Cash Management

A Treasurer’s Tip: Take the Long View

Treasurers could capitalize on the attention they've been getting by sharing their tendency to think and plan for the long term.
Sarah JohnsonJune 5, 2009

Shriveled liquidity positions and bloated balance sheets have focused a brighter light on treasurers in recent months. Because their skills at managing working capital, cash, and investments have become more crucial to companies’ health and even survival, CFOs may pay more attention to what they have to say.

One prominent treasurer hopes his colleagues will keep the momentum going by encouraging their bosses to adopt at least some of their long-term mind-set when it comes to running the business.

“Treasurers have the opportunity to parlay the attention on the function by doing a really good job, of course, but also by becoming more of a strategic partner and providing more support for the CFO and senior management,” says Edward Liebert, chairman of the National Association of Corporate Treasurers (NACT) and the treasurer at Rohm and Haas, which was acquired by Dow Chemical in April.

At the CFO Core Concerns Conference in Boston from June 15 to June 17, Liebert plans to talk more about how companies can get a better grasp of their future cash needs, based partly on the results of a study NACT recently did with the help of REL, the working-capital division of The Hackett Group. The review of 100 companies found that four in five are unable to accurately forecast midterm cash flow, which inhibits their ability to run their business efficiently during the financial crisis, he says.

REL has long touted the merits of better managing working capital to wring out cash. As traditional outside financing avenues dried up in recent months, companies seem to have warmed up to that concept, turning inward for their cash needs by vastly improving their collections processes and reducing inventory levels. In fact, the 1,000 largest companies liberated $62.7 billion from their working capital in the past year, according to the 12th annual edition of the CFO/REL Working Capital Scorecard, published in CFO magazine’s June issue.

The central role treasury departments play in such activities could translate to their leaders having more influence on company direction. “Treasurers can branch out more and bring more value to the company,” says Liebert, hopeful that his peers will take advantage of this newfound spotlight.

Indeed, some observers may argue that this is the “year of the treasurer.” Liebert not surprisingly concurs, but with a caveat: “Unfortunately, events don’t compartmentalize neatly into calendar years,” he says.

If this is indeed the year of the treasurer, it likely began in late August last year, just before Lehman Brothers and other financial giants either failed or seriously faltered and short-term credit markets froze up. Even financially stable companies suddenly had trouble floating commercial paper and finding ways to fund their working capital. As a result, Liebert suggests, top executives who had been focusing on earnings-per-share targets had to zero in on a more long-range metric that hadn’t necessarily been top of mind: cash flow. Hence, treasurers found themselves being called into the CFO’s office more often for updates.

Now, treasurers have gained prestige for their skill at being able to forecast how much financing a company needs over the long haul, says Liebert. He gives the example of a fellow treasurer’s decision to hold on to a multibillion-dollar revolving credit line over the past five years even though his automotive company didn’t need it at the time. Liebert says: “He knew how much cash his company would have to absorb to withstand recession.”

One reason Liebert has stayed at Rohm and Haas is because the previously family-owned company has always used a long-term strategic outlook, he says. While he declines to talk specifically about his job or his future role with Dow, Liebert says Rohm and Haas has a flexible capital structure and has diversified its risks across geography and product lines to stay in business for 100 years.

Following a lot of back-and-forth after Dow’s initial financing plans for acquiring Rohm and Haas fell through, Dow acquired the Philadelphia-based chemical maker on April 1 for $16.5 billion. It has since divested some of Rohm’s assets, including Morton Salt.

In the meantime, Liebert is using his pulpit at NACT to encourage treasurers to explain the importance of collaboration between the finance and the operations sides of the business in order to come up with more accurate forecasts and possibly find ways to free up cash.

In addition, treasurers can use this time to show they are adept at leveraging their relationships with banks and rating agencies. For example, at Rohm and Haas, Liebert has conferred with the procurement organization to help its suppliers obtain credit. The suppliers transfer the firm’s receivables to a bank, which in turn provides cheaper credit to them because they are then carrying Rohm’s higher credit rating.

“If the bank can understand that the credit piece of the business is really Rohm and Hass,” explains Liebert, “then the bank is willing to give that supplier a better financing rate.”