Taking as its theme, ‘opportunity from uncertainty’, the Association of Corporate Treasurers’ (ACT) Annual Conference, held in May in Manchester, roved over the political, economic and business landscape, reviewing technological and regulatory change, as well as upheaval in what has become a fast-evolving world climate.
As broadcaster and news anchor Huw Edwards, who chaired the Question Time debate on day two, put it: “There’s plenty of uncertainty around. The questions are: how much opportunity is there? And, what do you identify as opportunity?”
The conference kicked off with an energetic presentation from Lord Michael Dobbs. The conservative peer, once Margaret Thatcher’s chief of staff who was famously sacked by her in the run-up to the 1987 election, is best known as author of the political trilogy, House of Cards.
In his keynote address, he turned his sights on global geopolitical uncertainty and the position of the West in relation to emerging economies.
Lord Dobbs argued that current debate on this subject is often blighted by a pessimistic outlook and set about dismantling arguments he considers dominated by groupthink. He gave a vigorous defence of the West’s standing in the world.
First under the knife was the received wisdom of China’s uncontested ascendancy. “We are constantly told that Chinese expansion is a threat. Well, perhaps,” he said, “but China is also grappling with problems associated with rapid growth.”
With huge numbers still in poverty, and considerable issues with corruption and pollution, China has its own sources of instability. The real threat to the West lay in the possibility of its implosion, he argued.
Perhaps those with a longer-term view will get a hearing, those with a strategy rather than a quick fix
Russia, likewise, grapples with extensive internal tensions with a declining GDP, an ageing population and shrinking natural resources. While not seeking to downplay the significance of President Putin’s moves in the Crimea, Ukraine or in Syria, Lord Dobbs argued that Russia’s standing, like China’s, was not guaranteed. “Time is not on his side and neither is the oil price,” he said.
An issue the West does need to grapple with, he argued, was understanding the nature of the post-millennial generation. This generation has grown up in a post-9/11 world and has never known the world prior to terrorist strikes on the US and Europe, in particular.
And while technology puts the world at their fingertips, post-millennials are almost too aware of uncertainty, he said. Within this generation there are deep paradoxes and, at the same time, great potential. Post-millennials are intensely competitive, but have smaller expectations, he said.
The significant upside in that lies in the fact that they are less likely to be impressed by the promises of politicians. “Perhaps that will inspire politicians to do less, but to do it better. Perhaps those with a longer-term view will get a hearing, those with a strategy rather than a quick fix,” he said.
The evolving political backdrop was picked up in the following keynote, given by Paul Watters, senior director at Standard & Poor’s, and Monique Ebell, associate research director at the National Institute of Economic and Social Research (NIESR).
Watters and Ebell gave a post-Article 50 analysis of the UK’s strengths and opportunities. Ebell focused on free-trade agreements. She modelled potential outcomes for the UK economy in terms of what it stands to gain or lose depending on the final terms of Brexit and the success or otherwise of trade negotiations elsewhere.
Each industry sector would have its own watch points in relation to Brexit
Assuming the UK could negotiate agreements internationally, we could expect the export of goods to increase by 26%, she said, via lower tariffs. However, given that the EU has provided a strong export market for services, those gains may not balance out losses in service exports to the EU.
That said, the presence of UK technology and other intellectual property within the world’s complex international supply chains is a feature of the business landscape that is not properly reflected within trade figures, she said, and the UK’s competitive position would continue to benefit from its participation in this area, she argued.
Watters revisited the importance of this aspect of the UK economy. “The vision will be for the UK to become an even more critical link in a global high-value supply chain, spanning goods and services,” he said.
Each industry sector would have its own watch points in relation to Brexit. The UK aerospace industry is a case in point. Heavily dependent on world trade with 90% of goods and technology generated exported, aerospace is the UK’s poster child in productivity terms, with a 30% growth between 2010 and 2015.
However, the sector’s concerns include the potential for increased tariffs across the eurozone, access to skills and its place within the European Aviation Safety Agency.
While keynote and plenary sessions focused on macro themes, workshop presenters delved into treasurers’ day-to-day issues.
A session on FX risk management, for instance, explored how more and more corporate treasurers are looking at risk holistically, with senior management increasingly embedding that approach into KPIs. According to a CitiBank survey, only 49% of corporates surveyed have clear sight of their FX risk, so technology as a risk management enabler continues to be a strong theme going forward.
Erik Johnson, director at CitiFX Global Risk Management Solutions, described how corporate treasury functions are making strides in terms of working with data that typically would not have been captured a few years ago.
The question of operating in an era of continued low interest rates was the theme of another session
The question of operating in an era of continued low interest rates was the theme of another session. While increases in interest rates are widely expected in the US, and with the European Central Bank expected to start withdrawing fiscal stimuli, the panel debated the changing parameters and explored whether interest rate rises were a threat or an opportunity.
Presentations elsewhere looked at the increasing traction of green bonds and socially responsible investment, the possibilities likely to be brought in by the EU’s Payment Services Directive and the open-banking technology underpinning it plus methods of detecting and mitigating payment fraud.
The conference’s lively Question Time session, chaired by Huw Edwards, examined the political issues that are front of mind for corporate treasurers closely tracking the political agenda. Questions including: how was it that politicians could tell such fundamentally important lies about important issues and not suffer any repercussions, along with ‘Jeremy Corbyn: discuss’ came under their analysis.
The panel: Harriet Lamb, CEO of International Alert; Professor Martin Weale, professor of economics, Kings College London; and Dr Paola Subacchi, director of international economics research at Chatham House, debated the UK election and the theme of leadership and responsibility within political life.
Professor Weale noted the successive blurring of lines between politics and entertainment. Lamb talked about the US and the near-constant stream of accusation and counter-accusation taking place there. Continual waves of controversy underlined the importance of maintaining strong democratic institutions and continuing to politicians to account, she said.
The result of failing to counter political lies effectively undermines democracies, but individuals are uncomfortable dealing with hard facts and data, Dr Subacchi pointed out. We carry out more research into household purchases than we do into the political parties we end up voting for, she said.
After a well-received and successful conference, with today’s fast-changing business environment and wider context thoroughly debated, delegates made their way home. The ACT’s events team, meanwhile, is already looking ahead to welcome members to Liverpool in 2018.
Ethical hackers – a breed of IT specialists sometimes referred to as ‘white hats’ – ply their trade by carrying out sanctioned assaults on the technology infrastructures of corporates and other organisations in order to assess their vulnerabilities.
Ethical hacker Jamie Woodruff gripped delegates with his presentation on cybercrime and in particular the role of social engineering. A key part of his approach rests on his technical abilities in combination with an understanding of employee behaviour.
Fact gathering, people-watching and technical know-how together have enabled Woodruff, technical director at Metrix Cloud, to fulfil assignments such as reaching and entering supposedly secure server rooms within client premises.
Corporate extortion via cyberattacks is big business, he reminded delegates, and data has become more valuable than currency. Despite heightened awareness of the dangers, tricks such as dropping USB keys enticingly labelled ‘company bonuses’ are sometimes enough to prompt otherwise switched-on employees to plug unknown accessories into company hardware and potentially download malware.
Ransomware is big business and hackers are now highly organised, much in the same way as their corporate targets. Businesses that suffer a ransomware attack find themselves in touch with call centres where a hacker will talk them through a Bitcoin purchase in order to pay off the ransom and give instructions on how to carry out steps to retrieve data or repair breaches.
Stressing that all the incursions he has made into buildings and systems have been ethical and carried out with consent, Woodruff went on to point out that the vulnerability of corporates often comes down to human behaviour.
In spite of tailgating policies, for instance, Woodruff has gained entry to buildings by striking up conversations with employees outside, gaining their confidence by demonstrating knowledge of the company, its current projects and its personnel, and then following them into the building.
Research, observation of employee behaviour and technological know-how are a powerful tool, he said. Constant vigilance and awareness of the tactics of hackers will remain essential in the fight against cybercrime.
The subject of Brexit was never far from the conference agenda. On day two, a Brexit round table, facilitated by incoming ACT president, Peter Goshawk, considered different outcomes, their likely impact on access to capital and talent, and the changing risk profile of corporates in the face of hard or soft exits from the EU.
Moritz Kraemer, global chief ratings officer at Standard & Poor’s Global Ratings, set out Brussels’ structure for negotiations. The European Council will remain in charge of strategy, while the European Commission will handle negotiation.
Brussels has announced two stages for negotiations, with stage one – covering the land border with the Republic of Ireland, rights of EU citizens in the UK and of UK citizens based in continental Europe, and the relationship between the UK and the EU post-Brexit – to conclude in the autumn.
The S&P view, he said, was that Brexit is a lose-lose proposition for the UK and for the other 27 member states. The UK stands to see a fall in income, not only from the export of its services, but also in terms of foreign direct investment, from which it has benefited more than any other member state. “The uncertainty is unprecedented and the risk of negotiations breaking down should not be underestimated,” he said.
The uncertainty is unprecedented and the risk of negotiations breaking down should not be underestimated
James Rudolph, deputy treasurer at Centrica, said the utility’s links with Europe, a growth area for the business, made Brexit preparation a difficult area.
The significant amount of energy imports and membership of the EU’s Emissions Trading System are both areas where Centrica is heavily involved with the EU. The treasury function has been involved in anticipating and modelling different potential outcomes. The ability to continue to access capital and skills is central. “If London hollows out, we will lose that access, especially to skills,” he said.
Himanshu Kher, group treasurer of IG, commented that for financial services firms that passport into Europe, the final detail of Brexit would be of considerable importance.
It also meant facing up to questions such as whether the business would need to move to another financial centre or open a subsidiary elsewhere, which also has implications for access to capital, liquidity and specific banking services, such as credit facilities and hedging arrangements.
George Duncan, head of group funding at Scottish & Southern Energy, says “The UK’s electricity infrastructure requires significant investment. A period of stability is required to maintain the confidence of energy investors in the UK following a period of volatility in the political and regulatory environment.”
A question from the audience prompted the panel to consider advantages to Brexit. The panel agreed the referendum vote had forced fundamental discussions within their operations about evaluating new markets and rethinking customer and product strategies.
A forced change can sometimes give impetus to projects that otherwise might remain unrealised, they said.
Great to see so many treasurers in one room! @actupdate #actac17 https://t.co/9ABSuiGIOc — caroline stockmann (@carolinesSCI) May 16, 2017
A whole generation not seen high interest rates and treasurers force discussion of this risk. @actupdate #actac17 pic.twitter.com/yZ0abzRPGu — Clarissa Dann (@Clarissadann) May 17, 2017
Corporates want fair fees, expertise, agility, innovation and stability from their banks.@actupdate #actac17 pic.twitter.com/UMCmkwhFa1 — Deutsche Bank GTB (@TalkGTB) May 16, 2017
Post millennial generation have never known a world without "the war on terror". "Normal" isn't coming back. @dobbs_michael #actac17 pic.twitter.com/CW1VS1td1A — victoria bell (@victoriabell23) May 16, 2017
Weale: Even with the worst Brexit can throw at us, there are still opportunities for businesses. #actac17 — Andrew Deichler (@AndrewDeichler) May 17, 2017
Liz Loxton is editor of The Treasurer.
This article was taken from the June 2017 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership