T30 session at Chatham Financial focuses on organizational and political-economic disruption.
The Treasurers’ Group of Thirty meeting at Chatham Financial this week focused on management of disruptive forces brought about by acquisitions or spin-offs impacting the majority of member companies at the meeting; the “shocks” from unexpected political outcomes, namely, the Trump victory in the US presidential election following the Brexit vote in the UK; and the increasing prospect of a massive change in US tax rules that may end the concept of cash being trapped off-shore by them for US multinationals.
- Fresh thinking on finance functions and capital structure. Integration of finance functions as part of a merger, but more so the creation of a new finance function and capital structure for a spin-co, brings the opportunity to apply fresh thinking to existing finance organizations, structure and actions. Whenever you have the opportunity to bring out a blank sheet of paper, new ideas and fresh thinking comes about that should be applied where possible. Strategic acquisition and divestures are already a disruptive force for the majority of member companies at the meeting and the trend is arguably only going to accelerate in light of a turn in the bond market and expectations for off-shore cash becoming available for US use.
- Be prepared for disruption. The Trump election result, close on the heels of Brexit, fuels the perception that disruptive events are happening more frequently. This has lessons for financial risk management, especially in foreign exchange, which tends to be a leading indicator and reactive measure. Chatham, for instance, suggested more rigorous review of currency correlations to inform portfolio-based approaches to exposure management as a result.
- US MNC liquidity and intercompany funding about to be disrupted. The Trump win and Republican retention of Congress put a high probability on tax reform that will allow US MNCs to repatriate off-shore cash without the current tax penalty. The ability to do this will provide powerful new flexibility to finance structures, but this transformation will also be disruptive to current multinational liquidity and intercompany funding structures. Thankfully, the negative disruption of the proposed Section 385 rules were almost wholly averted in the final rules. However, the high probability of tax reform represents an even larger, albeit positive, disruptive force. The dynamics of the treasury-tax partnership will certainly not be the same.
The likelihood of these disruptive forces impacting members through-out 2017 and beyond is almost certain. Accordingly, validating member actions in response to disruption and building confidence in these actions will be high on the agenda for our next meeting.