NEW YORK -- Hot on the heels of the release of the 2017 AFP Strategic Role of Treasury Survey, three treasury executives provided insights into how their roles have expanded into new areas at the 2017 AFP Executive Forum. All of them focused specifically on how risk management has become a key responsibility.
According to the survey, which was supported by Marsh & McLennan Companies, senior leadership and the board are paying very close attention to organizations’ liquidity and risk exposures. Full 73 percent of respondents named this as the primary reason why treasury is playing a more strategic role today.
Moderator Craig Martin, director of executive programs and treasury practice lead at AFP, began by asking the panel about the types of conversations they are having on risk. “Do you take into consideration that fourth pillar of political or geopolitical risk?” he asked.
Brian Begg, vice president and treasurer for WESCO International, who co-chairs enterprise risk management (ERM) at his organization, responded that different business segments will reach out to him to better understand a term or condition. “We’ll support the contracts group as we’re negotiating a global accounts agreement, which will have us servicing a large data company in seven countries for their data center needs,” he said. “We’ll look at the political risk, we’ll look at the contracting risk from an insurability standpoint in each of those countries. We’ll try to devise language to protect the company and ultimately our profit margins from any erosion.”
Begg added that he views himself as an internal consultant more than anything else. “We place policies in the normal course, annually,” he said. “That’s the easy part of the insurance risk management. But where we’re trying to understand the scope of services that we’re signing up as an organization to provide as a supply chain manager—it’s those gray areas are where the value can be brought.”
Joel Campbell, vice president, treasurer and chief risk officer (CRO) for H&R Block noted that all treasurers understand the business at a certain level. “But when you own risk management across the entire organization, it completely changes your perspective,” he said. “The challenge for me wasn’t getting to know people across the company; that was pretty well-established. The challenge was really getting to know our risks.”
For H&R Block, an organization that collects and handles tax information for millions of people, the key component of its risk structure is data security. “How do we hold it, tokenize it, encrypt it? How do we keep it secure in a very distributed system with 10,000 retail offices in the United States—both company and franchised? How do we keep that information secure in the offices as well? So I spent my first couple months just digging in with the data security team and getting indoctrinated in how it works—really down to the nuts and bolts level all the way up to being able to report to the board and the finance committee.”
Right below data security for H&R Block is business interruption. The company generates 85 percent of its revenues between mid-January and April 15. “So when you think about that amount of cash and revenue generation in that very short window, if I have a business interruption event on say, February 15, that could be $115 million of revenue in a single day,” he said. “So we have to think about what happens if the business gets interrupted. And if that interruption lasts more than four or eight hours, what happens to the company in that timeframe?”
Johan Nystedt, vice president, treasury for IR Conagra Brands, is the chair of a newly “reincarnated” risk oversight committee at his organization. He explained that this new committee has a very different focus than the previous one. “The risk oversight committee is a forum where financial risk is being monitored,” he said. “So, it’s FX, commodity risk—it’s the risks that are easier to quantify.”
Nystedt noted that his CFO asked him to head the committee because the company was looking to essentially start over on risk management. “For example, when I came to my parent company, I realized that the FX risk management was very decentralized,” he said. “We had businesses in Europe that were dealing with some currencies, businesses in other places using other currencies. I won’t speak about Conagra specifically, but as more of a general comment, if you have FX very decentralized, you’re going to see some affiliates hedge for their bonus, some for their budget, etc. It’s not going to be a holistic approach and it’s going to be unlikely to take into account the strategic needs of the enterprise itself.”
So FX risk was one of the first areas that Nystedt suggested that Conagra change. “Now we have one approach to it—a consistent approach,” he said.
Download the 2017 AFP Strategic Role of Treasury Survey here.