Enterprise risk management: opportunity for the treasurer.

Sarbanes-Oxley, and the regulations that flowed from the Act, provided many controllers with the opportunity for additional visibility in some areas within their specialty--financial reporting and internal controls. With the Act's emphasis on compliance, the controller gained a major role, while the treasurer was often on the sidelines. It may now be the treasurer's turn for visibility. Indeed, the renewed emphasis on enterprise risk management (ERM) may provide such an opportunity for treasurers to expand their influence and increase the value they bring to their organizations. And, it may happen without the equivalent amount of Sarbanes-Oxley regulations.

Microcosm of the ERM Methods

Most ERM frameworks foster a discipline examining overall risks together, rather than simply looking at each risk on a stand-alone basis. This mirrors what occurs in treasury at the financial risk-management level.

In the financial risk world, treasurers will look at all foreign exchange (Fx) situations and transactions as part of how they create their overall Fx policy. Further, they will use their knowledge of the enterprise, along with that policy, to see whether a hedge or transaction is even necessary. Treasury will usually know whether there are offsetting currency flows which make several/many trades completely unnecessary. This is made possible by the clear guidance set as they created policies, by knowledge of their business needs and access to accurate and current information.

This type of skill and experience is learned, and treasurers are already actively engaged in this process. Treasurers are equipped to apply these skills more broadly, as ERM requires. Thus, applying these skills to a broader ERM effort means adding some non-financial components to a familiar process. Concurrently, the amount of interaction from business areas must increase, and will require significant attention for optimal success.

Strategic Business Partner

To be truly effective in his or her role, a treasurer needs to be a strategic business partner, and ERM can help refine his or her abilities in this area. By understanding the entire business and each business area, the treasurer can bring unique expertise and skills to bear on various business problems the organization faces.

Being a partner can be contrasted with being a vendor. The treasurer who acts like a vendor might secure funding or services to fill an order of one of the business areas. Alternatively, the treasurer/business partner would understand the reasons for the requested transaction, the underlying business issue that created the transactional need. By understanding the business area deeply, one may even figure out how to eliminate the transaction costs that would otherwise be incurred. This type of treasurer, one who proactively seeks to understand the "what" and the "why" of the business, would be one of the first people the business areas consult about different opportunities or issues they face.

ERM provides a systematic framework and process that emphasizes both the strategic goals of the organization and the specific risk events that exist. Discussing those events and assessing the risks that they represent provide excellent insight into the business of the organization. Determining the responses to the risks that the organization will take allows the business area and the treasurer a structured opportunity to share various perspectives and disciplines that will help propel them toward fuller partnership. This is not meant to be a replacement for other partnership activities, but it certainly can help a treasurer or treasury get moving in the direction of business partner.

Taking a Leadership Role in ERM

The controller gained the leadership role through the emphasis on financial reporting for Sarbanes-Oxley. For ERM, however, the breadth of risks and the importance to the organization makes this a board-level issue. While the board has overall responsibility and oversight of enterprise risk management, the charge will often need to be led by a senior executive.

The deep experience of treasurers in managing financial risks such as transactional, interest rate, counterparty and insurance makes their leadership crucial. Leadership in ERM may be in the form of a significant contributor role or as the primary ERM leader. Treasurers must make a critical contribution to the organization's ERM effort; merely being a participant on the team is not a sustainable option.

Treasurers must support their organization's ERM efforts by being leaders in the process. They will add significant value by helping the organization to prudently manage risks on an enterprise level. The treasurer's unique position and perspective provides a ready-made capability for systematically identifying, assessing and determining organizational responses to many risks. Whether the treasurer is the leader or a major contributor to the effort will depend more on individual and departmental abilities; however, ERM does not allow a treasurer to be a peripheral player.

Craig A. Jeffery is Managing Director of Atlanta-based Strategic Treasurer, LLC (www.strategictreasurer.com). He can be reached at [e-mail].