Look at an organization’s board members and you’ll see representatives from around the business, each an expert in their own area and with plenty to add to the conversation. Behind those board members are senior managers, again experts in their field, and together these individuals drive the business forward.

In this article – part of a series looking at various senior management roles in relation to governance – we will take a closer look at one of those senior managers: the head of treasury. What is their role in entity governance, and how do they leverage entity data to ensure that the organization stays compliant with global and local regulations?

What Does the Head of Treasury Do?

The treasury department, and the corporate treasurer or head of treasury, has really emerged as a key role in organizations since the global financial crisis hit in 2008. Preceded by some reckless financial behavior, that crash showed the importance of having an impartial eye on cash risks in a business. Today, the head of treasury is gaining more recognition at board level.

In general, the corporate treasury manages the organization’s liquidity risks, financial risks, banking relationships and working capital. The treasury department could also include or work closely alongside the mergers and acquisitions team, corporate finance, corporate planning, pension fund management, economic analysis and fintech.

Most treasury setups will cover:

  • Cash and liquidity management
  • Financial risk management, such as foreign exchange (FX), interest rates and commodities
  • Working capital management
  • Long-term funding
  • Bank relationships
  • Tax and treasury accounting
  • Company credit rating management
  • Company capital structuring

How the Head of Treasury Leverages Entity Data

Treasury policies are developed to reflect the corporate treasury’s mandate, showing the reporting and responsibility structure and creating risk definitions and limits. To fulfil this remit, the head of treasury will need to access and leverage entity data.

Working with capital, cash and liquidity

Arguably the nuts and bolts of the head of treasury’s everyday work – and their most important tasks – lie in the area of enhancing liquidity risk, optimizing working capital, improving cash flow forecasting and visibility of cash, improving the cash conversion cycle and optimizing inventory levels. In other words, the treasurer knows that cash is king in the business world, and they work to ensure that the organization has enough liquidity to both keep operating and achieve its ambitions.

To fulfill this remit, the head of treasury must know and measure current cash balances, accurately forecast future cash flows and ensure liquidity for daily operations – and they can’t do that without an understanding of where operations are located, how they’re tracking, and what each entity needs to remain operating and financially compliant whichever jurisdiction it’s located in. Some jurisdictions require an entity to have a minimum amount of capital to remain compliant with local laws.  Likewise, the head of treasury needs access to the accounts of each entity to understand how it’s spending money, where its obligations lie, and where opportunities and risks lie. Entity data is key to all this, and more.

Monitoring and managing risks

One of the biggest risks an organization faces is running out of cash – that’s where the head of treasury and their department comes in. Risks can come from foreign exchange, market volatility, interest rates, commodities, equity and market liquidity – and to mitigate all these financial market risks, the head of treasury must study entity data.

Entity data not only reveals the organizational structure and locations of entities, but entity data analytics can also reveal sudden drops in liquidity. If a market is known as being particularly volatile, entity data can reveal an organization’s exposure to that volatility. In a global organization, entity data can show how FX changes could impact cash management. And so on and so forth.

Mid- and long-term funding planning

Even if an entity is being wound-up, the head of treasury must get involved in the funding planning – yet more often than not, they will be studying analytics around cash management across the organization to help inform mid- and long-term funding planning. By “mid and long term,” we mean beyond the next 12 months, so the head of treasury is leveraging entity data to ensure that the right financial structuring is in place to sustain the organization’s ambitions for growth.

This is not the same as cash and liquidity management, though it sits alongside it. Mid- and long-term funding tends to look beyond cash and liquidity management to ensure funding targets can be met, and to analyze the best ways to ensure that funding remains sustainable. This could include looking to loans or bonds to bring an injection of cash to the business. These dealings should be stored with an entity’s data to ensure all documentation is in a single place.

Entity Management Software Brings Better Entity Data Governance for All Teams

Economic activity is rapidly shifting from established markets in Europe and North America to developing ones in Africa, Asia and Latin America, and this shift is resulting in the head of treasury leveraging entity data analytics and insights to improve performance. Emerging markets can involve new and varied banking protocols and customs, and bring new and unforeseen financial risks, so the head of treasury must remain fully informed of all entity operations.

As McKinsey says, wherever there’s money moving around, fraud and mismanagement are risks. In the treasury department, funds move in real time using complicated financial instruments, adding to the financial risks inherent in this essential role. The head of treasury, then, needs access to real-time entity data to ensure quick-thinking financial decisions are based on the most up-to-date and accurate entity information. They need a central repository for all entity data, something secure and cloud-based to get the right information to the right people at the right time, and in the right format.

Entity management software, such as that offered by Diligent, can integrate entity data from around the business into a single system of record. Entity diagramming reveals the organization’s structure at a glance, enabling the head of treasury to understand how cash moves around the business, while storage of corporate records, such as annual accounts and tax filings, brings the wider financial picture into view.

Diligent’s entity management software integrates seamlessly with the board portal to bring an all-in-one Governance Cloud, ensuring board decisions are logged and shared at entity level, while entity operations are accessible by the board. Get in touch and schedule a demo to discover how Diligent’s Governance Cloud can help the head of treasury to leverage entity data and ensure that liquidity and financial risk are expertly managed.