Architecting a Leading Treasury Group with Ron Chakravarti

Announcer  00:00

Craig, welcome to the Treasury Update Podcast presented by Strategic Treasurer. Your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in.

 

Craig Jeffery  00:19

Welcome to the Treasury Update Podcast. This is Craig Jeffery, your host today, I’m here with Ron Chakravarti. Our topic today is architecting a leading treasury group. Ron, welcome to the Treasury Update Podcast.

 

Ron Chakravarti  00:32

Good morning, Craig. Thanks very much for inviting me.

 

Craig Jeffery  00:35

I wanted to start off on research. You know, in at your bank, you perform a treasury diagnostic, or you, you work on a treasury iagnostic with your clients. What? What is a treasury diagnostic?

 

Ron Chakravarti  00:49

It’s a survey. It’s a global benchmarking survey that Citiclients can take on trying to answer the question that that that companies often ask treasurer’s often ask, How do I know what I’m doing in my organization, my treasury organization, how does that compare with what other companies are doing, my peers, leading companies? How do I know what I’m doing, where the state of my treasury is is good, bad, indifferent, and what are the things I should be working on? The way the survey works is that it asks a series of questions across what we call the Six Pillars of Treasury. It’s just the way we set the framework, and then takes the data and then gives a detailed response back to the participating company, showing their responses versus industry peers, global peers, etc. It keeps the data confidential, because as a participant, I see my responses in detail, and then I see aggregated responses cut various ways. The point of it is really to then have a discussion.  Where I’m good, could I be better? Where I’m not so good, is it important? And then, if you take it all in, is there a case for change? What are the priorities for that change? So it really is a survey that leads to a lot of extended discussions, and then sort of transformation initiatives. And that’s the best way I can think of describing it.

 

Craig Jeffery  02:30

I like that, and some of the background. And then the categories that you have, you know this idea that people are saying, what are am I doing? Well, what are others doing these are questions. They ask bankers, they ask consultants. And it can be limited to, you know, whoever’s answering is like, I’ve talked to 12 companies, or now I’m comparing against larger data sets. And as a as a research firm, we know that too. It’s like we can have biases of who we see, but when you start to get a larger data set and you make those comparisons, now it’s looking at the entire group. But how long is this diagnostic run? I know it’s been multiple years, maybe multiple decades. Maybe you could talk through some of the mechanics of how people you know, use this.

 

Ron Chakravarti  03:17

Absolutely.  It’s been going for 11 years now. Last year was actually the 10th anniversary.  You mentioned something that actually is what led to the creation. I’d been in treasury consulting before one of my first team members when I set up what we now call the client advisory function at Citi, they had a long senior career in corporate treasury, and it was exactly that you could ask, you could meet a peer, he could meet a peer and would get an answer based on that person’s experience. He could get consultants in, as I was, and the consultant would then go out and talk to a dozen clients and then come back. But that’s sort of the extensiveness of the data across companies, industries and centers, geographic centers, most multinationals operate across around the world, and you can imagine Citi Bank’s, multinationals headquartered around the world. And so that’s what led to the creation, and the way we did it was first it needed to be secure so data would be kept confidential. Second, for ease of access, it should be something accessible on the web. And then third, and this is sort of maybe a little bit of art as well as science, we were fortunate enough. I was fortunate to have on my team someone who had been in market research before, so we sort of came up with a way to think of questions that would be clear, lead to responses that we could craft as multiple choice. It was sort of like a pick A, B or C, which best describes the situation.  But there are a number of things that are a little bit more qualitative. We could then let the participant answer in qualitative, you know, sort of a more text string, and our focus would be on the things that were, let’s call it quantitative responses, multiple choice the system could, you know, we coded the system to degenerate the data based on benchmarking. And for the qualitative, you know, we came up with the process where people would review us as experts, would review it and then come up with the best way to classify that. So, you know, secure web based series of questions. The framework for looking at treasury by coming up with what we call the Six Pillars of Treasury. You might say there’s eight pillars. You might say there’s two pillars. It was a framework for thinking that, you know, being approximately right was more important than being the risk of being precisely wrong. And so we came up with approximating and then, and then, when we went to companies, you could say Citi’sclient is sort of a client base is a little bit of a proxy for the multinationals around the world, when we went to companies that were very interested and willing to participate because of the value they saw clearly the leading thinkers, and then after that, as more companies realized it’s just, it’s just been very effective. And I say the intent is to be objective, to give data. It’s not linked to bank products or bank services. It really is about how treasury works. And I think, look, all companies realize, when you’re coming from a provider, that there is clearly an interest in the provider for doing more business with that company. Almost all participants recognize that that’s fair, but I’m not being sold to this is an objective benchmarking discussion about facts with experienced practitioners or former practitioners in our team. So it’s just a very good driver for good, directed conversations that lead to outcomes, tangible outcomes.

 

Craig Jeffery  07:04

Ron, in the last diagnostic that that you did, there were a number of key findings. You provided some overviews of that. I remember sitting through that, hearing that, and being able to engage on that. Maybe you could go through one or two of the key findings, and what are the implications of that?

 

Ron Chakravarti  07:20

We looked at the results in the Cititreasury diagnostics. We culled the data. We actually also with our colleagues in city markets, looked at market data. And by market data, it was things like company returns, companies return to invested capital, return on equity, etc. And we called the study Treasury Leadership:  Does It Matter?  That was the title.  And our finding was, and we came up with the name before because that was the object. And what we found is that if you look at the Cititreasury diagnostics data, it objectively identifies its objective really uses measures that think most participants would agree are objective measures. It objectively identifies if a treasury is leading in the six pillars that I talked about before, the six pillars of framework for treasury, what the components of treasury, as well as overall. What we found is that companies that are leaders in treasury are also the companies that have leading returns measured by measures such as return on invested capital or return on equity. I won’t go over the numbers, but the study is available, but leading treasuries and leading companies, in terms of shareholder returns or returns that shareholders care about, are strongly associated. Now, which way does the causality run? We’re not making a statement that leading treasuries drives company leadership and shareholder returns, but we are saying that it’s a very distinct pattern, and when we further looked at the data, we saw how leading treasuries are creating the sort of value that would generate such shareholder returns because leading treasuries, what are the hallmarks of a leading treasury? They’re efficiently funded, working capital. They deploy liquidity globally to have a very efficient balance sheet. They have good processes for identifying and mitigating risks. Second, they have got there by emphasizing the fundamental building blocks. In other words, you know, they’ve emphasized, they’ve built up the building blocks of treasury, you know, good cash forecast, a good bank account, structure, a good organization, whether it’s everything centralized or regionally distributed based on the come. In his business model and complexity. So the fundamental building blocks are in place. They have been focused on moving from people defined dependency to well defined processes. And what I mean by that is that not making taking away the need for good operating treasury based on people just coming in and knowing what to do, because then you’ve got people dependency. If I get run over by a bus and I don’t turn upfor work and when I’m vacation, things go haywire. Process well defined processes, of course, become repeatable. They become replaceable. You can move people along. You can promote people and have comfort that the processes will survive. Another hallmark was that having, having defined processes well, leading treasuries applied technology to digitize and to automate those repeatable processes because of because that’s what technology requires, that you’ll be process driven, and there are things that can repeat. So we found those, those hallmarks, so we kind of started with, hey, it looks the data is very clear. Leading treasuries are at companies which deliver leading returns objectively measured. And leading treasuries have some very clear attributes. This is will be of interest to the corporate community. And so we took it all together and published it in that study. And then we’ve had a lot of great client discussions around that. Maybe you could introduce yourself to the audience. Obviously, you work for Citi. Maybe just go a little bit about your your bio, background and and then if there’s anything else on your role at Citi that would be helpful for people to know. Thank you. I’m Ron. Ron Chakravarti. I’m based in New York, and I manage client advisory at Citi, and we are a team of practitioners, treasury practitioners, or former treasury practitioners, who are based at Citi around the world. It’s a small team, but we’re based around the world, covering all the regions of the world, because that’s where our client base is. That’s where multinationals are. And really, our job is, in many ways, very simple. It’s to answer clients when they ask the question, the questions, how do I benchmark, what is best practice, and how do I make decisions on prioritization and asks for funding for people, technology, etc. How do I prioritize? Prioritize to get to the optimal results, results as quickly as possible. And that’s what we set out to answer. We’re not there to do the transformation work that happens. That’s, that’s that’s appropriately with consultants who do the, do the job, do the all the heavy lifting. And there is a lot of heavy lifting, if the if the company isn’t going to do it internally. But we’re really there to offer the data, the framework for thinking. We always say to our clients, look, you’ll always know the you’ll always, of course, know your company best. What we offer is a framework for thinking, an equation, if you will. We’ll offer you what we think is the conclusion based on what we know, but by giving you the framework for how we got to that answer, hopefully we’ll equip you to make what ultimately is going to be the most useful decision for you, equipped with all the richness that you know, and that’s what we do. So we’re based from, as I like to say, from Shanghai to San Francisco, in terms of the team spread, we work with multinationals from around the world. And of course, the last few years have been a very exciting time for us, as for for the rest of the world, exciting may not always capture the best. When it’s been a it’s been time off of of growth, but also turbulence. And of course, it’s not that many years since the pandemic happened. It’s been a busy time and and as the you know, the world isn’t becoming any less complex. We very much appreciate clients trusting us to give them this objective advice. And we always learn. Every day, we learn something new from our clients. We might be talking to someone in Dubai and then turn it into something that’s relevant for a discussion in Mexico City. And I got up this morning with a call with my colleagues in Tokyo, Japan. It was obviously already nighttime there, but we’re preparing for a client discussion next week. So it kind of goes, goes around like that, exciting and continues to be.

 

Craig Jeffery  14:49

Thank you for that. So you said, from Shanghai to San Francisco, from New York to New Delhi, is another office somewhere that would fit with the end?

 

Ron Chakravarti  15:00

Singapore would be the southern most end.

 

Craig Jeffery  15:03

Awesome. So from Shanghai to San Francisco and New York to Singapore, excellent. So you really started this other area. I wanted to ask you about, how do you create an environment where we can have leading treasury? And you had described it as both, there’s data that can feed and fuel the discussion, and there’s a framework for thinking. Ron, how do we create an environment where we can have a leading treasury, you know, as you respond to your client’s questions?

 

Ron Chakravarti  15:29

I like to say that, if you step back, it’s maybe three things. There is a lot more detail, but I think of it as vision and strategy, funding, and technology and talent. And what I mean by that is that the attribute we find at leading treasuries, the first common attribute we find, is that there was a clear vision and a clear strategy as how to get there, in terms of what treasury should be, what its mandate would be, how it would create value for the company. Table stakes is to to fund the company, to safeguard its liquidity and to identify and mitigate financial risk, but that’s table stakes, but the real vision going beyond that is to be a partner to the business, to support the company’s growth, and what it would mean to get there. So vision and strategy.  That clarity of vision and strategy and depth of thinking and a degree of, I would say, risk aversion, because, because one has to stick one’s neck out if you’re kind of going boldly into that, particularly if it’s a big change from where treasury has been at the company before, that would then make the case for funding, because, in the end, you know, you’re a function that’s that’s internal the business. Everything from, you know, from reporting requirements through to business growth, is always, you know, is obviously, it’s always a challenge to get the funding. But by having the clarity of vision and strategy and how value would be created would lead to the funding. By that, I mean both people and, of course, technology and then would come, putting in place the right technology thinking from first principles, what treasury would use. How would integrate with the rest of the firm? How would integrate with the financial system? In other words, banks and talent. What are the types of people? What would they do? What are the skill sets you need? Where do they need to be, given the company’s business? So I think it’s all, it’s it sort of comes back to the vision and strategy, funding, and talent and technology that is the real, the real differentiator in companies that that become then become treasury leaders, and that then leads to the specifics in treasury, right in having you know whether you have a so you look at your business model. You know how centralized that business model is in terms of the cash flows, the currencies, the legal entities. You know how the company is creating value, which then leads to a decision on how treasury should be organized, right? Do you can you have everyone in one location? Do you need to be regionally distributed? You can only do that if you look at the business model of the company and kind of identify where the decisions are made and where the business is working right so, technology.  You can only decide on the right technology for treasury if you think about that, it’s not just about whether you have a TMS and which TMS you have, but depending on your vision for treasury and how much it is a driver of value to the business, the more it’s going to be a partner to the business. You know, raising capital and identifying and mitigating risks after the business has generated them is sort of table stakes, but the more you’re going to be a partner to the business, the more you need to be integrated into the company’s technology stack, right? It’s not a case of treasury doing its thing on the TMS and doing the uploads the general ledger at the end of the day. It is a need to be able to be integrated, to see the data, to be able to identify upstream, rather than downstream. And that thinking then leads to, do I need to have people who are very sophisticated corporate finance types? Do I need to have people who are tech savvy? Do I need to have people who have had business background, meaning working in the operating business so they really understand. Order to cash cycle of the procure to pay, because they’ve been circulating as finance people in the business. Do I need to have people who are very good at at scale? How do you turn processes into into centers of scale and get it done quickly? Do I need people who are centers of expertise, people, people who are who think about how you who, how you create a center of expertise so you can do very sophisticated things and do it in a very risk control way, or do you need all of those things and deploy them in the right way, to fit the company’s business model, to fit the company’s enterprise technology, and to do the work that we need to do, and be partners to the to the business, and all of that sort of comes together when you think on an end to end basis. And that’s again, another common attribute that we found in the leading treasuries, that that willing and that appetite and the willingness to step back think like that. And you know, like I may have said a moment ago, a degree of risk aversion because he’s taking a neck neck out, and a temperament to take those on. And, of course, all of this happens, not because of we all, you know, I believe there’s a quote that I read that Napoleon was riding on his horse past a graveyard. He said, Look at that. It is full of irreplaceable men. And of course, in those days, you would just talk about men. And what he really meant was that everyone thinks that they are irreplaceable, and it’s not us as individuals. It’s what we contribute to. It’s the we’re in a stream. And really what I’m trying to say is that it’s not dependent on any one person. It’s dependent on how each of us builds that thinking, with our colleagues, with our teams, and contributes to that stream. And over the period of time, over years, that these sorts of things take years, it builds to something that we can all participate and leads to that value, that leadership and value creation and all of those things.

 

Craig Jeffery  22:18

I like that. I was hoping you were going to quote Napoleon in his original language, but that’s a great quote. You know that that idea of, are you indispensable because you’ve, you’ve harmed your organization by making yourself a single point of failure. And how do you, how do you make sure the organization will thrive and do well, because people are being developed. You know, it’s like the banks are really good at doing call reports and making sure that there’s an institutional knowledge over time of their clients, right? You know, what do they need? What are they doing? Corporations often aren’t thinking that way. They’re Hey, I had the conversation. I’m in the moment. I have my personal notes, or I remember the calls, but if I go somewhere else, now, what does my organization know? I think it’s the same type of thought there that you’re getting, that it’s like, how do we make sure that we’re doing what’s right for the organization? That’s what I was hearing from you. Hopefully that’s what you were saying, and maybe more. But that seems pretty powerful.

 

Ron Chakravarti  23:19

Thank you, Craig, no, I agree. Now you’ve hit the nail on the head. How do we do do what’s right for our organization? And how do we do that by developing ourselves, of course, but our colleagues, our teams and our colleagues in sharing the knowledge thinking about it being less that I’m the expert in this topic, but more, here’s how I’m getting to that answer. Here’s how I think about it, and my framework for thinking, instilling that thinking, right? So, sharing that, that way of thinking beyond just Well, here’s the answer, because that doesn’t really equip someone else to then come to the answer themselves the next time they have that. And always thinking about, how do I, you know, the phrase pay it forward? Because I think that is a very key part of this. Paying it forward, because, you know, in the grand scheme of things, that it’s the right thing to do. And so the grand scheme of things, you know, you’ll get it back in some fashion. So I think that that sort of way of thinking is very important. And of course, we all recognize this meaning. We intellectually, we know this, but it’s doing that right. And so sometimes it does come to okay, we can have an expert do this, do this particular activity. But what are we going to do after that? Let’s think from the outset about how we bring the experts in get it done, because we’ve perhaps got a problem, and then put the put the thought in their mind from the start. Look, you need to think about not just getting it done, but also. So what is it that causes issue or problem that we’re asking you to fix, and what is the reality that it is a type of thing that could happen again, and therefore, from the outset, think about, what are you doing that can be systematized and can be taught and sort of have people go in. You know, always thinking about that, what can I systematize? What can I What can I engineer? What can I architect? Like architecting, it’s a bit of art and a bit of science. You need to have both to be a good architect. And I think that’s everyone teaching everyone, perhaps, to be architects, not pure artisans. Artisans are artists, because this is finance and there’s a science, not pure scientists, because in the in the human world, in the social world, it isn’t, we don’t have hard laws of nature. Have an economics background and training, and as a social scientist, is the first thing you learn that you learn that, that you know it’s not a hard and fast the laws of the laws of physics don’t apply to went to social sciences, but there is a there is a methodology, there is data. And putting the two together, the artistry and the data and what’s known, and putting it together to architect so I love your phrase, you know, architecting,

 

Craig Jeffery  26:18

As we shift towards the the end of the discussion, you talked about how we think about things and and covered some of the the areas that I think are appropriate for for mindset, I wanted to ask another question, and feel free to jump off on on that, and if you want to take it another way. Architecting the leading treasury group, there’s a there’s an aspect of, how do I how do I build it? But it can’t be a static building. Things change. Things need to change to continue to be leading. What are some of your thoughts on on that, and what you may have learned over the 10 or 11 years? You know, we see how data changes, organizations change over time. Any comments on that?

 

Ron Chakravarti  27:02

Very good question. I’ll use your architecting analogy. If you think about a building, you put that building up today based on what we know about the terrain, what building codes are, and the intended purpose. In the course of time, things will change. The purpose of the building will change. The terrain might change. The building will get weathered. New uses will be found, and new data will be discovered in how to make perhaps the building more efficient in terms of energy efficiency and so on. You need to be thinking like that. You are putting in place a thing, an institution, a process, a team, a treasury that is based on the best available data and expertise and knowledge you have today, and things will continue to change. The company will grow. This environment will change. New competitors will come into being. My customers are going to change, and we have to be able to weather that and flourish with that.  Leadership and treasury is about all of that. What is best in class evolves over time. It gradually gets better. We’re clearly as a profession in a very different place than, say, 20 years ago, in the level of sophistication, automation, and results that we deliver. What is good practice evolves over time and gets better, and the environment changes, and we discover new things, and just picking up any point. Craig, it is as an industry or as a profession. Of course, over the last five years, 10 years, 20 years, we have deployed technology much more effectively, and technology has progressed a great deal. The world has evolved. And by that I mean business, and the environment in which business operates and the financial system that businesses also operate in for the purposes of exchanging value and raising capital, and then returning capital to shareholders and identifying and managing risks. And I think that if the earlier phase of technology was a little bit what I was talking about, before having well defined processes that are then automated using technology. What’s clear is that the data embedded in those processes, embedded in what’s happening within the company and what’s happening in the financial system and the environment is. More and more important, because first things are happening faster. Second, we’re realizing that in the data is lies insights, and we can use that to become much better at what we do, and if we do much better at what we do in terms of being able to respond, react much better, and therefore we’ve created the capacity for us to think about the strategy and the next thing and the next step, because we are freeing us, you know, to some extent, freeing ourselves up from the day to day. Hopefully you’d agree that that aspect of data. So if some years ago, it was about having a strategy for technology, it’s really about having a strategy for data that’s as important for treasurers as it is, and no doubt, CIOs know this very well, chief information officers know very well that the strategy for data and how that gets pulled together across the firm, and how that’s used to create value, how that’s used to drive the run the business, how that’s used to identify what’s going on. CIOs think like that, and I think that’s true for what treasurers need to be thinking about, if they’re not already what is the data strategy that I have? It’s not about replacing or upgrading the TMS. It’s what is the data I need? How do I get access to that within the enterprise? How do I link to that? How do I have a seamless way of ingesting that, making better decisions, identifying trends and getting ahead of them. How do I interact with the financial system in a secure and also intelligent way? And that’s perhaps the big thing that’s driving thinking and leading treasuries that data strategy, and not only the technology, in terms of automation. What do you think?

 

Craig Jeffery  32:02

I think there’s, there’s two things. One, what you know, what you said about the the data strategy and how data is, data has become the new currency, and the currency that we can buy money and value from is very much the case, and that is, that seems to be where much is heading. And having a more mature view on this explosion of data that we can manage matters greatly, and treasury does need to be a key part of that. And I also the second thing is, I think that the strategy for data is another podcast that we need to do, you know, talking about how that’s changed. That’ll be a fascinating discussion. I know you think on that, and I do as well. Our firm looks at that. We have lots of conversations on that. So that’s that’s probably our next podcast.

 

Ron Chakravarti  32:51

Sounds like a plan. Craig.

 

Announcer  32:52

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