Treasury as Value Creator in a Decentralised Company
by Laurent Hendrickx, European Treasurer, Guardian Industries Corp.
Managing treasury in a decentralised business environment is an entirely different proposition than in a business where management responsibility and business support functions are concentrated at regional or global level. Coming to Guardian from my predecessor company was quite a culture shock. While my previous company is predominantly a marketing-driven organisation, which typically creates a more centralised culture, Guardian has emphasised local responsibility and therefore is far more decentralised in its culture. This article shares some of my experiences of managing an efficient treasury operation in a decentralised business environment.
Right and wrong?
All banking relationships are maintained by treasury, with no need to establish local communication channels, except for payroll.
As treasurers are constantly striving to centralise cash and business processes in order to create more visibility and control, there is a common perception that a centralisation is the ‘right’ business model, and therefore, a decentralised approach must be ‘wrong’. For example, at my former company, the headquarters functions were strong, and shared service centres (SSCs) operated very efficiently. Guardian is more of a sales-driven organisation, with more responsibility and accountability held by local sales and business management teams. Bearing in mind the nature of our products, this business organisation creates significant advantage for the company. For example, it is difficult and expensive to transport glass-related products, so it is important to operate close to our customers. Furthermore, it is difficult to sell our products into volatile markets, so we need to remain in touch with local situations and maintain flexibility in our approach.
Consequently, while from an organisation and business management perspective, a decentralised structure is undoubtedly the ‘right’ one for a company with Guardian’s profile, it creates considerable challenges for treasury. Firstly, the role of the treasurer is perceived quite differently inside such a structure. In a centralised organisation, the treasurer can set policies across the business relatively independently; in a decentralised operation, however, this role is effectively reversed, and treasury is seen much more as a service provider to the operations.
Centralisation from decentralisation
While treasurers’ objectives in a decentralised organisation are the same, i.e., cash management, FX, interest rate risk management, financing, investment etc., the number of customers or internal stakeholders is far higher, with obligations to each individual plant. Our treasury operation comprises four people, supported by a small, efficient and specialist SSC of three people based in Luxembourg, which is responsible for accounts payable (AP) and accounts receivable (AR) for 12 plants across the region, managing over €1bn of cashflow. AP and AR are a major priority for our business, and in fact, we have achieved a higher degree of centralisation in these areas than most organisations that have a centralised business culture are able to achieve. We have recognised that while management of these functions is best located in the local operations, we can still create economies of scale by centralising technology and processes.
For example, we have one account per currency across the group, with all payments in Europe managed through a central payments factory (payment on behalf) based in Luxembourg and two payment runs in each month. We manage this in treasury, including acting as an in-house bank, and we transmit reports on each entity’s cash position on the intercompany accounts regularly. For collections, we use the subrogation principle. All collections are made by the Luxembourg entity on behalf of every other entity, and posted automatically onto our intercompany accounts.
All banking relationships are therefore maintained by treasury, with no need to establish local communication channels, except for payroll. We use proprietary systems for AP and AR, a third-party accounting system and proprietary add-ons, resulting in a robust platform that is well-developed and fits our purpose. We leverage a pan-European solution from our primary cash management bank, Royal Bank of Scotland, with host-to-host connectivity for high volume, low value payments, and an electronic banking solution for high value payments.
A decentralised organisation is not in conflict with the idea of an optimal treasury model. On the contrary – using this decentralised management approach, Guardian’s treasury has developed a regional treasury centre answering all the needs and ensuring revenue optimisation of all its plants.
Making decentralisation work
The benefits of this approach have been substantial. Local management gains the advantage of economies of scale and receives value-added services and reporting without the need to maintain local banking relationships and technology, or the resulting administrative overheads. At a group level, we are realising working capital improvements, enhancing the quality and frequency of reporting, and ultimately contributing positively to the P&L. This latter point is particularly important: as each plant is responsible for both EBITDA and bottom-line results, solutions delivered by treasury need to result in financial gain or optimised P&L at business unit level.