Weather the Storm

Michael Jones: How significant has the change been in global economic conditions over the last six months?

Richard Raeburn: We are still waiting for the impact to come through to our members in a visible way. In a sense, it's the lull before the storm. But we are gearing up to help our members in terms of advice. We expect there will be a credit crunch impact, not just on the more difficult credits but on a wider basis because of the structural shock to the banking system.

MJ: What is the greatest challenge for corporate treasurers – the credit crunch itself or the unpredictability facing the global economy?

RR: For me its both and they are interlinked. What we are seeing is the credit crunch in its various manifestations impacting companies' abilities to fund themselves and use the treasury role to contribute to their growth. There are difficulties over access to funding and if the cost of funding is volatile or increasing, those factors are a stormy combination. Once you throw in inflationary pressures in a number of economies plus the developing concerns over food prices, you can see a gathering economic scenario where conditions are going to get very bad. So I think that both markets matter.

MJ: What steps can corporate treasurers take to manage and mitigate the risks posed by the current state of the global economy?

RR: We would encourage our members to look at every way they can help. They can then differentiate between the immediate treasury actions on one hand and also the more strategic actions – ones that impact wider parts of the business than just the treasury management process. It's the latter that I would associate with the fundamental economic cycle-type actions across the piece.

If a company is concerned about its ability to grow sales in a tough market, then it will be doing all of the sensible things that it should do: looking at the quality of their products and services, looking at their cost basis and so on to be in a better position to survive. And we would expect the treasurer to be a significant contributor to that process, but not the key player in it. The reason we'd want them to be a significant contributor is because we see treasury as supporting the business rather than being in an isolated, rather techy, black-box-associated function.

On practical things that should be done day-to-day, the advice we are giving our members is to look carefully at their funding sources, to look at the certainty and the availability of where they expect to raise money. If they need to, we would encourage members to consider locking in financing sooner rather than later.

MJ: So are we talking about a new era here?

RR: Treasurers, for several years and with reasonable credit, have been able to stock up with funding and increasingly low prices and obviously that environment has changed. The advice from us would be to pre-empt the possibility of funding being unavailable when they may need it by securing it early. That's one key aspect; another is to continue to focus on the quality of the bank relationships. But when a treasurer expects to benefit from the strength of that relationship, make sure that there are no hidden surprises coming out of the woodwork between now and the time when it might be tested. Those surprises might jeopardise the quality of the relationship if they are unexpected and unwelcome to the banks.

MJ: What kind of strategic changes can help corporates deal with a volatile economy?

RR: I think there is an enormous mystique around more integrated risk management within a business. The ACT has always argued that we expect the treasurer to be equipped to take the lead in helping an organisation take a more strategic and holistic view of its risks. That 'equipment' includes, amongst other things, having familiarity with the techniques of risk mitigation, once you have quantified the risks that need to be mitigated.

Against that background where risks are increasing, the treasurer has a chance to contribute to the fundamental first step of risk management which is to be able to identify the risks you face. So as those risks widen and deepen in more troubled economic circumstances, the need for rigour, discipline, understanding and mapping risks becomes that much greater.

MJ: To which markets and financial tools should corporate treasurers be turning their attention in these challenging times?

RR: I suppose that part of the answer ought to be in avoiding volatility as far as possible because it equals uncertainty. More exotic markets, which have taken a hammering in recent months, are probably best avoided.

Even if the treasurer believes that he/she has been able to fully assess the risk in those markets, the recent history and continuing uncertainty means that they are best left alone. The flip side of that is that it's the traditional, relatively plain vanilla approaches to funding and instruments that come increasingly into focus during uncertain times.

MJ: Which organisations are taking a lead in adapting strategy to suit the current economic climate?

RR: Clearly we would anticipate that the treasury teams that are staffed with well qualified people will, at least through their formal background, have been exposed to the range of environments and conditions in which they might be doing business in the treasury function.

Whereas, if you have a young treasury team that has never lived through challenging and troubled times, I would expect those teams to face a fair amount of stress in the current environment. Part of the advice we are giving to our members about facing the current environment is that if you haven't actually experienced this before then find a peer group colleague who can actually talk about what life is like in difficult financial markets.

So we are saying, in part, that it's actually experience that has value today. Alternatively, in markets where the borrower is king and in particular where volatility is low in financial markets, there isn't too much experience you need to draw upon in order to know how to survive and do well in those conditions.

MJ: How has the role of corporate treasurer changed in recent years?

RR: Anecdotally, I think the most obvious change is that the treasurer is being asked more questions. There will be more interest in the actions of the treasurer from chief executives on the significance of financial uncertainty on the business.

Where treasurers might have been left alone in the recent past, now there is much more visibility. Which is great because it focuses attention on the skills that exist and how these can be used. That's one element; the other is to go back to the hoary old subject of strategic risk management. As the awareness of risks increases among senior management within the business, we would expect the opportunity for the treasurer to play their rightful part in the management process – they can come to the fore.

MJ: Do you feel that international opportunities, especially in terms of emerging markets (India, the Philippines, etc) will continue to develop at such a rapid rate?

RR: I was actually in Moscow last week and I had exactly the same reaction there that I had when I was in Shanghai last year. You have two economies where, notwithstanding what's happening in the rest of the world, there is enormous growth and a huge head of steam building up and working its way through their economies. I think it would be extremely foolish for anyone to suggest that that's not a major opportunity and a major driver for change even with all of the issues around it, be they social, economic or political. There is a great need for professional expertise in the case of the treasury in these markets. So it's a great opportunity for us to help young treasury professionals in that.

MJ: How does the ACT convey that message to members so that they can continue to meet these opportunities?

RR: We maintain a programme of events for both members and non-members that are relevant and timely and reflect business and financial market issues. For some time, one of those issues has been for us to provide breakfast sessions on emerging markets. From a UK perspective we like to give members access to expertise in the treasury area in terms of understanding what the issues are and the link to do business in those markets.

As the ACT, our portfolio of qualifications is absolutely at the heart of who we are and what we seek to do. We recently launched a Certificate in International Treasury Management (CertITM) and we developed that specifically in recognition of the fact that there are a large number of people around the world who have an appetite for an introductory but a serious and in-depth qualification. So we developed that to be delivered online and to be assessed in a straight-forward way.

It doesn’t require English language fluency and we have launched it very much with the needs of fast-developing emerging economies in mind. 55% of enrolments have come from outside of the UK. The great majority will have come from countries like China, Czech Republic, Slovakia and Singapore. It's really getting global take-up and when you look at a country like Russia, it's very clear to me that there's enormous potential for us to help a young professional get off the ground by introducing them to the treasury area via the qualification. It's allowing us to play to the strengths of our tradition of a commitment to qualification.