into our daily lives. Even historically stable consumer goods categories are showing significant growth variances.
At Unilever, managing cash flows from more than 190 countries has become more challenging as lockdown impact varies, currencies swing and new local regulations inhibit our ability to centralise and access funds.
Suddenly, we find ourselves testing the resilience of treasury systems and processes in a real-life business continuity experiment, while working from home.
Investments into automation and digitisation are paying off and will remain a key theme for treasury operations teams going forward.
But there is also a more strategic opportunity for corporate treasury teams to demonstrate their value to the business.
This is the moment to get closer to the business and integrate treasury expertise with the wider finance function and general management
Elevated focus on cash and liquidity pairs well with treasury’s core skill of financial risk management.
This is the moment to get closer to the business and integrate treasury expertise with the wider finance function and general management.
Proximity enables us to safeguard value creation, for example, in a developing economy faced with high levels of regulation and a continuously devaluing local currency.
Yes, financial instruments have a role to play. But collaborating closely with country management teams can mitigate exposures more sustainably and at lower cost.
For example, localising the supply chain can reduce reliance on hard currency cash injections.
Equally, being close to those teams in the organisation that explore new sales channels, new business models and ESG strategies can help unlock business growth while managing future financial exposures from the outset.
This is the time to integrate and reframe the role that treasury teams play in supporting the business to deliver profitable growth.
Managing director, The Carfang Group, US
This was the year that changed the corporate treasury forever.
First, I congratulate treasurers worldwide for performing brilliantly through three simultaneous existential threats.
You muscled through the global market meltdown and liquidity freeze.
You realigned your balance sheets in the face of a lockdown that choked off revenue.
Finally, you succeeded in moving people, technology and processes off premises on virtually zero notice.
The myriad lessons learned will improve the way treasury operates for a very long time.
I believe, however, that the most impactful long-term fallout for treasurers will be dealing with the vastly expanded role of central banks.
During the crisis, they morphed from being a market facilitator to a market participant, a profound change.
I believe that the most impactful long-term fallout for treasurers will be dealing with the vastly expanded role of central banks
Most central banks had barely begun unwinding from the 2008 crisis. Now they’ve ballooned again and will be reluctant to give up their expanded roles.
Central bank assets in developed countries are now a market dominant six times their pre-2008 levels. Not only have they taken on the role of guarantor of debt securities in favoured industries, they have actually purchased corporate debt directly.
Treasurers deal in highly fragmented and efficient markets. They optimise their portfolios and their balance sheets in that context.
Now, however, there are new market participants, the central banks, which have access to resources as large as the market itself and play to a different objective function. In most cases they also make the rules.
That creates new risks, particularly given the opaque nature of central banks.
What happens when participant-controlled monetary policies change abruptly? Will central banks, as holders of securities, assume a role in corporate governance? Will they impose ‘social covenants’? The list goes on.
At The Carfang Group, we strongly encourage treasurers to carefully examine these issues, game it out and prepare accordingly.
FD, Greensill, China
COVID-19 has shone a harsh light on the weaknesses of the world’s supply chains.
After decades of driving to cut costs and increase efficiency, just-in-time inventory management has become the norm, placing huge dependency on the ability to restock quickly.
The same cost drivers have also encouraged reliance on super-hubs, which drive down costs by concentrating skills and specialisation, but are bad news when alternatives are needed.
Furthermore, the increasing complexity of products means even more interdependent fragile chains with ever more suppliers.
Whatever strategy companies choose to address supply chain issues uncovered by the pandemic, one thing is certain: treasurers need to think about funding not only their company, but also across their suppliers.
Just-in-time inventory management has become the norm
Greensill believes that harnessing data to create a moving picture of investable credit risk will shape the future. We are moving from relying on decisions driven by static data, like purchase orders, to artificial intelligence-driven models that predict demand and payment probability.
Supply chain security will be transformed by analytics that create fairer and faster access to cash priced against the customer’s credit rating, enabling prompt payments based on future – and not historic – business performance.
Deputy treasurer, Urenco, UK
At the beginning of 2020, most UK treasury teams were on the nth iteration of their Brexit contingency plans. It was only towards the end of January that we began to see the occasional reference to a deadly disease in Wuhan.
Those news bulletins of course foreshadowed the onset of the pandemic and a series of events that would impact all of us in ways surely not specified within anyone’s business contingency plans.
Some sectors saw a tsunami of cash outflows when income taps were suddenly slowed
or even turned off. Managing cash and facilities became the primary focus of many treasury teams.
The key factor determining whether the treasury function effectively supported business continuity, I believe, was treasury technology
The key factor determining whether the treasury function effectively supported business continuity, I believe, was treasury technology.
When in March 2020 we received notification that the whole head office would be working from home, the transition was unproblematic. The only process change needed was approval by email rather than physical sign-off of documents.
A decision to implement a new treasury management system (TMS) for Urenco’s treasury function had been made prior to 2020, with the intention of strengthening controls and streamlining existing activities.
Happily, our evaluations had led us to conclude that we needed to take our treasury processes outside of our existing IT landscape to reduce friction, opting for a software-as-a-service TMS.
Eight months into the pandemic, we are progressing that implementation while working from home. However traumatic the pandemic has been, it is unlikely to be the last time we face the unforeseen.
Continual improvement will be essential to weathering future crises and operational flexibility will remain the goal.
Group treasurer, Grab, Singapore
One very clear outcome of COVID-19: the future has arrived faster than we envisaged.
The pandemic has given clear evidence that meetings, negotiations and operations can be managed virtually, with real progress made and productivity maintained. Yes, there was some initial resistance and discomfort, but we adapted.
We rightsized for the new uncertain future, eliminated baggage we used to carry along during the growth periods and conserved cash. At the same time, we cannot lose sight of who we ultimately serve.
I am optimistic that we will emerge stronger, wiser and more connected as a global society
For us at Grab, it is the millions of driver partners, merchant partners and consumers we serve every day, helping them digitise their business models so as to continue earning an income through our platform.
Looking back, this has been a year of:
1. an elevated role for treasury as a business partner and steward of capital – helping the organisation understand the key financial risks and impact of revised business plans;
2. tightened controls and governance to mitigate fraud and cyber risk during these unprecedented times; and
3. accelerated change, automation and digital transformation to adapt to the new normal.
Let’s not waste the crisis. It is a great time to reflect, reset and repurpose. As we welcome the new year, I am optimistic that we will emerge stronger, wiser and more connected as a global society.
CFO Alternative Investments & Infrastructure, Mubadala, UAE
As treasurers, scenario planning is second nature. But I don’t believe any of us would have forecast the events of 2020: climate change, social unrest and of course COVID-19.
But it is not just the economic impact that is likely to have been front of mind for many. I expect the human impact – anxiety, mental health issues and so forth – to remain long after the financial impact has been normalised or forgotten.
For me, 2020 ended up being more about self-reflection around how I conducted myself, trying to provide humility and honesty as we embarked on this uncharted journey
For me, 2020 ended up being more about self-reflection around how I conducted myself, trying to provide humility and honesty as we embarked on this uncharted journey and endeavouring to demonstrate more trust and thoughtfulness to the team and stakeholders, all of whom were having to deal with issues over and above the norm.
I also tried to convey greater compassion and consideration for those perhaps not as fortunate as myself, and the impact such events were having on them.
I want to look back in years to come to see how my actions of 2020 shaped me, and who as a result of their behaviours and actions are people that I would like to model myself around.
I do hope for a quieter 2021 and for a year where people can reconnect and rebuild with more resilience and robustness – just in case another black swan is heading our way.
This article was taken from the December 2020/January 2021 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership