Assistant Treasurers Swap Ideas on Key Issues Including FX Hedging, Treasury Organization and Cybersecurity

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Assistant Treasurers Swap Ideas on Key Issues Including FX Hedging, Treasury Organization and Cybersecurity

Thank you to the members and guest attendees of NeuGroup’s ATLG 2017 H2 Meeting at Adobe Systems in San Jose, California, on November 8-9. 
 
Here are some highlights from the meeting:
 
Capital structure and the vagaries of tax reform. A member of the group quickly reviewed the key components of Republican tax reform now being mulled on Capitol Hill. It should be a net positive for his company and most other corporates, he said. However, its passage and the form it will ultimately take remain uncertain, and his technology company’s more immediate cash needs have created a quandary: should it pay today’s 35% repatriation tax, or wait for reform’s promised 12%, or take another route? The company is exploring financing alternatives with flexible repayment terms, so if reform happens that debt can be quickly paid off. Banks are now pitching bonds that are callable after one year, at a price of about five basis points on the call, and the company is also considering issuing commercial paper (CP) that could be backed up by its recently increased revolving credit facility.
 
Takeaway: Tax reform gets real. Between their meetings in the spring and November, more ATLG members—now at 53%—say they’ve quantified after-tax proceeds under scenarios with their tax departments. The biggest jump in focus was prepping various scenarios for senior management and/or the board—47% reported taking that step before the November meeting compared to 27% in the spring. 
 
Treasury’s career advancement conundrum. Corporate treasury departments today are increasingly lean and mean, staffed with highly specialized professionals. But how do their careers advance when the hierarchy within treasury is limited, and especially if HR fails to understand the necessary skills and competencies required of treasury executives? The assistant treasurer of a manufacturing group member addressed the issues of treasury organization and talent, after describing in detail the organizational tree and responsibilities of her own company’s treasury.
 
In one instance, she wanted to elevate an executive with the title of “lead” to manager. The person had been targeted as a potential treasurer at the company one day, and he wanted not only increased pay but the higher title to reflect the work he was doing and advance his career. However, HR only agreed to a 35% salary increase, arguing that he would have insufficient direct reports to justify the title, and the executive left the company. 
 
Another participant noted that HR must decide whether it wants to retain and develop talent within the organization, or expect churn in treasury staff as talent seeks opportunity elsewhere. 
 
Takeaway: Treasury is not for everybody. Providing opportunity for treasury staff to move to other parts of finance or even the business units can be a major plus. The AT said she had worked in controller, M&A and FP&A departments, arriving in treasury with broad experience. “I’m very open to moving people back and forth, and it creates advocates for treasury around the company,” she said. Another member of the group noted that Amex moved people around every few years and had record retention.
 
What are you protecting? Another member from a technology company walked the group through changes his office is making to the company’s FX hedging practices. He said the goal is to shift focus away from the management reporting impact, that is, the FX impact vs. quarterly or annual plan forecasts; since in that case the FX rate is chosen simply because it coincides with the plan forecasts. “The real issue is what is my underlying margin impact based on that yen business; not the impact relative to the forecast rate,” he said.
 
The company doesn’t want to stray too far from the quarterly earnings forecasts it gave Wall Street, so treasury has sought to coordinate the hedging program more closely with the business unit. By understanding better the timing and volatility of that unit’s currency exposure, treasury anticipates the hedging program resulting in a better economic outcome. 
 
Takeaway: Just the reporting, please. A participant said his company’s previous CFO toyed with the notion of allocating the hedge results to the business units to create more accountability. However, the business units balked at the additional burden, and treasury agreed. The new CFO isn’t seeking any changes, at least for now, so “we’re trying to improve reporting around the economic impact” of the hedges, he said. 
 
For more than two decades, NeuGroup has led the way in peer knowledge exchange for treasury and finance professionals. With an unrivaled network of 18 invitation-only peer groups, NeuGroup facilitates over 30 face-to-face meetings to inform actions, transform practices, and enhance careers for more than 400 members from across treasury and finance functions, covering multiple industries and global regions. Visit www.Neugroup.com for more information about peer groups and www.iTreasurer.com for content and news.
 
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