Anthony Glasby's journey to his current position as vice president and treasurer of EDS spanned half the globe and included stints in a variety of financial positions. He started in a graduate training program with the publishing firm Reed International PLC in the United Kingdom, working in the pension and investment group, among other areas.
In 1987, Glasby moved to EDS's London treasury office, where he worked in international treasury operations. He next headed to EDS's headquarters in Plano, Texas, to manage the finance team supporting the salespeople pursuing a global project deal. After that, he was a divisional controller for several EDS divisions operating in the U.S. and EMEA, or Europe, Middle East, and Africa. A few years later, he returned to the U.S. treasury office as assistant treasurer, later to be named treasurer in 2006.
Certainly, EDS's far-flung global operations remain fertile ground for developing the next generation of treasury professionals. Having wisely leveraged the global infrastructure of its one-time parent General Motors Corp., EDS has global roots that run far deeper than many companies twice its age.
Still, appearances can be deceiving in the age of globalization. Take Exelon Corp., a $15 billion energy company whose nearly six million customers reside entirely within Illinois and Pennsylvania. You might imagine that local weather reports (think air conditioning) remain a KPI (key performance indicator) for Exelon's finance team. Think again. The fact is that 85 percent of Exelon's profit is derived from the energy company's unregulated generation business.
This business, known as Exelon Generation, has profits that are today largely impacted by the price of natural gas, coal, and other global commodities, according to Exelon senior vice president and treasurer Michael Metzner.
"While we're not located or domiciled in many countries, our underlying business profitability is more and more impacted by global market trends," explains Metzner, who says that the impact of the global economy has grown as the firm has migrated from being a utility company with predictable earnings to an unregulated business with more volatile earnings driven by global events.
Meanwhile, when it comes to developing Exelon's next generation of treasury professionals, Metzner says that the most valuable experience is not necessarily gained from stints abroad. Instead, Exelon's treasurer says that the most valuable experience is time spent working alongside the company's stateside commodities trading, planning, or risk executives (see Metzner's interview "At Exelon, All Business").
Only here, as part of cross-functional teams, will treasury professionals gain the broader strategic insights required to help treasury play a greater role in their company's overall strategic vision, he says. "Today, treasurers need to know where the business is trying to go, and they need to create and execute financial plans that help their company get there."
Similarly, at EDS Glasby says that his team is routinely enriched by tours of duty outside the traditional treasury function. Members of EDS's treasury department work closely with different "client-facing" business units across the company, often by providing advisory services as the company pursues potential deals with clients. They'll evaluate the capital investment that may be required, as well as the potential foreign currency exposure. To do this, the treasury group needs a clear understanding of the company's operations and market, Glasby notes. "You have to think in a commercial context, so that you can effectively apply deal financing and risk management advice."
Successfully supporting other business units requires treasurers to develop relationships with their colleagues in those areas. While treasurers can't force the relationships, they often need to take the first step by, for instance, visiting a plant floor or sales office. "This is the only way to truly understand business operations and is also invaluable in forging relationships," observes Susan Hillman, a partner with Treasury Alliance Group LLC, Chicago.
This sort of cross-country, strategy-minded route to the treasurer's office is becoming more common, experts say. Executives at many companies increasingly demand treasurers with experience in international finance and a thorough understanding of the company's business strategy and operations, as well as the tax and accounting implications of funds movements. "The ideal treasurer has a well-rounded understanding of what's possible, and what can be done to establish treasury operations on a global basis," says Mike Gallanis, CTP, partner with Treasury Strategies, Inc., in Chicago.
This is a shift from a decade or so ago, when treasury often was seen as either a sort of ivory-tower department somewhat removed from an organization's actual business or simply a back-room function focused on bank balances. "The treasurer's role is expanding. They're no longer limited to dealing with just managing bank balances and handling banking services," says Hillman.
Déjà Vu?
The growing importance of treasury is driven in part by today's volatile interest rate environment, which actually is similar to that of the 1980s, says Gallanis. When the prime rate, or the rate on loans to larger corporations, topped 21 percent in 1980, cash management naturally increased in importance. Treasurers devoted much time and effort to accelerating collections and maximizing their company's return on invested cash.
While the current prime rate has remained at 8.25 percent since the summer of 2006, bankers still are tightening their lending criteria, making it more difficult for companies to borrow.
"We have recently seen how fast liquidity can dry up, even for high-quality companies," says Carol DeNale, treasurer with CVS Corporation, Woonsocket, Rhode Island. "It's essential to constantly review the capital structure and liquidity needs of your company."
Moreover, treasurers today face pressures that their counterparts of 20 years ago didn't. These include growing global operations at most companies, heightened regulatory oversight, and demands from shareholders for continuing earnings growth. "Treasury is a much more complex and comprehensive job," says Craig Martin, director of executive programs with the Association for Financial Professionals.
As a starting point, when a company's operations extend beyond the borders of their home country, their cash management function must keep pace. "When you operate globally, moving money isn't easy," Martin notes. In addition to the effect that moving money across borders can have on a company's tax bill, the different countries' regulations need to be taken into account. Complicating things is the fact that corporate financial systems located in different countries often don't easily link with each other.
What's more, even smaller, younger companies now are multinational. Marie Epstein is vice president of finance and administration with OnePIN, Inc., a five-year-old provider of software for mobile phones based in Westborough, Massachusetts. Epstein also handles treasury.
"Even though we're a start-up, 100 percent of our revenue is overseas," Epstein says. Her concern is less with investing for return (although that's obviously important) and more with moving money around the world so that OnePIN minimizes its tax and foreign currency expenses to the extent legally possible. Equally challenging, Epstein says, is helping banks around the globe comply with their countries' version of "know your customers" regulations, which are intended to hinder the movement of funds going to illegal activities. In most countries, these regulations have increased the time and work required to open a local bank account.
Successfully navigating these obstacles requires a multi-disciplinary approach that considers the flow of cash, legal constraints, tax consequences, and the impact on OnePIN's financial statements. Because no formula exists to point the way, Epstein taps into the expertise of OnePIN's accountants, attorneys, and other experts with knowledge of banking and tax rules in different jurisdictions. "Most of it is trial and error," she says. Epstein also can draw on the experience she gained during the five years she spent in public accounting, where she saw other companies grapple with similar challenges.
Epstein's experience illustrates how today's treasurers need to think and act intelligently yet quickly, says Jack McCullough, co-chair of the MIT CFO Summit. A treasurer may find that his or her company has a significant amount held in the Indonesian rupiah, only to see headlines predicting a quick drop in the currency's value. The treasurer has to quickly evaluate the forecast and decide whether to leave the balance and monitor events, or move the money. "The world changes in hours," McCullough says. "You have to be decisive and confident in taking action."
At the same time, more treasurers are taking a strategic role in their companies. Jeff Lawrence is senior vice president and treasurer with Boston-based Iron Mountain, a leader in information protection and storage. Prior to joining Iron Mountain, Lawrence held positions in operations, finance, and marketing at Hewlett-Packard.
When Lawrence came on board in 1988, Iron Mountain had 200 employees and $10 million in revenue. In the nearly 20 years since, annual revenues have grown to about $2.7 billion and the employee roster to 20,000, and Iron Mountain now operates in nearly 40 countries.
Lawrence played a key role in the growth, most of which has been a result of acquisitions. Over a 12-year period, Iron Mountain snapped up about 300 companies. To make that happen, the company completed about 25 public and private financings. "There was a clear alignment of treasury to support Iron Mountain's growth strategy," Lawrence says. "My experience allowed me to add value in a variety of areas." Lawrence and his team also were involved in the due diligence and contract negotiations done with each acquisition and in integrating the new companies into Iron Mountain.
At the same time, Lawrence leveraged his relationships with Iron Mountain's banking partners to help his sales colleagues who were pursuing these banks as possible clients. It's a fine line to walk, he notes, and a role that was somewhat unique to his firm, given that many of its clients are financial institutions. Where appropriate, however, he would help the sales team understand a particular bank's organization and the sales approach likely to be effective. "You need to add value in areas in which you can draw upon your expertise to achieve corporate objectives," Lawrence says.
At Minneapolis-based Alliant Techsystems, Treasurer Steve Wold also supports his colleagues as they work with the company's customers. "There are a lot of ways in which the operating groups need to lean on us in treasury," Wold says. Treasury's assistance ranges from drawing up letters of credit to helping close a sales deal, to analyzing lease-versus-buy decisions, to helping business units hedge their purchase of commodities through the use of futures contracts.
Similarly, Glasby and his team at EDS work closely with business units across the company, often by providing advisory services as the company pursues potential deals with clients. They'll evaluate the capital investment that may be required, as well as the potential foreign currency exposure. To do this, the treasury group needs a clear understanding of the company's operations and market, Glasby notes. "You have to think in a commercial context, so that you can effectively apply deal financing and risk management advice."
Successfully supporting other business units requires treasurers to develop relationships with their colleagues in those areas. While treasurers can't force the relationships, they often need to take the first step by, for instance, visiting a plant floor or sales office. "This is the only way to truly understand business operations and is also invaluable in forging relationships," Hillman says.
Along with building relationships inside the company, treasurers increasingly are called upon to be the face of the company to external parties, such as rating agencies and equity analysts. Previously, the CFO was one of the only individuals in a company who dealt with these groups, AFP's Martin says. "Now, the treasurer is as much the outward face of the corporation as the CFO."
Wold, for instance, is both treasurer and director of investor relations. Holding both roles actually has helped in his position as treasurer, as he has had to gain an understanding of the company's operations and strategic vision. Bankers, as well as investors, require this information, Wold points out. "They're assessing risk and our ability to continue to grow our business. That's core to their ability to lend."
Accounting and Tax
While treasurers today need to gain an understanding of their company's operations, this doesn't mean that they can ignore such nuts-and-bolts finance disciplines as tax, risk management, and accounting. Quite the opposite. "Companies are really thrilled when they can get treasurers who have a good understanding of accounting," says Ellen Williams, senior client partner in the financial officers practice of Korn Ferry International. "They're looking for treasurers who understand the accounting implications of what they do."
Driving this is the increased emphasis at most companies on transparency, especially when reporting more complicated transactions, such as hedges, Williams adds. "Companies want to make sure that they know what they're getting into and that transactions are accurately reflected in the financial statements." Executives also appreciate treasurers with an understanding of the tax implications of a company's transactions, says Williams.
At Iron Mountain, Lawrence initiated a refinancing strategy in early 2006 with a primary objective of lowering the company's overall tax rate; he also was able to more effectively hedge the company's overseas investments. "First, you build your tax strategy, then you build a financing strategy," he says.
He started by raising $7.9 million of debt in multiple currencies through a high-yield private placement. By refinancing and extending the maturity of the company's debt, Lawrence was able to lower Iron Mountain's effective tax rate. He followed this with about five more rounds of financing, concluding in April 2007. "It was time-consuming, but it lowered the effective tax rate and hedged our overseas investments more optimally."
Risk management is another area that is moving within the treasurer's purview in many companies, Hillman says. A growing number of companies define this to include not just currency and interest rate risk, but also disaster planning and the purchase of insurance.
Behind this change is management's desire for a comprehensive view of both the risks to which a company is exposed and the steps being taken across the company to mitigate exposure. In addition, by consolidating insurance procurement, management often can leverage its purchasing power.
One shift that has eased treasurers' jobs in many ways, yet also forced them to acquire new skills, is advancing treasury technology. As the technology has improved, many cash management activities have been automated. However, to fully exploit the technology, treasurers need to know what it can do and how to link effective business practices with efficient treasury systems, Gallanis says.
"With all the changes occurring in payment types, treasury needs to ensure that they understand the latest technology so that they can analyze and implement systems to collect and pay funds," says DeNale of CVS.
Implications for Treasurers
Given the expanded and increasingly strategic role of treasury, it is perhaps not surprising that the market for experienced corporate treasurers is strong. "People are scouring the landscape to find qualified people for treasury," Martin says.
Salaries are increasing, as well. According to the 2007 Compensation Report, compiled by AFP, base salaries for treasurer rose 3.9 percent between 2006 and 2007, to $153,000 (see 2006 average salaries chart).
Moreover, many observers predict that the route to the CFO office increasingly will proceed through treasury, whether in addition to or instead of accounting, Martin says.
Most controllers are not great CFOs, McCullough says. The skills they develop, such as closing the monthly financial statements, are not as needed at the CFO level. (Some companies are instituting chief accounting officer positions. These individuals would provide oversight for the company's accounting and financial reporting functions.) Treasurers at leading companies, on the other hand, develop a number of skills required to support the company's mission, such as advising on deals, accessing capital, managing risk, and outlining the company's strategy to both insiders and outsiders.
To make the jump to CFO, as well as to do their current jobs as effectively as possible, treasurers need to show that they understand the strategy of the company, Gallanis says. They also need to be open-minded, critical thinkers. While treasurers need not be bilingual, they increasingly need experience in international treasury operations, Hillman notes.
They also need a good grasp of cash management, forecasting, and advanced corporate finance techniques, Martin says, as well as a solid understanding of tax and accounting regulations.
Finally, treasurers of the 21st century need to recognize the expanded scope of their position and play an integral role in pursuing the company's mission. They need "to go outside the traditional role of treasurer to be a key driver of value," Lawrence says.
Jack Sweeney contributed to this article.
At Exelon, All Business Is GlobalTreasurer Michael Metzner explains how teaming talent across functions is helping the energy giant's finance executives become more strategy-minded. BF: As a utility company that serves customers exclusively in the United States, would Exelon have a treasury function that is any less influenced by the global economy than, say, that of a company that serves customers in different parts of the world today? Metzner: Not really. In fact, we may be more influenced by it than some multinational companies. While we don't reside in many countries -- we're a domestic company in terms of where we reside and the customers that we serve -- 85 percent of our profit is derived from our unregulated generation business. As a very large producer and wholesale marketer of electricity, Exelon has profits that are highly impacted by the price of natural gas, coal, the future price of carbon -- once we get restrictions on carbon emissions -- and construction materials, all of which are increasingly becoming global commodities. Again, while we're not located in many countries, our underlying business profitability is more and more impacted by global market trends. BF: What sources of information and approaches are helping Exelon's treasury professionals get a read on global market trends? Metzner: We have an internal group -- the capital markets group within treasury -- that helps us to understand what's going on in the capital markets and what the impact will be on our business results and plans, and we have an energy commodities, marketing, and trading group, which employs lots of analytical talent and people with economics and energy economics backgrounds, whose job it is to have a point of view on global commodity trends. BF: What types of skills and knowledge does the latest generation of treasury professionals require? Metzner: First, clearly risk management skills are of increasing importance in today's corporate environment and especially in the treasury function. By that, I mean an understanding of how to value options, both financial options and real options. This becomes very useful because there are many more products and techniques available through the capital markets today, with interest rate derivatives and commodity-type derivatives and products and techniques available to produce almost any desired risk profile. Whether it's the right mix of fixed- and floating-rate debt or the right call and put structures in your debt, there's a more liquid market for those sorts of derivatives. So that's one thing. Second, I think that treasury staff these days need to have a better working knowledge of accounting and internal controls, and need to have the skills around implementing controls. This plays to this greater need for transparency. There's been a stricter control environment as a result of some of the developments this country has had -- the corporate scandals and fraud in the earlier part of this decade and then the resulting regulations such as Sarbanes-Oxley. Third, more emphasis on analytical skills and comfort with emerging technologies, especially as it relates to, as you talked about, straight-through processing, or automation. A much higher degree of automation is good for the company because it frees up staff to do more analysis, because you are dedicating less time to manual workarounds. It's more rewarding for the staff, because they get a more challenging environment in which they can use those analytical skills. So it's kind of a win-win. BF: What's changed in terms of banking relationships? Metzner: I would say that when it comes to how we look at bank business, it's probably moved from being more relationship-driven to being more competitive and arm's-length in nature. I think that banks used to be more specialized. You know, there were banks that did only debt market stuff, or banks that did only equity underwritings, or banks that did only advisory work or trustee work or cash management work. Now there are a lot more one-stop shops, where all these big money center banks kind of realized that they want to be across the value chain in many different parts of the financial commodity business. On the treasury side, this means that we have more choices. We probably used to weigh the relationship more in terms of awarding business. Now there's more emphasis on arm's-length transactions and pay for performance. Greater competition among banks has meant greater freedom in a way, for treasurers, because if we've got 5 or 10 banks competing in one space, we can pick the one that deserves the business the most, and we're not sort of held captive by someone having a dominant market in one product offering. Finally, I'd say that there's more emphasis these days on the kinds of people we want, the types of skills. We want more strategic thinkers, those who, in helping to develop the financing plans for the company, can tie it to the corporate strategy. They understand how the financing plan or the capital structure plan for the company supports the corporate strategy. The way I describe it is that the treasury function has become more of a strategic partner to the business, to the CEO, and to the CFO, and not just an executor of the financial plan. BF: This really begs the question, Where do you find such people? Where does the treasury department find strategic thinkers? Metzner: That's a really good question, and it's tough. You want people to be analytical, yet they have to be meticulous about the details because of the increasing transparency and control environment. They have to understand technology and to be comfortable with the accounting and internal controls. How do you get it all? You try to build a staff where they complement each other. For the strategic thinkers and the more analytical types, they tend to be people who come out of quantitative fields. They may be MBAs with concentrations in finance or energy markets. Meanwhile, there are people with a really good grounding in the business who may work in the commodities trading area, or who have worked in international banking or M&As. We also find a lot of synergies internally between those who work in planning -- what we call financial planning and analysis -- and those who work in corporate development and treasury. We can move people back and forth. If you get an accountant who also has some business experience or a business degree, they can easily make the transition. BF: So what is the most important objective of your treasury organization today? Metzner: I would say creating and executing financing plans that support and align with the company's strategic and operating plans, both at the corporate level and at the level of the operating companies. BF: Can you give us an example? Metzner: Sure. We have something that we developed internally -- a process called strategic policy alignment, or "Project SPA." The objective of this was that we put a cross-functional team together of people from treasury, our commodities trading area, planning, and risk. The effort was to evaluate how best to align various management policies in light of our changing financial profile. Now, in our case, we were changing from being predominantly a utility company with predictable earnings and cash to a much more unregulated company, much more driven by, as we talked about, commodity prices, with a more sort of volatile shape to our earnings and cash, if you will. What this effort to get alignment resulted in was a comprehensive set of management recommendations, which were then adopted by the board, that covered commodity hedging, risk controls, liquidity, capital structure, spending plans, and what we call shareholder value return, which is just a fancy name for your dividend and share buy-back policies. The thesis was that there is no one right answer for how you do any one of these things. But the wrong answer is for them not to be aligned and supportive of each other. For example, if you're trying to decide how much debt you can put on your company, you need to consider how much you have hedged your commodity exposure. The longer the term I've hedged, and the more I've hedged, the more certain my cash flow and therefore the more leverage I can have. Another example of alignment relates to spending plans. The more flexibility I have in my spending plan -- my capital and my O&M spending -- the greater, potentially, the financial leverage I can have, because if the commodity price turns down and I don't have the cash flow to support the debt, I can always reduce my spending. We now have board-approved financial policies and plans, which are aligned and which take into consideration the changing financial profile of our business. So we have a commodity-risk hedging strategy that aligns with a detailed financing plan, with a targeted capital structure, credit metrics, and credit ratings, and with detailed capital and O&M plans that reflect ongoing efforts to manage and control costs. We also have a value return policy that supports and is aligned with all of those things. And then we have separate, stand-alone credit facilities at each of our operating companies that are sized appropriately for the other policies that I just mentioned. Another example of what's really important for the treasury organization today, at least in our case, is taking a more holistic approach to overall risk management. For example, how do we optimally manage interest rate risk across the enterprise? What I mean is that, traditionally, a treasurer might try to manage interest rate risk separately, say, within the pension plan and within the debt portfolio on the corporate side. What we're looking at is how we can do both together and possibly get some natural offsets. In other words, when we're deciding on the right mix of fixed- and floating-rate debt, we need to pay attention to our targeted mix of equity and fixed income within our pension fund investments along with how sensitive the pension liability is to changes in interest rates. This impacts earnings, impacts cash flow, impacts the balance sheet. We want to make certain that we are taking a holistic approach. So that's sort of looking at risk management more broadly. BF: To take a broader approach, treasury has become dependent on a broader menu of skills. How can these be developed? Metzner: Well, we're trying to constantly raise the bar for performance and aptitude within the group. We use job rotations within treasury. One of the benefits of having a broad portfolio -- I have investment, investor relations, risk, and treasury -- is that we can move people within my areas of responsibility without a lot of bureaucracy. So we have rotations within treasury; we do rotations outside of treasury. Also, the company has a formal rotation program that we're just starting within finance, just piloting it right now with about 10 people, but we are going to try to expand that. We also have something called finance talent mobility, where all the directors get together and talk about all of their analysts, and they try to determine people moves. This is a more informal process. We also have formal development programs for vice presidents, managers, directors, and first-time supervisors. They go off-site for several days, sometimes a week or two, and get exposure to all different aspects of the business, from the operations to the financial to communications, in order to be more effective in their jobs. Also, they workshop many of the soft skills associated with becoming better leaders and better managers. And then we have the normal conferences and classes and sort of external peer groups that we encourage people to do. We create a development plan for everyone on the staff and try to make development that individual's responsibility, but as management, we try to be available to facilitate it. Also, for this new, formal rotation program that we are piloting, my assistant treasurer, Tom Miller, has been one of the people who helped to develop the program, so treasury people have been active here. BF: Finally, will straight-through processing be a guiding principle for the treasury of your organization moving forward? Just two examples: On the A/P side, accounts payable, wires now get approved within accounts payable and go straight through to the banks, so they're no longer requiring a step where they need to go through treasury. We helped to set that up. Another example is in accounts receivable. The banks receive payment files directly from third parties, and those payments then get posted automatically. The dollars go to the banks automatically, but they also get posted automatically to the general ledger and to the customer information system, and feed into what's called our reconciliation system, which is used to reconcile our bank accounts to our books at the end of every month. We think that we've made some big strides in automation and in straight-through processing, in eliminating a lot of work around cash management. You know, this automation has led to fewer errors. It's really freed up staff time to focus on the more analytical and strategic challenges, and it has probably led to more rewarding jobs overall. Interview by Jack Sweeney |