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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.
The Tech20 Treasurers' Peer Group celebrated its 15th Anniversary last week. Here are my Founder's Takeaways.
It was quite exciting to come from our Asia CFO meeting at Shanghai Disneyland to the Carneros Resort and Spa in Napa Valley, CA to celebrate the 15th Anniversary of Tech20. Tech20 had its first meeting in Napa Valley in November 2001. The success of that meeting and its membership peer group model marked the beginning of the transformation of NeuGroup, the company I founded some 7 years earlier, from a newsletter publisher that produced roundtable seminars on topical treasury issues into a knowledge exchange network for members. All of our now 18 different treasury and finance peer groups have Tech20 to thank. Also, as I emphasized at the celebratory dinner, knowledge exchanged at each of our peer groups is meant to encourage every member to realize their potential in their current finance roles, as professionals and as individuals.
These groups also create tremendous value. To put this in perspective, the value of companies in Tech20 has gone from $800B in 2001 to $3.3T today, as noted by Bob Kilcullen, Managing Director for Corporate Advisory at MUFG, the 15th Annual Meeting sponsor.
In the video recap above, I share two top takeaways from the meeting itself.
- A shareholder distribution metric. A slide in the capital allocation session suggesting a revenue growth to distributions linkage proved to be the top takeaway for many. Comparing your company to peers by looking at the current three-year revenue CAGR vs. the last three years' distribution yield (dividends plus repurchases) proved to be such a compelling benchmark that most members had a chart showing their position relative to their sub-sector peers before the meeting ended (having emailed back to the office for staff to prepare it).
- Retaining and motivating talent. Talent management continues to prove a challenge for treasurers. In the Bay Area, where many members are based, the competition for treasury talent has created scarcity and driven up compensation--plus, the high-cost of living in this part of the world keeps new talent from moving in. Millennials and their desire to hold relevant jobs and grow constantly is a related factor of concern. The pressure to retain talent to support growth also causes a dilemma for talent management in clearing a path to promote high potentials while also maintaining sufficient staffing to grow.
A special thank you to first-time Tech20 sponsor MUFG for their support of our 15th Anniversary event.