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Treasury: The Ideal Enterprise Risk Management Leader

  • By Nilly Essaides
  • Published: 9/17/2015
RiskbuttonTreasury’s role as the authority on enterprise risk management (ERM) is becoming increasingly important. The volatility in stock, FX and commodity markets, plus diverse expectations about the future interest rate environment, are key reasons why companies must take a more holistic view of risk.

Many more treasurers are playing leading roles as participants or stewards of corporate ERM programs, according to the CTC Guide, “Leadership in Treasury: How Treasury Can Lead ERM.” The volatile financial and business environment only makes treasurers’ role in ERM more critical.

According to Jason Torgler, vice president at Reval, “the core requirement for treasury risk management is managing liquidity and capital risk, foreign exchange and IR exposure, compliance and operational risk [including fraud], from the perspective of treasury’s operations. Additionally, treasury has been adept at managing financial counterparty risk.” All of these risk management roles fall within treasury’s core mandate, according to Torgler.

But that role has been expanding. According to the 2014 AFP Strategic Role of Treasury Survey, 84 percent of respondents are playing a more strategic role today than they were five years ago; however, only 25 percent of them reported that their view of the organization is now more holistic. If treasurers are to reach their full potential and play a more leading role in their companies’ ERM programs, that needs to change.

As their companies’ risk management experts, treasurers are uniquely positioned to take on a broader risk management role, assessing, quantifying and managing risk across multiple categories. They can provide their organizations with a leading voice in ERM by leveraging their expertise in the management of liquidity, currency, capital and, increasingly, commodity and supply-chain risk. According to the Strategic Role of Treasury Survey, 30 percent of treasurers already play a leading role in ERM—a number that is destined to grow as challenges like risk quantification and data analysis continue to expand.

“Effective companies have good risk management procedures embedded in their business model, and ERM is about an approach of joining up all the dots. With the treasurer managing the cash, the borrowing relationships, and effectively hedging the risks that companies do not want to hold, they must be right in the center of process,” said Amit Dev Mehta, a corporate strategy and operations professional. “Gone are the days when risk management was an exercise done just prior to the audit and was a function managed by internal audit. Companies need to have a clear understanding of what risks they wish to have in order to do their business and what risk they wish to offload. The treasurer has to play an important role in creating the strategy, as well as executing the risk management policy.”

Treasurers inherently think about risk, said John Gallagher, vice president of business planning and analysis and treasurer at Becton, Dickinson and Company, a medical device multinational. “Although the preponderance within treasury is financial, it’s bringing that mindset to the table, focusing on risk and volatility across the business,” he said. “Having that risk mindset helps when you’re aggregating, analyzing and presenting ERM programs to management. In fact, if I had a key takeaway around ERM, it [would be] that what’s important to ERM is a leader who truly knows the company and who can get his or her arms around the risk in the company rather than bringing in a risk expert from the outside.”

As the markets swoon and global economies slow down, the role of treasurers as ERM leaders is bound to grow, given their understanding of financial and capital markets. They have a bird’s eye view into the turmoil in global markets. They can bring together multiple views, operational and financial, to come up with the best way to insulate the company from surging risks.

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