Is it Time to Appoint a Chief Liquidity Ocer? In the current trading environment, where companies really

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Is it Time to Appoint a Chief Liquidity Ocer? In the current trading environment, where companies really need to have both acute visibility over their nancial assets, and the most effective plans to manage them, we ask if the time has nally come for the Chief Liquidity Ocer. Never heard of the Chief Liquidity Ocer (CLO)? It's not a C-suite moniker that has too many takers to date, so it's not surprising if it has passed you by. But maybe it is time, given the volatile markets in which the world's businesses operate, to dust off the idea, nd a suitable incumbent, and send them into battle. Ideally, they would be armed with a new focus and authority to fortify corporate liquidity, bring about full cash visibility, and steer cash management from a central command position. It certainly sounds energising. The CLO role rst garnered public attention back in 2002 when Ellen Heffes, writing in Financial Executive magazine, suggested the title for treasurers of Fortune 1000 companies. It was later picked up by Jean-Luc Robert, CEO, Kyriba, in CFO magazine. He proposed that organisations should explore designating a CLO as "a single, authoritative point of accountability that oversees the life cycle of liquidity and reports to the CFO". And he too thought that it was a made-to-measure step up for the corporate treasurer. Robert's main argument for creating a CLO is that the appointee would be invested with the authority and credibility of C-suite status, empowering the creation and execution of a truly holistic liquidity strategy. Equipped with the necessary resources, it would be possible for the CLO to drive improvements in forecasting, payments and working capital, with unhindered access to "the many levers" that can affect these activities. Privacy - Terms

Serina Hourican Head of Asia Pacic Global Commercial Sales, Global Transaction Services, Bank of America Of course, the ground needs to be prepared for the CLO's arrival. For Robert, this means centralised, standardised, integrated and automated process ows. With the addition of articial intelligence (AI), machine learning and advanced prescriptive analytics, that groundwork is future-proofed for a generation. But then, with that level of investment in technology, does the CLO really need to exist? Couldn't the treasurer, who has stepped up to the plate in recent times more than most outside of the profession know, just carry on being treasurer? Furnished with the level of insight and tools that enable the precision-steering of cash management from a central command position and, ultimately, the fortication of corporate liquidity, is surely treasury territory? It certainly appears to be the case, but a 2019 International Data Corporation (IDC) survey revealed that only 1% of treasurers believe their companies are currently well equipped to benet from better process centralisation and automation. Given what has happened so far in 2020, the lack of tools is not going to have improved much, if at all. With different functions within the enterprise owning different fragments of liquidity - treasury owns cash and investments, procurement owns suppliers and spend, operations owns inventory - IDC argued that managing liquidity performance from the top level is paramount if enterprise liquidity is to be optimised. And we're back to the idea of the CLO again. Necessary or not? The ongoing global health crisis emphasises the importance of good liquidity management for corporates and many are increasingly prioritising this, notes Serina Hourican, Head of Asia Pacic Global Commercial Sales, Global Transaction Services, Bank of America. "Since the last nancial crisis, treasurers have shifted from running traditional back-oce treasury tasks to being responsible for ecient working capital management," she notes. "Given the growing number of responsibilities for treasurers and CFOs, now is the best time for corporates to reassess their nance structures and consider the need for a CLO." The title alone underscores the importance of liquidity within the organisation, comments Ed Lopez, Chief Revenue Ocer, Calastone. "It was always there, as a subset of treasury, but in current trading conditions, having someone at a senior management level who is focused solely on this function takes it to the next level," he says. As well as a person of that seniority having a direct line to the strategic thinking of other C-suite inhabitants and the board, the degree of focus on the company's global cash positions should afford both rapid and deep insight into how best to respond to market volatility wherever and whenever it surfaces. Liquidity management is vital in times of times of crisis since companies need assurance that they can access cash when experiencing credit constraints, notes Christian Bartsch, Professor of Finance & Accounting, IUBH University of Applied Sciences, and a treasury and nance consultant. The problem, when it comes to controlling and managing liquidity, is that, as the 2019 IDC survey proved, treasury owns cash and investments, procurement handles suppliers and spend, and operations manages inventory. Bartsch cites Robert's Kyriba research, noting that it really is challenging for organisations to separate these baked-in divisions. Privacy - Terms

But where this is evident, he argues that the introduction of a CLO, whose functions admittedly will have "a signicant similarity with that of the treasurer", may enable the provision of greater fund visibility and centralisation through the role's focused liquidity management. To encourage progress, he cites a paper by Marie Hollein, a board member of Carnegie Mellon University and former President and CEO of Financial Executives International, who advocated that successful organisations allocate more resources to ensuring stable liquidity, particularly as a foil for uncertain times. The CLO role, for Hollein, is therefore necessary because it helps identify the availability, acquisition, and conversion of liquid assets, becoming a de facto facilitator of collaboration. In terms of suitability for the role, Bartsch believes that the treasurer is best placed, not least because there has been rapid development in treasury's capacity "to enhance growth and enterprise-value". With rapid advancements in technology enabling treasuries to assume more advanced responsibilities, he says offering the CLO position would be "acknowledgment of the treasurer's evolving role". Indeed, his view of the CLO is as "an advanced treasurer, using a holistic approach to devising liquidity strategies", reporting on the availability of liquid assets to the CFO yet retaining "independence and authority". He adds that even the management objectives of a treasurer are similar to those that would be required of a CLO, including establishing cash resources, optimising short-term nancing, and accessing nancial support investments in capital assets. However, in addition to the treasurer's traditional role as custodian of cash, Bartsch says as CLO "expansive and strategic responsibilities" in managing liquidity would be required. Here, several existing attributes enable the treasurer to advance their liquidity management approach which, citing Hollein again, he says includes well-developed skills around risk management, analysis, and execution. Traditionally companies have been dependent on the treasurer's strategic, analytical and execution skills. Now, argues Bartsch, there is a need to enhance this standing by combining core elements of liquidity from procurement, operations, and treasury itself. "In current trading and economic circumstances, CFOs should be focusing on safeguarding liquidity; they can do this by appointing a CLO." Dening the task "We see the more traditional treasury functions dealing with a range of duties ranging from cash management, FX and operations," comments Hourican. "But the role of a CLO is one that involves a long-term strategic approach to managing and ensuring optimal liquidity across an organisation." From her perspective, the CLO should command a top-down view of liquidity performance and the overall liquidity strategy across the organisation. It is certainly not one for supporting "fragmented and unaligned liquidity strategies across individual business units". Ed Lopez Chief Revenue Ocer, Calastone The responsibilities of the CLO would therefore involve managing end-to-end liquidity, including assessing liquidity structures, investments, funding for acquisitions, cash forecasting, and managing nancial risks. But importantly, Hourican believes, "it would be about pivoting from being a cost-centre to a potential prot centre, enabling faster growth for the organisation". Privacy - Terms

To come close to this, the CLO would have to develop a broader scope, becoming attuned to facets such as IT and regulatory and compliance matters, at least as far as they impact liquidity, notes Lopez. Of course, most treasuries are already engaged with these elements, and indeed has many others within its remit. However, the core purpose of the CLO is, as Hourican alludes to above, to be focused. The CLO, as a senior management gure, means viewing liquidity from the perspective of organisational peers, but ensuring understanding, buy-in and implementation of the organisation's liquidity prole and strategy is driven from the top down. Treasurers often bemoan the fact that few in their business know or understand what treasury does, at least until something goes wrong. It may be, in some senses, a back-handed compliment to remain in anonymity, this suggesting treasury has kept the business on an even keel. But to many professionals this may also be a source of frustration. Here, Lopez agrees with Robert's assessment that the status accorded to the CLO would lend it the necessary gravitas to place an appreciation of liquidity management high on the agendas of all other functions. It would, he adds, also afford it the power to enforce, should others fail to adhere. Skills, tools, resources To be the command centre for liquidity management, the CLO would require access to the vast amount of data that an organisation generates. Only this way can they ensure a holistic view of working capital across the organisation, says Hourican. "With the use of technology such as AI and bots, information on cash ows can be generated and presented in a way that is easy to understand," she says. "However, having the right information is not enough. Before all of this can happen, the most important task for the CLO is to establish good relationships with all stakeholders, gaining access to the information." These relationships will integrate the understanding of present and future plans of each business unit, so that the CLO can meet the liquidity requirements of these plans. The focus of the CLO is therefore as much about having the time to do the job, and the human side of it, as it is about having access to the right tools to assist. Appropriate technology will likely play a major part in facilitating the success of the incumbent, but the precise structure of the IT stack depends on the size and complexity of the organisation. "For a multinational or multi-regional business, being able to track balances and cash deposits across multiple accounts around the globe is essential," says Lopez. Indeed, only then can it build and implement policy around key aspects, such as how and when cash is repatriated, its approach to aggregation and conversion, and how its excess balances are handled. Christian Bartsch Professor of Finance & Accounting, IUBH University of Applied Sciences But in many cases, he notes, cash positions are acquired via a lot of manual communication and re-keying of data. Where a single, enterprise-wide platform is the ideal, the reality is more likely to be a host of unconnected spreadsheets, or multiple instances of siloed legacy treasury management systems and enterprise resource planners (ERPs). "Treasury systems can deliver a real-time 'dashboard' view of a global cash position, and even predict where it's coming from and when," says Lopez. "But when the CLO is dealing with multiple instances of a TMS, or does not have access to one and is forced to operate manually, to be able to achieve anywhere close to the ideal they are going to have to drive improvements." Treasuries are typically cost-centres and securing the budget for IT programmes can be challenging. Again, the CLO will have the necessary inuence to be able to present a persuasive business case, and then be able to articulate that into a cohesive strategy. Privacy - Terms

A key pillar of the argument will be based on risk mitigation, especially under current circumstances. But Lopez points out that using technology to increase return on investments could even take treasury out of its cost-centre position and, if not exactly move it into prot-centre status, at least neutralise its costs. Treasurer suitability There really is no nance professional better placed to assume the role of CLO than the treasurer. It's not just a matter of having a profound understanding of liquidity - which treasurers clearly already have - it's also essential to be familiar with the nuances of the whole corporate nance infrastructure. At the very least it means having the internal and external relationships to be able to keep the processes and information owing when black swan events, such as the current enforced lockdown conditions, arise. If events of this nature propel the need for increased process automation to take up the strain of a diminished workforce, for example, then being able to prioritise such a programme will be essential and only the treasurer has that broad level of understanding. "Arguably, the treasurer is already fullling most of what a CLO role is," says Hourican. "The main difference is that the treasurer is in charge of day-to-day operations, while the CLO performs a strategic role focusing on the long term." Essentially, she sees that CLO role as a combination of the strategic cash management responsibilities of the treasurer, and the chief investment ocer. The CLO would act as business partner to the other departments in the organisation, and an adviser to the CFO, she says. "In order to maximise success for the CLO, incumbents should be senior in the organisation, most likely reporting to the CFO, acting as a point person or team to oversee liquidity objectives for the company." Given that the main goal of a CLO is to achieve optimal liquidity performance, success will depend on how well they can align the liquidity objectives for each business unit which, as Hourican notes, "are likely to be disjointed to begin with". Taking it to the next level As a matter of course, the CEO should be alert to liquidity matters. However, if treasury has been taking care of it, the CEO may not realise how the business could benet if one person were appointed to take full responsibility. For a treasurer to move into the CLO role, it will likely involve consultation between the CEO, CFO and the Group Treasurer, says Lopez. "This really should be driven from the top, but I think the awareness that this could and should be its own function is going to have to have a lot of facts and gures input from treasury." To secure the attention of the CEO and CFO, building a business case for the role itself will need to appeal to the bottom line, says Lopez. Success will require a rm underlining of the capacity of the role to focus on capital requirements while reducing risk and regulatory exposures. This means proving that it can bring about the optimisation of cash balances, unlock potential operational savings, secure improved returns on investments, and even (as Kyriba CEO, Robert, has said) ensure fewer missed earnings targets. Ultimately, the creation of the role could deliver faster growth by virtue of additional liquidity made available by the incumbent's remit to focus daily on the implementation of their own evolving liquidity strategy. "The CLO would need to leverage their position within the organisation, as an adviser to the CFO, have a rm grasp of all the liquidity requirements, concerns of the business units, and build a strategy that is all encompassing," suggests Hourican. "Not an easy challenge." Indeed, liquidity requirements are usually fragmented across an organisation, whether that be funding needs and timings, or the prioritising of these needs. "The CLO would be faced with demanding requests," she says. "That is why it is important that the CLO has a top-down view of the organisation's cash ow positions in order to ensure liquidity is put to work where needed." A possibility here could be making the business unit accountable to the CLO, from treasury to procurement to operations. "The CLO should have the power to make decisions and execute in line with the rm's objectives and risk management framework," explains Hourican. It will take a progressive view to move beyond just managing liquidity into the realms of fully optimising it. Technology will be a key part of this progression. But in this space, deploying machine learning algorithms, prescriptive analytics, and intelligent automation and execution, secured across the board by blockchain technology, is a highly advanced vision of real-time liquidity management, open to very few, if any, businesses. Until then, Lopez suggests that one of the central functions of the CLO (or the liquidity-focused treasurer) will be leveraging technological developments that are heading in the direction of this 'futurescape'. Of course, the successful CLO will then be dened by their own consignment to the history books. Privacy - Terms

Treasury thinking The need for a CLO remains uncertain for Ken Bugayong, CFA, Treasurer and Board Member, at non-prot educational organisation Minds Matter Seattle. "Most of the functions that a CLO might take on are well within the scope of the treasurer" he states. Indeed, his take on the CLO role is that it is "a treasurer with augmented responsibilities and an emphasis on liquidity management". He agrees that such a focus is relevant in current circumstances, with shutdowns around the world testing the skill of treasuries to keep their companies operating, raising liquidity, as necessary. "If a company were to create a role to specically manage liquidity, in addition to employing a treasurer, in my opinion, there might be some redundancy of purpose. For that reason, I view the CLO as an elevated form of the treasurer." The importance of handling liquidity well is not in question. But being able to do so requires knowledge of four key aspects, says Bugayong. This is where treasurers demonstrate their value. The four key aspects of liquidity demand certain skills and resources which should be at the disposal of the treasurer, says Bugayong. When it comes to raising capital, for example, not only are good relationship skills important, but it is also necessary to have a solid understanding of the business and its capital markets activities. "In forecasting liquidity needs of the business, you need to know, for instance, not only if there is a seasonal factor that might indicate liquidity strain some months down the road, but also if there is a change in the appetite of the investment community for providing additional credit." Ken Bugayong, CFA Treasurer and Board Member, Minds Matter Seattle Digital transformation Perhaps one of the most important developments that treasurers should also be attuned to is the proliferation of technology and the idea of "digital transformation", says Bugayong. His own awareness is somewhat heightened by his experience working in tech-based companies Amazon and Expedia Group. Today, in addition to his role as Treasurer at Minds Matter Seattle, he is also a Financial Technology Instructor at the University of Washington. "A CLO would have to deal with internal business partners to understand their needs from a liquidity perspective. They'd also have to understand market forces that might be affecting that. I believe that a strong technological skill set would therefore be essential for anyone in this position if the company is to assimilate and make sense of all the available sources of information, and be able to respond to it effectively." With treasurers responding to current market volatility, most are already focused on immediate liquidity needs. But Bugayong knows that many of his peers are continuing to respond to longer-term requirements, recognising that failure to implement exible planning could spell nancial disaster. "At Minds Matter, a charitable organisation, I am not only looking at our short-term liquidity needs, covering the next scal year, but I'm also developing a longer-term framework to make Minds Matter more sustainable." Doing so means assuring more support for students from the low-income sector; for treasurers in commercial organisations, it's about planning for growth. Privacy - Terms

Bugayong nonetheless acknowledges the authority of the CLO's C-level status. "People tend to ascribe more importance to this level, so having a CLO would naturally endow liquidity management with more gravitas," he says. But, he argues, with both treasurer and CFO roles tackling liquidity but also managing expanded remits, appointing a CLO could introduce overlapping responsibilities. "From what I've seen, most companies want to make sure their organisational structure is prudent. If a company wishes to appoint a CLO alongside a CFO, it will likely reassess the scopes of the CLO and the treasurer to minimise redundant functions," says Bugayong. "But this seems sub-optimal to me. It is dicult to separate liquidity from treasury because it is a fundamental part of the job, and treasury does so much more besides. It may be more apt to rename the Treasurer as the new CLO." Stewardship Liquidity stewardship means looking at current liquid assets, making sure these are placed in the proper channels and mobilising them as necessary. Deployment Assets must be deployed optimally across the company, for example, ensuring every entity within the company is suciently funded to meet current and projected expenses, or having sucient liquidity for major capital deployment activities such as dividend payments or acquisitions. Planning Liquidity planning is about ensuring there is sucient cash ow to meet future demands, or raising additional capital if not. The inability to project longer-term liquidity needs has seen many businesses close in current circumstances. Relationships When capital needs to be raised, a focus on building good relationships with external nancing partners and investors is essential. A nuanced decision While the evidence presented clearly indicates that expert liquidity management is important at the best of times, and vital in the worst, the need to create the role of CLO is not always so obvious. Yes, a CLO would theoretically have more inuence among senior executives, but to counter this, the nature of treasury affords it a broader view and understanding of every connected nancial element within the business. Arguably, the most appropriate course of action is therefore to empower treasury with the right tools to ensure all the information is to hand, in a timely manner, to be able to make the best possible liquidity management decisions. But it also means ensuring treasury's voice is heard loud and clear at the top, and that appropriate support is given from on high, when and where it is needed. If the bedrock of high-level support, allied with suitable technology, is laid, then treasurers are more than capable of doing the rest, building and maintaining internal and external connections, balancing the nancial needs of the business, and ensuring the lights remain on, especially during the darkest moments. Rather than considering the rise of the CLO, perhaps companies should be embracing the rise of the empowered treasurer. , BANK OF AMERICA ARTIFICIAL INTELLIGENCE (AI) CFO ENTERPRISE RESOURCE PLANNING (ERP) FOREIGN EXCHANGE (FX) LIQUIDITY MANAGEMENT RISK MANAGEMENT Related Articles

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Financial Management can be a critical factor towards a companies success. How much "liquidity" is too much? Should companies appoint a "Chief Liquidity Officer"?