The Treasurer’s View Of A Changing Market Landscape

Analysts have worked to spread the word in recent years that the role of the corporate treasurer is changing. Especially post-financial crisis, the treasury department is no longer a passive piece of the overall business — the function is strategic and a key role in avoiding risk, especially for businesses operating in a global market (which, these days, is just about everyone).

It’s one thing to hear about the changing role of the corporate treasurer from industry analysts, but it’s another to hear, straight from a treasurer’s mouth, what is going on inside the world of corporate treasury.

Deutsche Bank and The Economist Intelligence Unit recently collaborated to speak with a corporate treasury professional about some of the contemporary trends and hurdles facing this aspect of businesses today.

Lenovo Asia Treasurer Damian Glendinning was interviewed for their presentation, “New Risks and Opportunities for Global Corporate Treasury,” at a time when China’s slowing economy and weakened currency are shedding light on how financial matters in one market no longer remain within borders.

For a company as international as China-based Lenovo, Glendinning is tasked with mitigating risk and managing finances amid economic pressures and rapidly evolving technology.

“We have in place a robust series of risk management tools to address the major concerns that we face on a daily basis,” Glendinning explained.

One of the largest sources of risk for Lenovo is currency and foreign exchange. According to Glendinning, about 80 percent of the costs in this industry are denominated in U.S. dollars. However, he added, less than a third of Lenovo’s revenue is in this currency, leading to what he described as a “significant mismatch” between costs and revenue.

As a corporate operating in China, current market conditions can exacerbate this currency risk.

“Currency risk is often a reflection of economic challenges,” Glendinning explained. “Often, a currency devaluation is driven by a deteriorating economy and deteriorating economic circumstances.”

Regulation is another key area of focus for corporate treasurers today. But as Glendinning said, Asia-based corporations like Lenovo actually often experience a lag in the time it takes to see an impact from regulatory forces in Europe and the U.S.

However, that doesn’t mean Lenovo is turning a blind eye to impending regulatory changes. “A lot of the regulations which have come out are designed to try to make the banking system safer,” the treasurer said, adding that many of these policy changes mean avoiding derivatives. That is sounding some alarms at Lenovo, he said.

“Unfortunately, some of the instruments that have been designated as derivatives, and in particular the offshore non-deliverable forwards for currencies, are basically staple products that we have to use to hedge our currency risks,” Glendinning said. “The regulations there have made these products less liquid, more expensive.”

These pressures — economic and regulatory — are forcing treasury professionals to take an active, leading role within their organizations — at least for some businesses.

Glendinning noted that corporate treasurers within companies with high profits, stable product lines and relatively low-risk operations are not as likely to weigh a treasurer’s input more heavily than not.

But, especially amid economic crises, corporations faced with risk and market fluctuations would be wise to listen up when a corporate treasurer warns about currency risk and risk mitigation.

However, Glendinning said, unless corporate treasurers embrace more sophisticated tools to help them in this proactive position within their firms, their efforts to mitigate risk will likely fall short.

[bctt tweet=”‘I’m concerned and disappointed about how poor treasurers are in using technology.'”]

“I’m concerned and disappointed about how poor treasurers are in using technology and how the corporate treasury market has been very slow to respond to moves in technology,” he stated. And while banks are promoting automated and digital tools for consumer banking, corporate banking offerings are rarer.

“When you come to corporate services, the banks have less interest, and corporate treasurers, frankly, as a community, we tend to be a lot more conservative,” Glendinning added. “So, the pace of change there has been much slower.”