In times of uncertainty, the role of corporate treasury steps into the spotlight

Typically, corporate treasurers work quietly within companies: they monitor financial risk, manage liquidity by investing idle cash, and ensure there is enough cash on hand to pay suppliers, employees, and other obligations. Then the COVID-19 pandemic hit.

Over the past 18 months, treasury operations have been impacted with a speed and thoroughness that exceeded anyone's expectations. Global supply chain failures, the unpredictable stop-and-go of economic activity, near-zero interest rates, and the risks of global warming have combined to create a severe test for treasurers.

In a world where cash flow can sometimes be as unpredictable as the weather, I find that CEOs and CFOs are increasingly looking to treasurers as strategic leaders. This means that today's treasurers need to possess more skills beyond their traditional core competencies. They need to blend new soft skills, digital acumen, and innovative leadership to succeed in this spotlight. Here's why.

Supply chain chaos

What can go wrong when planes, trains, trucks, and container ships are tightly linked with ports, manufacturing facilities, warehouses, and retail outlets? The COVID-19 pandemic tore apart the highly optimized global supply chains of many large companies.

Data shows that94% of Fortune 1000 companies reported supply chain disruptions due to the pandemic. Of these, 75% said it had a negative or strongly negative impact on their business, and more than half said they had or would lower growth expectations.

That's the bad news. What's worse, supply chain congestion won't disappear anytime soon. Recent reports indicate thata record 56 cargo ships were stuck in traffic off the coast of California. IHS Markit research group says thatdelays in shipping, ports, and manufacturing will continue into 2022。

When you don't know if your products (or the parts to make them) will arrive on time, you can't predict revenue or cash flow. The list of supplies and products facing shortages is almost all-encompassing: from hot dogs to houses, from toilet paper to used cars. Of course, the most typical example is semiconductor chips. Some anxious companies have been"double-ordering"to try to secure inventory, which only worsens the problem. Think about the shortages in your industry, and imagine what that means for cash flow forecasting.

The treasurer's job of carefully balancing the company's working capital—that is, receivables versus payables—has turned into a tightrope act.

The stop-and-go economy

In the first year of the pandemic,200,000 more businesses than historical levelsclosed.

But as reopenings progressed nationwide this summer, consumer demand was unleashed.The tightening and loosening of business restrictionscreated surges in demand that supply couldn't predict. And it's not just about raw materials and finished goods.

Imagine your client is a restaurant owner.Labor shortagesmean that even if they want to fully reopen, they may only have enough staff to offer dinner service three nights a week. If your client's business—whether it's a restaurant, retailer, hospital, or manufacturer—booms one month and closes the next, forecasting demand and sales is nearly impossible. Cash flow is even harder to measure and anticipate.

The search for yield

Globally low interest rates have allowed treasurers to refinance and take on new low-cost debt. But now, treasurers as institutional investors are facing the same dilemma as retail investors: where can they find safe returns? Traditional income-generating investments are no longer as attractive. Meanwhile, inflation threats loom. So holding cash is not ideal. The current low-rate environment is prompting more treasurers to explore higher-risk alternatives like cryptocurrencies.

Climate risk

Climate-inducednatural disasters are becoming largerand more unpredictable. Companies face risks from droughts, fires, hurricanes, and the damage they cause nationally and globally.

But new federal climate regulations are also coming. The U.S. Securities and Exchange Commission (SEC) is expected topropose climate risk disclosure rulesby the end of the year. Many treasurers find themselves at the bottom of a very steep learning curve in this emerging risk management area. Since climate reporting standards are not yet finalized, finance teams must work to understand their ownemissions and ESG performancedata.

As companies take steps to reduce risks related to their own carbon footprint and climate vulnerability, they will also adjust business strategies. More and more investors are asking: Is this company an asset or a liability on the world's climate balance sheet?

Treasurers are well-positioned to be sustainability advocates. They have the opportunity tolead their company's impact investingand generally be at the forefront of allocating capital to greener business strategies. One way is to more closely examine the ESG metrics of their suppliers, ensuring they meet certain standards, and embedding ESG requirements in their requests for proposals (RFPs).

The new treasurer

Based on what I've seen and heard, treasurers are adapting to business volatility and their evolving role in five ways.

• Strong collaboration skills. Many finance teams are no longer all concentrated in the office. They are more likely to work from home offices and kitchen tables. But despite physical distance, they need to collaborate more closely with their teams and partners. Treasury professionals have ranked collaboration andbusiness partnershipsas top priorities for corporate treasurers in 2021.
• Digital acumen. CFOs expect treasurers to be digitally literate. The adoption of real-time technology is a prime example. A few years ago, same-day payment settlement was considered fast; now expectations have shortened to minutes or near real-time. Consider these numbers: in 2020,$70 billion in real-time payment transactionswere processed globally, a 41% increase from 2019. The digitalization and automation of payments via APIs also brings tracking data. This helps improve cash flow visibility, data management, and business intelligence. Treasury automation driven by artificial intelligence has become a priority. When liquidity is automated and treasurers don't need to monitor multiple account balances, their time can be spent on more strategic priorities.
• Sharp communication skills。Building persuasive narratives, listening, and the ability to express ideas clearly and quickly are essential. Treasurers are moving from behind the scenes to the forefront, becoming strategic advisors to C-level executives and boards. Providing simple, clear guidance based on analysis further enables treasury departments to pivot quickly.
• Focus on the future of money. Well-known public companies like Tesla, Square, and Microstrategy use cryptocurrencies, sparking interest in digital assets. It is estimated that58% of multinational companiesare now using cryptocurrencies—especially when transferring funds across borders. Cryptocurrencies also have the potential toenable real-time transfersand serve as a balancing asset in a low-yield future. Due to the potential impact on investment management, operations, and transactions, treasurers should closely monitor developments in this area.
• Innovation-oriented leadership. This is an extraordinary time for treasurers facing disruptions to their core cash management work. CFOs arelooking beyondtechnical accounting skills and the ability to understand and mitigatenew types of risk in volatile times. They look to treasurers to take a leadership role and add value by advising on opportunities. Treasurers need to be able to integrate everything—leveraging partnerships, mastering new risks, applying technological advances, and investing in sustainable business transformation—to truly help C-level executives build better, more resilient companies.

The COVID-19 pandemic has pulled back the curtain on the complex world of corporate treasury, showing they are ready to take center stage. The traits treasurers relied on before the pandemic are no longer sufficient in the spotlight. Today's treasurers must embrace new, different skill sets and mindsets to help their organizations shine.