Treasury Risk is Business Risk

When a decision was made to enter a new market or for a capex the board obviously made a risk reward calculation. Business risks were frequently measured and followed up regularly, but the financial risks were delegated through the treasury policy to the treasury to manage over time. Financial risk management became administration and financial risk was no longer a business risk. The crisis changed all that. Financial risk is now a business risk returning to the board’s plate.

The key figures were all earnings related. The crisis changed all that. Now earnings are only accounting, cash generation is the key. Finally the basic rule of positive cash flow generation has replaced the EBITDA focus.

Now the boards have to relearn and embrace financial risk as the business risk it is. Financial risk can not just disappear through a policy, it has to be managed and there is no way to just hedge it away. Hedging is just postponing the effect and facilitating EBITDA budget follow-up. Financial risks should always have been a board level issue. And now many boards have to relearn, many treasurers need to get a better understanding of the way boards operate and their expectations. Our November meeting of the European Treasurers’ Peer Group will address this issue with treasurers and with a board present. If you are interested to join please contact me to apply for a membership.