Introduction to Corporate

Treasury
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ntroduction-treasury
Background
Treasury, when compared to other corporate functions such as financial control, company secretarial, tax
and internal auditing, became an identifiable profession relatively late. In the 1960s few major UK public
companies had separately identifiable corporate treasury departments. However, by the end of the 1970s
they had become widely established and by the 1980s they were almost universal.
Whilst the rapid development of the profession in the UK and Europe in the 1970s was most likely born
out of the high inflation and financial uncertainties of that decade, its origins in the United States were the
result of their early development of professional of management. Corporate treasury has subsequently
continued to develop into a discrete profession in its own right in response to the growing sophistication
and volatility of financial markets and the globalisation of business. Corporate treasury departments may
be seen as the logical response and effective in-house counterpart to external bankers and are certainly
the conduit through which day to day transactions and communications pass. Tactically they manage
cash and foreign exchange, banking and credit facilities and at a more strategic level capital and financing
structures and more generally financial risk management.
In the UK the Association of Corporate Treasurers, the ACT, was established in 1979 and an examination
syllabus and professional examinations followed soon after in 1985. The number of members who were
already qualified accountants proves a clear pointer to the origins of the profession and the financial
nature of much of the work. The present day faster track route to qualification open to qualified
accountants helps maintain the close relationship.
Whilst the profile of the treasury profession in the UK and worldwide is growing, it still remains a relatively
small profession. In the UK the ACT currently has 3600 members and relative to their numbers, could be
thought to have a disproportionate profile. Given the pace of economic and financial developments that is
an integral part of business, treasury management offers a career that is both potentially exciting and
influential.
The role of corporate treasury
Corporate treasury departments provide a vital role and have developed significantly in the last thirty
years. What a company expects from its treasury department is substantially dependant on the nature of
the companys activities and the responsibilities that executive management entrust to it. For example a
service company operating substantially in the UK will have little need for expertise in foreign exchange
but will most likely require a highly sophisticated cash management system. Where the responsibility for
the various aspects of cash management falls between treasury and financial control will differ. A
professional association like the ACT is the source of best practice but not the ultimate arbitrator.
Whilst a treasury department will implement agreed corporate policy, the extent to which it initiates and
develops policy and the parameters within which it works, will vary. Some corporate treasurers are

formally part of executive management, others are not. Further, outside of what may be considered the
core universal responsibilities of treasury management, there are always potentially grey areas between
what is treasury management and what is financial control, company secretarial, tax, risk management
and insurance. It is therefore unlikely that any two group treasurers will enjoy exactly the same
responsibilities and even in otherwise similar companies, their roles and responsibilities will differ.
Given this, it is best to rely on the ACT for their description of the five core elements of the role.
They are;
Capital Markets and Funding

Cash & Liquidity Management

Corporate Financial Management
Risk Management
Treasury Operations & Controls

Capital Markets and Funding

This covers what funding options are open to a company and the way funds are raised to finance the
business and on what terms such funding can be acquired and managed. For example it may be simply
whether an asset should be purchased or leased? It is a broad area that often requires building external
relationships and negotiating with providers of either equity or debt.
Cash & Liquidity Management
Cash and liquidity is principally about ensuring that the cash needs of the company are met in the most
cost effective manner. Avoiding large pools of cash that are not effectively deployed or incurring the
unnecessary costs of unforeseen short term borrowing. Most groups will have effective cash forecasting
and pooling arrangements that need to be developed and managed.
Corporate Financial Management
Companies need to ensure that their corporate and financial strategies are appropriately aligned. What for
example is the most appropriate capital structure? How are potential investments appraised? Is an asset
providing the required return and if not should it be disposed of? Corporate financial management
includes ensuring that legal and tax issues are appropriately considered.
Risk Management
Risk management is about understanding and quantifying the business and financial risks that a company
is taking. It ensures the returns are adequate and that appropriate risk management techniques are
deployed. This may involve looking at the effect of interest rate and exchange rate moves and putting the
appropriate hedges in place. It is about understanding the risk appetite of a company and ensuring that
executive management are fully aware of their exposure.
Treasury Operations & Controls
This final element is about putting the preceding four into practice in a coherent and appropriately
managed way. It is about managing a treasury department and its various functions in an environment
where priorities may regularly shift. It requires effective communication and for executive management to

be confident that the treasury department is aligned with it aims and objectives.
Recent developments
Corporate treasury departments have recently needed to respond to what may become an extended
period of economic and financial turbulence. Having escaped imminent financial Armageddon with
unconventional fiscal and monetary responses, it is clear that at least in the short term, the fundamental
problem of excessive debt and consumption are seemingly to be cured by even more debt and
consumption. However, it is likely and ultimately logical, that the unprecedented expansion of credit that
preceded the crisis, will be followed by a period of credit contraction from which no credible exit strategy
exists.
It is clear that executive management and corporate treasury departments have and will need to respond
to this new environment. Secure banking relationships and sources of financing have become more
precarious. As banks have retreated corporate treasurers have needed to be more proactive. Executive
management now requires more information and reassurance. Assumptions about risks and hedging
strategies will routinely be more robustly challenged and tested. Corporate treasurers will need greater
knowledge of the financial markets together with the ability to make strategic assessments and
communicate them effectively to executive management. It is likely to be an exciting and challenging time
to be in treasury management.
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Cash Management: Treasury Operations oversees the day to day management of the
Universitys working capital cash, preparing a daily forecast of cash receipts, disbursements and
expected closing balances. These projections are carried forward on a daily basis, and used as a
tool for ensuring that any excess cash balances are invested appropriately and/or any borrowing
for operating needs is executed.
Bank Accounts: Treasury Operations is responsible for opening and maintaining all domestic
and international bank accounts. For assistance with a bank account, please refer to Domestic
and International Bank Account Guidelines or contact Treasury Operations at (617) 353-2272.
Click here to download the Bank Account Request Form.
Relationships with Bank Service Providers: Treasury Operations maintains relationships with
commercial banks that provide collection, cash concentration and disbursement services as well
as other bank services including foreign exchange, card services, etc.
Payments: All payments by wire, ACH and foreign payments are initiated directly through
Treasury Operations. Payments by check are handled by Accounts Payable. Please view
procedures for wire and ACH payments.
Investment Office Support: Treasury Operations supports the Universitys Investment Office
with endowment accounting and other administrative services.
Cash Management Advisory: Treasury Operations provides advice to all departments of the
University with regard to questions related to establishing bank accounts, managing cash
collections and disbursements, financing purchases, etc