The Challenging Role Of The Corporate

Treasurer
By Permjit Singh | September 21, 2014 2:00 AM EDT

Treasurers serve as financial risk managers that seek to protect a company's value from the
financial risks it faces from its business activities. Because these risks can arise from many
sources, the role requires an understanding of many areas of business and the ability to
communicate with a variety of financial professionals. Once an offshoot of the accounting
department, corporate treasury management has evolved into its own company department and
professional body. Read on to learn more about what treasurers are responsible for in their line of
work. (To learn more about other key corporate management roles, read The Basics of Corporate
Structure.)
Managing Risk
Treasurers manage several key risks related to changes in interest rates, credit, currency,
commodities and operations. Companies face some or all of these risks to varying degrees.
Below is a brief description of some of the financial risks that companies - and their treasurers must address.
Liquidity Risk
Perhaps the most important risk a treasurer must manage is liquidity risk, or the risk that the
company will run out of cash either from insufficient revenue, excessive expenditure, or the
inability to access funds from banks and other external sources. The inability to meet payment
obligations as they are due can mark the end of a company if its creditors sell off its assets to pay
corporate debts. (For related reading, see Working Capital Works.)
Credit Risk
Surplus cash can be invested to earn interest, and the treasurer must be sure that those issuing or
insuring securities are financially sound and credit-worthy. One way to do this is by checking an
issuer's credit rating, which provides an independent assessment of the likelihood that a thirdparty will pay on time and in full as expected. The treasurer must also be confident that
counterparties to financial instruments used to manage risks (such as interest rate swaps) will
perform as expected. (There is some question as to the value of these ratings. Read The Debt
Ratings Debate to learn more.)

Currency Risks
In addition to credit risk, exporting companies face currency transaction risk when they translate
proceeds from foreign sales into their home currencies. Multinational companies also face
translation risk in financial reporting when the values of their foreign subsidiaries' assets and
liabilities fluctuate upon conversion to a single home currency. Investors and analysts may view
currency moves that cause a drop in the value of consolidated foreign assets and in profits as a
problem, potentially causing the share price to fall.
Another type of currency risk, which treasurers may find more difficult to manage, occurs when
a competing company from another country experiences a more favorable currency translation.
For example, the sales of two exporters from different countries, both selling goods to a Japanese
importer, will depend in part on how their respective currencies move against the Japanese yen.
Tactical moves to remain competitive, such as relocation of manufacturing plants to match the
competitor's currency cost base, can have major ramifications. Senior management, with input
from the treasurer, would only implement such a move after extensive discussion. (The article
Forces Behind Exchange Rates explains currency fluctuations and how they affect global
economies.)
Interest Rate Risk
Most companies need to borrow to finance operations, such as buying raw materials, machinery,
or premises. Borrowing at variable interest rates allows companies to pay less if market interest
rates fall, but raises their costs if rates go up. If a company does not pay interest because of
insufficient cash, it may run into a liquidity crisis that could undermine its ability to raise debt in
future, or to raise it only at higher interest rates that reflect its heightened credit risk to lenders.
Operational Risk
The financial risks discussed above are external risks. Operational risk is an internal treasury risk
that reflects inadequate operational controls that could lead to a loss of company value. An
example of inadequate controls might be if a treasury dealer borrows money under a company
loan agreement, apparently for a business purpose, but transfers the proceeds to his or her own
bank account because the treasurer is able to undertake both dealing and funds transfer activities.
In a well-controlled treasury, such functions would be segregated and attempts to undertake both
by the same individual would be immediately detected.
Risk Policies
A treasurer will formulate a set of board-approved policies that define the methods allowed to
manage the above risks and the discretionary powers of the treasurer and other authorized
personnel. These policies will vary from company to company. Not all companies, for example,
allow treasurers to use derivatives or to leave risks unprotected, or they may only allow such
practices within defined limits and terms. (The Barnyard Basics of Derivatives explains the
complex world of derivatives.)
The treasury department's actions and its compliance with treasury policies must be assessed
independently and regularly by the internal audit department and by a treasury committee
comprised of senior management, including the treasurer. This committee, or an asset and
liability committee (ALCO), will also regularly review and discuss financial risks across the

company's assets and liabilities, and agree on appropriate actions to manage or transfer them.
ALCOs will usually delegate the task of executing agreed-upon actions to the treasurer and his or
her team.
When there is no single obvious solution to managing a financial risk, a treasurer must be able to
weigh the pros and cons of a course of action. Decisions may involve consulting relevant internal
and external specialists and undertaking data analysis and possibly scenario analysis in order to
recommend a course of action. (For related reading, see Scenario Analysis Provides Glimpse Of
Portfolio Potential.)
Professional Development
Traditionally, many treasurers were trained as accountants and undertook treasury activities as an
offshoot to their accounting roles. However, with the development and proliferation of financial
instruments and the globalization of financial markets and companies, treasury management has
become more specialized, complex and time-consuming. Large and multinational companies
establish treasury departments as autonomous risk management units, and corporate treasury
management is now recognized as a profession distinct from accountancy. Many countries have
specialized professional bodies, such as the Association of Corporate Treasurers in the U.K., as
well as specialized education programs. (To read more about careers in accounting, see
Accounting, Not Just For Nerds Anymore.)
Specialist and Generalist
Although a treasurer is essentially a risk management specialist, his or her performance is
enhanced by having a practical knowledge of various associated corporate support functions such
as law, tax, insurance, accounting, economics and banking. In these areas, the corporate treasurer
is also a generalist.
Because financial risks come from various sources within a company (such as interest rate risk in
loans, credit risk in investments, or currency risk in debtor invoices), a treasurer must understand
the nature and financial dynamics of each of a company's assets and liabilities across many
different departments, underscoring the benefit of a broad financial education. (For related
reading, see Keeping Up With Your Continuing Education.)
Interpersonal Skills
In addition to consulting relevant internal colleagues, a treasurer will often execute the actions to
manage financial risks only after also consulting with external specialists such as bankers,
lawyers, credit rating agencies, tax and accounting consultants, and auditors. A glance at any
tombstone will confirm the wide range of specialists involved in raising debt or equity, for
example. Strong interpersonal and communication skills are therefore an important personal
attribute for a treasurer.
Senior Manager
The impact of financial risks on company value and survival can be catastrophic and sudden. The
treasurer, along with perhaps a small team consisting of a treasury accountant, cash manager,
treasury analyst and dealer, are entrusted with a great deal of responsibility. As such, a treasurer

is often a member of a company's senior management team, usually reporting directly to the
CFO or even commanding a seat on the board of directors.
Conclusion
Treasurers are increasingly assuming more strategic roles in companies. They have moved
beyond managing working capital to becoming increasingly involved with working with a
company's senior management to manage risk and boost the bottom line.
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