The Treasurer June 2006

Striving to be best in class

Just as it is misleading to judge a company’s financial performance on a single measure such as earnings per share, so is it misguided to attempt to reduce the performance of a treasury department to a bald set of key performance indicators (KPIs).

Non-treasurers might understandably think that treasurers can be objectively assessed on measures such as the cost of borrowings. But while treasurers may implicitly know that treasury is as much of an art as it is a science, that point needs to be explained coherently and frequently to others such as finance directors and non-executive directors.

Both for their own purposes as well as for others, treasurers casting around to see how they measure up in terms of best in class need to investigate a range of measures. Any treasury aiming to turn in a top-class performance has to have strong links and good two-way communication with the rest of the business.

Best-in-class treasury does not happen in an ivory tower. The treasury department needs to be driven by the strategic aims of the company. The key to setting the financial strategy is to understand the direction the business is moving in – and support it. All treasurers worth their salt need to have an eye for keeping costs down – funding costs and transaction costs. It is a tangible way of adding to shareholder value.

Perhaps the area where the treasurer’s role has grown most in recent years is in the business of no surprises. The list of risks appears to grow year on year. But whatever the risks that have been identified, treasurers need a coherent policy on measuring and on reporting. Treasury needs a dialogue with others in the business in a language that both parties can understand and which both can work on in managing the financial risks.

Looking beyond the corporation is a task that treasurers need to undertake effectively if they want to perform well. Maintaining good relationships with the capital and debt markets and the banking sector is all part of the treasurer’s duty of guarding the interests of equity and debt provider stakeholders.

While treasury has undoubtedly moved far in the last few years, those striving for best in class need to remember their roots. Best-in class treasury departments do the basics well. It would be foolish to get tied up with doing the advanced stuff only to get caught out by forgetting to do the day job. Every treasurer needs to make sure that best in class also means getting the fundamentals right.


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