Posts, Podcasts and Video

Superlative, multimedia insights. NeuGroup Insights this week flashes back on some of our best content of 2022. That includes popular and topical articles—some based on proprietary NeuGroup Peer Research survey data—as well as videos and—new this year—podcasts (the Strategic Finance Lab, available on Apple and Spotify).

The selections reflect the range of immediate challenges finance organizations faced in 2022—including tight labor markets, rising interest rates and FX volatility—as well as longer-term objectives like diversity and inclusion, digital transformation, ESG and making finance a true strategic partner of the business.
This week’s data showing inflation cooled in November and the Fed’s decision to raise rates less than previous hikes suggest that forecasting, planning and managing risk may not get any easier for finance organizations in 2023. And other complex, unpredictable topics covered in this batch of bests—the war in Europe and cryptocurrency, for example—show no signs of stabilizing or simplifying anytime soon.
One thing, though, is certain in the year ahead: NeuGroup’s commitment to producing more great content that taps into the wisdom, experience and insights of our members, sponsors and partners. That won’t change.

A younger generation’s transparency about what they earn creates another challenge for finance leaders coping with hybrid work woes.

A session on talent at a recent meeting of NeuGroup for Mega-Cap Assistant Treasurers revealed that finance teams already struggling to hire workers amid tight labor markets, demands by candidates for higher compensation and the unwillingness of some of them to spend much, if any, time in the office face additional, less publicized problems:

Many younger workers speak freely about how much they are earning, prompting dissatisfaction among existing, veteran staff who may learn that new hires are making almost as much as they are—or more. And not all efforts by treasury to get HR to make salary adjustments for current staff are succeeding.
New hires directed to work in offices are arriving on corporate campuses with very few workers, prompting them to ask why they have to commute and then work on nearly empty floors when more experienced finance team members remain working from home.
"We’re really struggling with this hybrid issue right now," said an AT who started the session by presenting her observations to the group and whose comments resonated with many other NeuGroup members present.

Generation gap: talking about pay. Many senior treasury leaders have come to accept the need to offer more attractive pay and benefits packages to lure candidates in this environment. And that in some cases, they won’t be able to match another employer’s offer. But they have also been forced to accept that many younger people are far more willing to discuss what they earn than people from older generations. This new climate of pay transparency brings new problems.

Please click here to read the complete story, including the next frontier: the return to offices.

A seasoned CFO shares thoughts on automation and how treasury can elevate itself to become a strategic partner.

The path of treasurers who are determined to walk the walk of becoming strategic business partners by devoting more time to value-adding activities and less to tactical tasks runs through automation that frees up bandwidth for intense data analysis.

In making that point at a recent meeting of NeuGroup for Mid-Cap Treasurers sponsored by HighRadius, Jeff Martini, interim CFO of Bishop Lifting Products, said it’s critical that treasury teams become "data guardians" who leverage data to tell stories that lead to action, helping senior leaders achieve their goals. "Treasury’s role is to allow me to make an informed decision," he said.
"It’s about treasury being able to internalize a data model," he added. "Being able to hold that model in their heads, understand where the data is moving, how to access it, and how to report, taking away the right stories. You have to understand where the pinch points are, and what you can do differently."
Mr. Martini, who has 20 years of experience as a CFO, began his career in accounting, which he said is similar to treasury, in that a crucial skill is being able to tell a bigger story through transactions. Top treasurers, he said, are able to "back away from the business and see the full landscape."

Tech fluency. Getting to a place where treasury can focus on seeing the stories in the company’s transactions, Mr. Martini said, requires freeing up time for technology-fluent team members and giving them the right tools.

Please click here to read the complete story, including three primary areas that treasury can provide value to a CFO.

Management is putting greater focus on cash forecasting accuracy. Some in treasury wonder whether the extra work is worth it.

After a decade of cheap money, liquidity is once again at a premium. Because it costs more to borrow, and pays more to invest, treasuries are under pressure to improve cash forecasting accuracy. In this environment, "treasury has three important mandates: don’t run out of cash, don’t run out of cash and don’t run out of cash," one member said.

"From a treasury perspective, this is the time when the rubber hits the road," another treasurer said. "The organization looks to treasury for guidance. Whereas FP&A’s cash flow forecast becomes completely irrelevant."

Treasuries are feeling the pressure. At a recent NeuGroup meeting, 86% of participants said they are experiencing significant or moderate pressure to get it right (see chart).

Especially in this environment, the forecast must provide meaningful insight that can lead to action, e.g., tightening working capital management to reduce external borrowing and minimize idle cash and take advantage of higher yields.
One treasurer, recalling the 2008 liquidity squeeze and the early days of the pandemic said, "Some treasury staff have not lived through a real liquidity crisis."

Please click here to read the complete story, including how time horizon affects forecast accuracy.

Just-released NeuGroup Peer Research reveals that despite the turmoil in the cryptocurrency market, treasury’s efforts to become crypto-ready remain on track.

The summer of 2022 wrought havoc on the cryptocurrency market; however, the extreme volatility did not undermine corporate treasuries’ resolve to become more crypto-fluent. While the headlines were disturbing, crypto payments have now become an inevitability for companies, and to ignore crypto can mean missing important strategic growth opportunities. In our most recent NeuGroup Peer Research report, A Treasurer’s Guide to Becoming Crypto-ready, produced in partnership with liquidity provider B2C2, we share insight and corporate treasury examples based on dozens of interviews with members in recent months.

Emerging stronger. The late spring collapse of stablecoin Terra/Luna sent shockwaves throughout the crypto-verse. But according to Nicola White, USA CEO of B2C2, "The market turmoil has been largely the result of crypto-ecosystem participants prioritizing P&L growth over sound risk management and good governance. The lesson for participants is to choose counterparties carefully and prioritize those that are building for the long term."

Fast-tracking the exploration process. Our research revealed that many corporate treasuries are accelerating their efforts to become crypto-savvy.

The majority focus on supporting their companies’ strategic objectives, speeding up cross-border payments, and eventually accessing crypto as a funding source and even leveraging investments in digital currencies to pick up yield.
"Many treasury groups are way behind in terms of the back-office operationalization of accepting and paying in cryptocurrencies," said one treasurer. "Digital assets are the future. We just need to introduce them in a safe and controlled manner."

Please click here to read the complete story, including the four phases of entering crypto markets.

Influential issuers, banks and investors are pushing to give diversity brokerage firms more meaningful opportunities: NeuGroup’s Strategic Finance Lab podcast, episode 7.

In a Strategic Finance Lab podcast you can hear by heading to Apple or Spotify, NeuGroup founder and CEO Joseph Neu leads a panel discussion on the roles corporate debt issuers, investment banks and investors can play in providing more meaningful economics and opportunity to banks and brokerage firms owned by Black people, Hispanics, women and members of other minority groups—so-called diversity firms.

On the podcast panel are:

Scott Krohn, treasurer of Verizon, a leader among investment-grade corporate debt issuers supporting diversity firms. In 2021, Verizon spent $21.1 million on fees to D&I firms, or 13.2% of the total fees the company paid. And in a $25 billion Verizon bond offering last year, all nine D&I firms had an active role and were allocated a combined $487 million in bonds—most likely the largest allocation to D&I firms ever in a single deal.
Betanya Aklilu, a managing director at Morgan Stanley and head of D&I relationships and initiatives within the fixed-income capital markets group at the firm. Under her leadership, Morgan Stanley has served as D&I coordinator on 31 investment-grade bond deals since 2021—the most on Wall Street and more than six times any other bank. D&I coordinators are lead managers on a deal whose role is to support and facilitate active participation by diversity firms.
Keenan Choy, a managing director at Wellington Management, which manages more than $1 trillion in client assets. As a member of the fixed income syndicate desk, which oversees Wellington’s participation in new bond offerings, he works directly with issuers and underwriters, which include D&I brokerage firms.

NeuGroup’s Feb. 28 emergency session on the implications of Russian bank sanctions helped treasurers share challenges and learn from others’ real-time responses.

The crisis in Europe has the potential to wreak havoc on global payments systems, and the stakes are high. Many multinational companies have Russian operations and relationships with local banks (for payroll at least) that may be on the sanctions list. These corporates are therefore sitting on potentially trapped cash. Others own stakes in Russian companies; we saw BP and others already pull out. So the most immediate problems are how to get money into and out of Russia and making payroll.

Dearth of information. Operating with scarce official guidance from regulators and their advisors and banks, treasurers were scrambling this week to make sense of sanctions imposed over the weekend. At a Monday, Feb. 28, emergency meeting of NeuGroup’s extensive global network of finance and treasury executives, over 35 finance leaders from some of the world’s leading multinationals had more questions than answers. In this second session about the Russian crisis since the start of the month, participants had a unique chance to share information and discuss how they’re responding in real time.

An information vacuum leads to misinformation. The immediate concern was that the US and European authorities have not provided unequivocal guidance on what corporate activities are covered by the sanctions. Paul Dalle Molle, a former banker who led the session, noted this is typical in a crisis and that authorities "have only begun to imagine what guidelines and exceptions to publish." And corporates’ typical "interpreters", auditors, consultants and banks, were themselves struggling to understand the implications, and as events continue to unfold at extreme speed, they are unlikely to catch up.

Please click here to read the complete story, including discussion about getting money in and out of Russia and alternatives to SWIFT.

WTW’s Laura Burns discusses policies that insure losses caused by geopolitical crises not covered by traditional insurance.

Companies including McDonalds and ExxonMobil have reported billions in losses from shutting down business and other events related to Russia’s war in Ukraine. Some of that financial pain may have been avoided if corporates had purchased political risk insurance long before the crisis started, according to Laura Burns, who heads the political risk practice for WTW, formerly known as Willis Towers Watson.

In a video you can watch by hitting the play button below, Ms. Burns explains the benefits of political risk insurance, which covers specific exposures—excluded from traditional property insurance policies—that arise from investment or trade involving other nations.
"Political risk insurance picks up where other coverages drop off," Ms. Burns explains. "It provides coverage for the types of perils which [corporates] wouldn’t be afforded with the rest of their property casualty insurance program." WTW is a broker and advisor for coverage including political risk insurance.

Don’t wait until it’s on the front page. The topic, no surprise, is generating increased interest among risk managers as the war in Ukraine enters its seventh month and amid escalating US tensions with China over Taiwan and other issues. In the video, Ms. Burns discusses soaring rates for coverage related to Taiwan—underscoring the need for corporates to consider buying political risk insurance before there’s a clear and present danger.

Corporates that follow developments in a country and try to "time the market" may end up waiting to buy insurance "until the window has closed and it is unattainable," Ms. Burns said, citing Ukraine and other crises.
"Our recommendation to multinational organizations is to think a couple chess moves ahead and to take out the insurance before you may think you even need it," she said. "Once it’s on the front page of the Wall Street Journal, it’s essentially too late."
And stay tuned: In the weeks ahead, we’ll bring you our full conversation with Ms. Burns on NeuGroup’s Strategic Finance Lab podcast, available on Apple or Spotify.

Why the level of connectivity among people, processes and systems is the key to unlocking finance’s true value.

By Nilly Essaides

Finance used to sit in an ivory tower.

Over time, brick by brick, we have been dismantling the walls that kept the finance organization separate from other functions and business operations. However, there remain barriers to connecting finance professionals, processes and systems within the function and throughout the enterprise. These structural impediments create unnecessary friction and information gaps that reduce process efficiency and effectiveness and prevent the finance organization from unlocking its full strategic value.

Clearing roadblocks through peer-to-peer knowledge exchange is critical to NeuGroup’s mission of connecting every finance professional who wants to share and learn. Now more than ever, it’s vital these exchanges take place between and among finance functions but also with business partners across the corporation.

Confronting Pain and Frustration

We hear about the pain created by siloed approaches from NeuGroup members in multiple contexts. During a recent FX peer group session, one member shared his frustration with the difficulty of extracting exposure data from business units and segment-level finance teams. His problem was compounded by an Excel-based data collection and analysis process that involves multiple sources of information and sits outside of the rest of the finance organization’s tech stack.

In one case, this member recalled, the wrong value was pasted in a spreadsheet, leading to significant over-hedging and resulting in a significant P&L hit. "I had to explain that, and it wasn’t fun," he said wearily.
He also emphasized the importance of soft skills in creating trusted relationships with the various constituents who, for P&L reasons, may be reluctant to divulge a complete exposure picture.

Please click here to read the complete story, including the benefits of having a single source of truth.

To become strategic business partners, FP&A leaders must provide data-driven insight to support critical decisions.

Like the pandemic, the crisis in Ukraine is forcing companies to rethink their business and financial plans. While the worst financial repercussions of the sanctions are within Russia, the impact of the crisis goes far beyond. Spikes in oil prices and inflation are throwing into question companies’ annual budgets, changing forecasting assumptions and making it imperative that FP&A realizes its potential as a strategic advisor to the business.

A seat at the table. Sitting at the intersection of financial planning and business performance analysis and reporting, FP&A plays a critical role in ensuring senior leaders understand the financial impact of their business decisions. So it behooves FP&A professionals to have a high degree of business acumen. At a recent meeting of NeuGroup for Mega-Cap Heads of FP&A, one member stressed the importance of a deep understanding of how the company drives revenue: "You have to understand that from a business lens, if FP&A is not driving the company forward, you could get shut out."

Under pressure. FP&A’s role as a strategic partner is elevated in times of crisis because it must rerun P&L and cashflow forecasts with new inputs and provide data-driven decision-making support so leaders can still meet their performance objectives. The unfolding situation in Russia, for example, affects multinational companies’ strategic growth, long-term cash forecasting and ROA calculations for projects and other efforts. FP&A teams should work with the business to reassess the impact of risk on their planning and forecasting.

Please click here to read the complete story, including two approaches FP&A teams can adopt to establish a center of excellence.

Inflation and uncertainty about interest rates leave many corporates waiting to add more floating-rate exposure.

Discussions and polling about fixed- to floating-rate debt ratios among corporate issuers at a recent meeting of NeuGroup for Capital Markets sponsored by Deutsche Bank made clear two key points:

The overwhelming majority of companies are overly exposed to fixed-rate debt relative to what they consider ideal and what historical data suggests will reduce interest rate expense over the long-term.
Volatile financial markets and uncertainty about inflation and interest rates have kept many of those companies from entering into interest-rate swaps to increase their exposure to floating rates. A few, though, are taking steps to reduce their exposure to fixed rates.

Fixed-rate debt dominates. A striking 89% of the companies polled at the meeting said that more than 75% of their debt is fixed rate. Several members said 100% of their debt is fixed. USD floating-rate swaps are how 42% of the corporates prefer to get exposure to floating rates, while 33% would rather issue commercial paper (see graphics).

The heavy weighting to fixed rates reflects both an extended period of historically low interest rates that encouraged corporates to lock in rates as well as a surge in fixed-rate issuance as they increased liquidity at the beginning of the Covid pandemic.
The reluctance of many companies to swap to floating reflects a belief that rates will continue to rise and that by waiting they will receive a higher swap rate on the fixed-rate leg of the swap, said Scott Flieger, who leads the NeuGroup capital markets peer group. "Companies have already benefited from waiting as rates have risen, following the age-old advice to ‘let the trend be your friend,’" he said.
"The argument for doing something now is that maybe, just maybe, interest rates are near their high point and you don’t want to miss the market. Or maybe you just want to be prudent and do some hedging now and average your way into it," he added.

Lessons learned and changes made after a plunge in JPY reveals cracks in communication and processes.

The plunge of the Japanese yen (JPY) this year to its lowest level against the US dollar in more than two decades (see chart) revealed communication problems at one NeuGroup member company between FX risk managers in treasury and the sales team in Japan—problems that could have resulted in a painful financial outcome. Instead, the company’s treasurer came away with valuable lessons for any corporate with exposure to currency swings.

Storms and fire drills. In addition to the yen’s steep drop, several other factors combined to create the challenge facing the company’s treasurer. "We had the perfect storm and it caused a big fire drill because it was going to be a big hit to revenue," he told NeuGroup Insights in a recent interview. Among the causes of the storm:

Supply chain problems made forecasting shipments and revenue in Japan more difficult.
The difficulty of forecasting made treasury very cautious on placing hedges (forwards) because it didn’t want to risk over-hedging and the possible loss of hedge accounting.
Revenue from Japan jumped by tenfold in one quarter, ballooning the company’s exposure to JPY.
The resignation of the company’s FX manager required an assistant treasurer to address the problem.
The business team had changed the process by which it locked in an exchange rate with a major customer.

Please click here to read the complete story, including steps the treasurer has taken to improve communication.

George Davis (left), here with NeuGroup founder Joseph Neu, urged treasurers gathered at a tech summit in California to dream big and weigh in on strategy.

In a keynote address referencing iconic daydreamer Walter Mitty, George Davis—the former CFO of Intel and Qualcomm and the former CFO and treasurer of Applied Materials—urged dozens of treasurers attending NeuGroup’s Tech Strategic Finance Summit Treasurer Day to dream big, take risks and not wait for invitations to apply treasury’s valuable perspective and skill set to a company’s strategic decisions.

Mr. Davis addressed members of NeuGroup for Tech Treasurers (known as Tech20 back when Mr. Davis was a member) and NeuGroup for Growth-Tech Treasury who gathered in person last week at The Ritz-Carlton in Half Moon Bay, California. RBC Capital Markets and Fitch Ratings sponsored the event.
You can watch portions of a video interview NeuGroup Insights did with Mr. Davis by hitting the play button below.

Swim with the sharks. The fictional character Walter Mitty, Mr. Davis said, is blessed with capabilities well beyond the needs of his day-to-day work, so he daydreams. In a similar vein, he told members, "You’re blessed with capabilities as a treasurer that are essential to your company. And my guess is that you’re still underutilized."

To address that, Mr. Davis described his perfect treasury job as one where "treasury stuff" like cash management or liabilities and duration take up considerably less time than what the treasurer spends on activities that influence key strategic opportunities for the company—activities that "are the stuff of daydreams.

Please click here to read the complete story, including why Mr. Davis believes now is a great time to be a treasurer.

At Starbucks and other ESG leaders, treasury is using a range of financial tools and promoting the creation of others to reach net-zero.

Treasurers at multinational corporations including Starbucks that have made ambitious, public commitments to cut carbon emissions are becoming experts in a range of tools, techniques and topics so they can better assist companies achieve net-zero and other carbon reduction goals.

That takeaway emerged at a recent meeting of NeuGroup for Mega-Cap Treasurers, where Starbucks treasurer Peter Filipovic outlined for peers the major levers the company is pulling to cut its greenhouse gas emissions by 50% by 2030—and the extent of the role treasury is playing in the process.
His presentation and comments by peers made clear that treasurers at companies committed to sustainability have a thorough knowledge of tax equity investments, green and sustainability bonds, renewable energy certificates or credits (RECs) and virtual power purchase agreements (VVPAs)—and are working with bankers and other partners to help find new solutions to reduce the footprints of suppliers, including farmers.

Going beyond RECs. Mr. Filipovic began by describing the area where treasury is playing the largest role in his company’s emissions reduction effort: the move to using 100% renewable energy. To get there, Starbucks has been buying RECs for more than 15 years, but views them differently today.

"Now, if you want to be a leader in this space, it’s not just about buying RECs from existing projects," he said. "A lot of the focus is on what you are doing to actually bring new green energy capacity to the US grid."
Another treasurer said some of his company’s competitors purchase RECs to reach the 100% renewable energy goal faster; his company, though, wants to first exhaust additionality by financing projects that create renewable energy beyond what would have been produced anyway. "That’s making the grid greener," he said.

Please click here to read the complete story, including how Starbucks plans to address the emissions of its business in China.

Unpacking a member’s cash pool in China in a free trade zone where window guidance put no limit on cash outflows.

Many NeuGroup member companies face a challenge getting cash out of China—in part because of rules limiting outflows from cash pools set up under a so-called nationwide scheme to 50% of the net equity held by a company’s entities in the country. But not all multinationals have this problem.

At a recent session of NeuGroup for Global Cash and Banking, one member intrigued peers by describing how his company is taking advantage of free trade zones (FTZs) established in China that do not have specified limits on outflows, where corporates rely on unpublished "window" guidance provided by regulators.
That prompted the member’s company to set up a special cross-border, physical RMB pool, based in Shanghai, which sends cash via intercompany loans to a multicurrency notional pool based in Singapore, which is pooled under a dollar header account and sent to the US.
"China is a big entity for us, with trapped cash," the member said. "We’d been studying this for the past year."
One of the members who was unaware that companies could send more than 50% of equity out of China said he would immediately contact his team to look into following suit.

How it works. To benefit from the relaxed outflow rules governing free trade zones (FTZ), the member company set up a cross-border cash pool made up of three accounts (see graphic below):

A pool header operating account, onshore in China, which consolidates cash from all the corporate’s RMB subaccounts in the country.
A special cross-border account in the Shanghai FTZ that sweeps domestic cash and retrieves overseas cash. This requires an application and approval from the People’s Bank of China (PBOC), which the member said can take one to two months.
An offshore header account in Singapore that receives the cash, sent in CNY and received in CNH.

Treasury must reinvent its role within finance or risk losing significant head count.

By Nilly Essaides

Technological advances and growth in the use of shared services centers (SSCs) are threatening to strip treasury of much of its operational activities. As automation supplants manual work and low-value activities migrate to SSCs, treasury may lose relevancy and staff. The tidal wave of digital transformation sweeping treasury means that smart automations like AI will replace current systems and the people who work with them.

An existential threat. At a recent NeuGroup meeting, Poly’s treasurer Jean Furter shared a radical view of the future of the function: "In three to five years, 90% of treasury staff will be gone," he said. "Too many treasuries are still in the tactical mode. If that’s all they do, they risk being automated away."

Research conducted by The Hackett Group in 2020, meanwhile, projected that by 2025, 100% of the current work finance handles will be executed with 50% fewer FTEs. The caveat was that the overall workload will rise substantially as finance gets more involved with business and strategic activities.

While we may argue about the exact percentages, there’s no question treasury is exposed and it’s only a matter of time before the powerful trends reshaping the finance organization catch up with it.

The mass migration. Finance organizations are siphoning large chunks of time-consuming, low-value work away from core operations to highly digitized SSCs or GBS (global business services) organizations. By standardizing, automating and centralizing activities such as cash and general ledger accounting and credit and collections, finance is able to reduce process cost, while enabling end-to-end process management. Treasuries that own (or used to own) AP and AR are already feeling the squeeze. In fact, the majority of work handled by SSCs is finance related.

Please click here to read the complete story, including Mr. Furter's advice on repositioning treasury.

January 12, 2:00 PM - 3:00 PM ET
Debit Routing Meets Pinless: How the Fed Clarification Will Transform Ecommerce and CNP Transactions
The Fed’s recent Reg II clarification will fundamentally change debit routing across the US, as merchants will now be able to route debit transactions online and in-app. NeuGroup for Retail Treasurers’ first session of the new year will dig into the ramifications of the 57-page announcement along with economists from CMSPI, which calculates $3 billion in annual savings for corporates as well as improving customer experiences at points-of-sale.